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The federal government has released draft legislation that will prevent foreign investors from capitalising on the tax benefits of stapled structures.
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Stapled structures clampdown details released
17 May 2018
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According to Treasurer Scott Morrison, the proposed amendments are to combat the increasing number of foreign investors that have sought to convert trading income into a more favourably taxed passive income through the use of stapled structures.
“When combined with existing concessions used by foreign pension funds and sovereign wealth funds, some foreign investors are currently paying tax rates of 15 per cent, or in some cases, far less,” said Mr Morrison in a statement.
According to the budget papers, the package is estimated to have a gain to revenue of $400 million over the forward estimates period.
Some of the proposed amendments in the draft legislation will look to ensure that trading income that is converted to passive income will be taxed at the corporate tax rate; and that foreign investors will no longer be able to use multiple layers of flow-through entities (i.e. trusts and partnerships) to 'double gear' their investments to generate more favourably taxed interest income.
Additionally, foreign pension funds withholding tax exemption for interest and dividends will be limited to portfolio investments only.
The amendments will also ensure that investment in agricultural land will not be able to access the 15 per cent concessional MIT withholding tax rate.
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According to the government, the proposed amendments will include transitional arrangements of seven years (for ordinary business staples) and 15 years (for economic infrastructure assets), to minimise the impact of the changes on existing investments.
The exposure draft legislation can be read in full here, and all interested stakeholders are encouraged to make a submission by 31 May 2018.
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