Share with your friends

Stapled Structures under pressure

Stapled Structures under pressure

Scott Farrell and Matt Ervin review the implications of the Government's stapled structures detailed integrity package.


Also on

Construction workers on a property development

On 27 March 2018, Treasury released details of new integrity measures to address the sustainability and tax integrity risks posed by stapled structures and the broader concessions available to foreign investors. These measures follow the release of Taxpayer Alert 2017/1 and an extensive consultation process relating to the potential tax benefits associated with stapled structures.

The measures announced are intended to ensure that Australia’s tax system is fair and competitive to both local and foreign investors. The current policy settings are seen to allow foreign investors to achieve effective tax rates of between 0 and 15 percent and so creating a tax bias in favour of these investors and in certain asset classes. Further details will be required in order to assess whether this package achieves its aim of creating a level playing field between local and foreign investors.

Key messages from the integrity package

Existing stapled structures

These structures will not be required to restructure on a go-forward basis. However, these changes provide the opportunity for groups to give consideration to whether a stapled structure continues to be the most appropriate and efficient investment structure going forward. Once the draft legislation is available, consideration should be given to the preferred future investment structure and the potential costs and benefits of transitioning to that structure in the medium term.

Negation of MIT benefit from cross-staple payments

Managed investment trusts (MIT) income derived from cross staple rental payments, cross staple payments made under some financial arrangements such as total return swaps, or where the MIT receives a distribution from a trading trust will be subject to withholding tax at the company tax rate of 30 percent.

This is to ensure that MITs are not able to convert active income into rent and benefit from the lower MIT withholding tax rate. However, a ‘small’ proportion of gross income from cross staple arrangements will be permitted.

MITs that have a non-controlling investment into a single trading trust (including some PPP and renewable investments) may now be subject to a 30 percent rate of tax.


A concession is to be introduced to encourage “construction of nationally significant infrastructure” by allowing “new investment in economic infrastructure assets” approved by the Federal Government to qualify for the 15 percent MIT withholding tax rate for a period of 15 years. It is not clear whether this concession is limited to construction of new infrastructure assets only or if it could apply to a government recycling of its capital investments through the sale of a mature infrastructure asset in order to fund the construction of new infrastructure. After the 15 year period, a 30 percent tax rate will apply.

Treasury will consult separately on the conditions stapled entities must comply with to access the infrastructure concession (for example, stronger integrity rules may be needed to protect against aggressive cross staple pricing).

Given that new infrastructure projects involve significant capital investment, tax losses can be realised during the initial period of the investment. This means that, in practice, infrastructure projects could enjoy the reduced MIT withholding tax rates for considerably shorter period of time.

Real Estate Investment Trusts

Traditional staples in the commercial and retail property sector largely earn income from third party rent and do not give rise to integrity concerns. This is due to the fact that stapled real estate investment trusts (REIT) investing in property in these sectors are not considered to be converting active income into passive income. Treasury have also accepted industry representations that a separate REIT regime is not required.

Certain property asset classes have involved a stapled structure that has a real estate asset being leased to a stapled company that operates the asset. This may include student accommodation, hotels and aged care facilities. Such arrangements will be subject to the restrictions outlined below. However, it would appear that if such assets are leased to a third party operator, the arrangements would fall outside Treasury's announcement.

Limitation of ‘double gearing’ by foreign investors

The thin capitalisation ‘associate entity test’ will be lowered from 50 to 10 percent for interests in flow-through entities such as trusts and partnerships. This measure is intended to prevent the potential tax benefits available to foreign residents from ‘double gearing’, by grouping ‘associate entities’ when working out the thin capitalisation limits. These measures will apply from 1 July 2018.

Limitation of withholding tax exemption for pension funds

The withholding tax exemption for foreign pension funds from interest and dividend withholding tax will be limited to portfolio-like investments (i.e. an ownership interest of less than 10 percent) and no influence over the entity’s key decision-making.

Limitation of exemptions for sovereign investors

The sovereign immunity tax exemption will be limited to situations where sovereign investors have an ownership interest of less than 10 percent and do not have influence over the entity’s key decision making. Treasury has also proposed a legislative framework for the sovereign immunity exemption, in contrast to the current regime which is applied on a case-by-case basis but is not limited to investments of less than 10 percent.

Agricultural land

Rent from agricultural land will no longer qualify as eligible investment business income.

The above announcements (apart from the proposed thin capitalisation changes) will apply from 1 July 2019 but there will be a seven year transitional period will apply for arrangements in place or committed to prior to the announcement. This means the earliest date on which these measures apply is 1 July 2026.

To the extent that a sovereign immunity ruling extends beyond the seven year transitional period (effectively meaning that it has in excess of eight years remaining), the transitional period will be extended. For ‘existing economic infrastructure’ a 15 year transition period applies.

Questions for further consideration

  • What needs to have occurred for an arrangement to be considered to have been ‘in existence’ or ‘committed to’ at the time of the announcement?
  • Which Government agencies will determine whether a new infrastructure project is ‘nationally significant’ and eligible for MIT concessions?
  • Will the ability to qualify for the 15 percent MIT withholding tax rate for ‘economic infrastructure assets’ only apply to construction of new infrastructure assets?
  • What will qualify as ‘existing economic infrastructure’? Will this need to be vetted or approved by a Government agency or the Australian Taxation Office (ATO)?
  • Will renewables assets be considered to be economic infrastructure for the purpose of the transitional provisions?
  • Will these concessions survive secondary transactions in relevant assets?
  • What integrity rules will be introduced to prevent ‘aggressive’ cross-staple pricing?
  • Will such integrity rules for cross staple pricing change the MIT arm’s length test for MITs and which will have application to existing arrangements from 1 July 2018?
  • At the end of the transitional period will other benefits of the MIT regime, such as capital account treatment, be preserved?
  • What will constitute a ‘small proportion of gross income’ with respect to cross staple payments?
  • Will the Government update the definition of ‘rent’ to include ‘rent like’ income such as that derived by the operating entities in student accommodation, hotel and other ‘real estate services’ sectors that have an established history of stapled structures?
  • The Government has now announced intentions to remove residential and agricultural investments from the MIT regime – will the scope of the MIT regime continue to be diminished?
  • What will constitute an existing arrangements in relation to the transitional concession for interest and dividend withholding tax exemption? If a debt were to mature prior to the 7 year transition period ceasing, will the exemption also cease?
  • Will capital gains tax rollover be available for existing stapled structures, if investors want to simplify the existing structure? If so, will stamp duty relief also be available?


These questions are ones that we will be endeavouring to resolve through further consultation with Treasury over coming months.

©2021 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.

Liability limited by a scheme approved under Professional Standards Legislation.

For more detail about the structure of the KPMG global organisation please visit

Connect with us


Want to do business with KPMG?


loading image Request for proposal

Save, Curate and Share

Save what resonates, curate a library of information, and share content with your network of contacts.

Sign up today