Australian Government Provides Tax Boost For Infrastructure Investment

by Mary Swire, Tax-News.com, Hong Kong

20 August 2007

The Howard Government has introduced new taxation arrangements that will allow private sector investors in public private partnerships to receive tax benefits such as capital allowances, Minister for Revenue and Assistant Treasurer, Peter Dutton has announced.

This Bill modifies the taxation treatment of leasing and similar arrangements between taxpayers and tax exempt entities (including foreign residents) for the financing and provision of infrastructure and other assets. The measure will apply if, broadly, a tax exempt entity effectively controls the use of an asset and the taxpayer does not have the predominant economic interest in an asset. Certain relatively short-term and lower value arrangements are specifically excluded from the scope of the measure.

If the measure applies to an arrangement, it will be treated as a loan that is taxed as a financial arrangement on a compounding accruals basis.

“The Government has worked hard with all of the key stakeholders to arrive at this good result," Dutton explained.

“The reforms to the taxation treatment of financing arrangements for infrastructure will encourage private investment by reducing compliance costs, providing tax benefits and giving private builders of major infrastructure greater certainty,” he added.

This move has been welcomed by industry groups.

A statement issued by Executive Director of Infrastructure Partnerships Australia, Garry Bowditch, noted that:

“Peter Dutton and the Government have consulted widely amongst industry and reached a package of reforms that provide practical commercial outcomes which we hope will further invigorate the infrastructure industry and PPP deal flow in Australia."

These changes to the tax law, are the most important reforms to the frameworks affecting PPP infrastructure in the last decade and a half.”

Mr Dutton suggested that this measure builds on the Government's strong record of providing business with the incentive to invest, through the increase in the diminishing value rate of depreciation to 200%, concessions for venture capital investment, addressing blackhole expenditure, and most notably, by cutting business compliance costs and taxes by A$975m over the next four years.

“The Government will continue to support Australian businesses investing in infrastructure in this nation," he stated.

The measure applies to arrangements entered into on or after 1 July 2007. Under the transitional provisions, the measure will also apply to arrangements entered into before 1 July 2007 in certain circumstances. In addition, section 51AD of the Income Tax Assessment Act 1936, which denies all tax deductions in certain circumstances, will cease to apply to arrangements entered into on or after 1 July 2003.

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