17 May 2018
Media Release - #2018050, 2018

Ensuring foreign investors pay their fair share of tax

The Turnbull Government is continuing to protect the integrity of Australia's corporate tax system – ensuring foreign investors don't have a competitive advantage over Australian investors.

Today we released exposure draft legislation and explanatory material for public consultation on the tax treatment of stapled structures to give effect to the policy announced on 27 March 2018.

This puts into action targeted integrity rules designed to neutralise the tax benefits of stapled structures.

An increasing number of foreign investors have sought to convert trading income into 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.

The proposed amendments in the announced package will ensure that:

  • trading income that is converted to passive income will be taxed at the corporate tax rate;
  • 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;
  • foreign pension fund withholding tax exemption for interest and dividends is limited to portfolio investments only;
  • a legislative framework is created for the existing tax exemption for foreign governments (including sovereign wealth funds), and limit the exemption to passive income from portfolio investments; and
  • investment in agricultural land will not be able to access the 15 per cent concessional MIT withholding tax rate.New, Government-approved nationally significant infrastructure assets may be eligible to access the 15 per cent concessional withholding tax rate for managed investment trusts for 15 years. This will ensure continued support for the development of nationally significant infrastructure assets that enhance the productive capacity of the economy and drive long term economic growth.

To minimise the impact of these changes on existing investments, the proposed amendments include transitional arrangements of seven years (for ordinary business staples) and 15 years (for economic infrastructure assets).

The stapled structures package is an important integrity measure, and the Turnbull Government is committed to introducing legislation as soon as possible. To maximise time for consultation, draft legislation will be released in stages, starting today.

The released exposure draft legislation contains the first four proposed amendments in the package. Draft legislation on the agricultural MIT changes and the conditions stapled entities must comply with to access the infrastructure concession and/or transitional arrangements will be released in due course.

The exposure draft legislation and explanatory materials are available on the Treasury website. The Government encourages all interested parties to make a submission.