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Stapled Structures: Integrity Measures Proposal Paper

Stapled Structures: Integrity Measures Proposal Paper

Brendon Lamers and Scott Farrell analyse the Government's proposed stapled structure integrity rules.

Scott Farrell

Partner, Deal Advisory – Tax

KPMG Australia


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Further to the May 2018 stapled structure exposure draft legislation, Treasury has released a consultation paper setting out proposed integrity rules for stapled structures eligible for transitional relief. These rules will impose additional conditions on pricing cross staple rent during the transitional period to prevent aggressive pricing.

In May 2018, the Government released for consultation an Exposure Draft (ED) and explanatory material in relation to the Treasury Laws Amendment (Stapled Structures and Other Measures) Bill 2018, to address perceived imbalances in the way the Australian tax system taxes foreign investors.

Broadly, the ED introduced new concepts to the Managed Investment Trusts (MIT) regime aimed at preventing trading income being artificially converted into concessionally taxed passive income through the use of stapled structures. Transitional periods were also introduced, allowing concessional MIT withholding tax rates to continue to be available on cross-staple rental arrangements over:

  • 7 years for existing projects and
  • 15 years for economic infrastructure assets.

On 28 June 2018, Treasury released the Stapled Structures – Integrity Measures Proposal Paper, introducing measures to prevent projects from adopting aggressive cross-staple pricing during the transitional period. The key aspects of the Consultation Paper include:

  • All cross-staple arrangements eligible for the transitional measures will continue to be subject to the MIT non-arm’s length income rule (NALIR).
  • Those projects subject to the 7-year transition will not have further safeguards imposed. However, the Consultation Paper highlights the importance of obtaining appropriate evidence to support the fact that the pricing is arm's length. 
  • Projects eligible for the 15-year transitional relief will have a further additional cap on the rental amount, being: 
    • for existing arrangements that currently use an objective methodology to set rent, that amount
    • for other projects, the taxable profit of the Asset Trust cannot exceed 80 percent of the taxable profit for the project.

KPMG has prepared a Brief (PDF 207.4KB) summarising the measures in further detail. The consultation period ends on 12 July 2018.

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