Update: Economic infrastructure staples tax concession

Draft-Guidance-Note-final.pdf (866 kb)

15 November 2019

Despite the recent media hype in respect of this measure, the ‘Draft Guidance Note’ released by Treasury on 14 November 2019 essentially summarises the process of applying for the ‘approved economic infrastructure facility exception’ which was legislated in April 2019 as part of the staples integrity rules. Rather than comprising a new concession or new policy announcement as reported in the media, the Draft Guidance Note largely restates the criteria for the exception to apply as contained in section 12-439 of Schedule 1 of the Taxation Administration Act 1953 and quotes from the attendant Explanatory Memorandum.

By way of background, the ‘approved economic infrastructure facility exception’ applies a 15% MIT withholding rate (in lieu of the now default 30% rate) for non-resident investors in certain new economic infrastructure projects, or expansions to existing economic infrastructure projects, to the extent the income is rent from an investment in land. The 15% rate applies for a period of 15 years after the relevant asset is first put to use, after which it defaults to the 30% rate.

Accessing the concession requires approval by the Treasurer following an application by an ‘Australian government agency (other than the Commonwealth)’. In setting out its initial views on the rules, the ATO (in draft Law Companion Ruling LCR 2019/D2) concluded that ‘a local government, or any other agency established for a government purpose with the relevant authority to approve the relevant investment, would meet the requirement’. By contrast, the Draft Guidance Note merely restates the law, and only includes examples where the application is made by a State Government.

The Draft Guidance Note provides two example application processes, one pertaining to a State Government resolving to construct a relevant infrastructure facility to then privatise (e.g. a toll road), and the other pertaining to an improvement to an existing facility held by a non-government lessee-operator in a stapled structure (e.g. a wharf held by a privately owned port). It is suggested that the application process, which includes submitting a final business case to Infrastructure Australia (refer below), will take between 3 and 9 months.

Pursuant to section 12-439, in order to issue an approval the Treasurer must be satisfied that the following conditions are met by the facility (or the improvement to the facility):

  1. the facility is an ‘economic infrastructure facility’ as defined;
  2. the estimated capital expenditure is $500m or more;
  3. the facility / improvement is yet to be constructed;
  4. the facility / improvement will significantly enhance the long-term productive capacity of the economy; and
  5. the facility / improvement is in the national interest.

In relation to item 4, the Draft Guidance Note refers to paragraph 1.84 of the Explanatory Memorandum (which provides that the Treasurer may consider whether in the opinion of Infrastructure Australia, the facility is nationally significant infrastructure within the meaning of the Infrastructure Australia Act 2008) and requires that a final completed business case is submitted to and assessed by Infrastructure Australia and that the application to the Treasurer include certain other information, for example, whether the project has been placed on Infrastructure Australia’s Infrastructure Priority List as a ‘High Priority’ or ‘Priority’ project.

In relation to item 5, the Draft Guidance Note specifies that the application must include (among other things):

  • a diagram of the actual or proposed corporate structure including specifying the foreign tax residency of ultimate beneficiaries and actual or proposed ownership holdings of sovereign wealth funds and foreign pension funds;
  • details of funding including whether investor debt is to be used; and
  • expected fund payments and rates of return for each beneficiary for the 15 year term of the exception.

This information (some of which may not be known by the applicant in the case of a future privatisation) is presumably requested so that Treasury can assess the value of the tax benefit to investors (or potential cost to the revenue if the project would otherwise have proceeded) – the Draft Guidance Note states that the anticipated revenue cost of providing the concession is a factor which will be taken into account by Treasury in determining whether the facility (or the improvement to the facility) is in the national interest. If approved, the concession attaches to the facility itself and hence subsequent investors can continue to benefit for the balance of the 15 year term.

The closing date for submissions on the Draft Guidance Note is 17 January 2020.



Aldrin De Zilva

Partner, Head of Projects & Infrastructure


Julian Pinson



Ryan Leslie



Nicholas Rouse

Special Counsel