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Australia Consults On Taxation Of Stapled Structures

Thursday, March 30, 2017

The Australian Treasury has launched a consultation on the tax consequences of the re-characterization of trading income derived through the use of stapled structures.

According to the Treasury's consultation document, "Over recent years there has been growth of arrangements to re-characterize trading income into more favorably taxed passive income which can have the effect of reducing the Australian tax applicable to that income in the hands of non-resident investors. The use of these arrangements, most commonly in the form of transactions within stapled structures, has grown significantly and expanded into new sectors, beyond their traditional use in the property and infrastructure sectors."

The Treasury said that stapled structures are created when "two or more securities are contractually bound together, such that they are not able to be bought or sold separately."

The document explains that the Treasury wishes to understand how Australia's tax system may have contributed to the use of stapled structures and other arrangements to re-characterize trading income. It adds that the Government intends to remove tax distortions and is keen to "develop a process for the transition of existing arrangements to any modified tax rules."

The consultation document outlines a number of policy options for removing the tax advantages of stapled arrangements, including:

  • Disallowing certain deductions for cross-staple payments by companies or Division 6C trusts (including rentals, interest, royalties, and synthetic equity payments) to Division 6 trusts (potentially treating the income as non-assessable non-exempt for the trust);
  • Taxing the recipient of such payments (either the trustee or foreign investor) at a rate equivalent to the Australian company tax rate; or
  • Deeming stapled entities to be consolidated for tax purposes.

The document also asks whether, if the tax advantages of stapled arrangements are removed, Australia would need a specific Real Estate Investment Trust regime to provide clarity for flow through tax treatment for real estate investments.

The consultation closes on April 20.