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Tax Incentive For Major Australian Infrastructure Projects

Friday, April 19, 2013

The Australian Government is consulting on draft legislation for the introduction of a new tax loss incentive for major infrastructure projects.

The consultation document sets out the impetus for reform: "Infrastructure projects often experience long leads between incurring deductible expenditure in the construction phase and earning assessable income in the operational phase. Tax losses are therefore accumulated and carried forward to later years awaiting the receipt of income. As such, the real value of losses may be eroded over time, disadvantaging infrastructure investment compared to other types of investment."

Under the proposed changes, projects will be designated as eligible by the Infrastructure Coordinator, and will need to be included on Infrastructure Australia's Infrastructure Priority List and assessed as "Ready to Proceed." At least a part of the project must be privately owned or financed, and construction of the project can not have commenced. The value of carry forward tax losses will be uplifted by the 10-year Government bond rate. Company losses will be exempt from the continuity of ownership test and the same business test, while fixed trusts will be exempt from the trust loss and bad debt deduction tests.

Announcing the consultation, Assistant Treasurer David Bradbury said: "We are removing tax disincentives to encourage more private sector investment in infrastructure projects. The measure will support up to AUD25bn (USD25.9bn) in new private sector infrastructure spending, including major transport projects that will help transform our cities and make our international gateways more competitive."

The consultation is open until April 30.