Angus Wilson and Scott Farrell explores the recent stapled structures consultation paper.
On 24 March 2017, the Treasury released a consultation paper on Stapled Structures. The paper addressed integrity concerns around the recharacterisation of trading income into concessionally taxed passive income by way of the inappropriate fragmentation of an integrated business.
Treasury and the Australian Taxation Office (ATO) believe this represents a significant risk to tax revenues going forward. A broad range of policy reform options were canvassed to address these concerns.
Similar regimes introduced around the world were considered (including the United States, United Kingdom, and Canada) in order to remove the tax advantages arising from stapled structures. However, these regimes are not able to be transposed into an Australian context without some modification. Any proposed legislative amendments are expected to apply to both future and existing structures.
Given the significance of this Consultation Paper, industry consultations were extensive and a policy response was originally expected to be made as part of the Federal Budget on 9 May 2017. Prior to the Budget, the Treasurer announced that, given this is a complex and sensitive issue, the Government would not address this issue in the Budget but rather extended the review timeline to the end of July 2017.
Arising out of the consultation process, there was general support for the Federal Government introducing specific legislative amendments to address the inappropriate re-characterisation of income transactions identified as being of concern. We expect that Treasury is currently giving consideration as to whether its preferred policy response is to introduce specific anti-avoidance provisions or a more specific regime for real estate investment trust (REITs) and critical infrastructure that defines the type of permitted activity. There are clearly still complex issues that need to be considered before a balanced response is able to be implemented.
KPMG will continue to liaise with the Treasury as they formulate potential options to address the integrity concerns raised in the Consultation Paper, as well as the ATO. We anticipate that future engagement with the Treasury will be more targeted than the initial consultation process in order to assist Treasury to develop a policy response to the specific concerns identified.