The Australian Government has announced a new infrastructure tax
incentive as part of the 2011/12 Federal Budget to address some of
the tax difficulties faced by private sector infrastructure
Tax Difficulties With Infrastructure Projects
Due principally to the size of the projects, major economic and
social infrastructure projects in Australia are usually undertaken
by a consortium of investors through a special purpose project
vehicle(s). Greenfields infrastructure projects typically generate
'up front' tax losses from various costs and capital
allowances associated with the construction/development of the
project. Early stage taxation losses are usually 'trapped'
in the project vehicle (eg trust, company or stapled vehicles) and
cannot be readily utilised by the consortium members; as compared
to some other jurisdictions which allow tax losses to 'flow
through' to investors.
It may be many years before the project generates taxable
income, diminishing the real value of the tax losses.
Under the current tax loss carry forward/utilisation rules,
changes in the ownership of project vehicles can cause the
'continuity of ownership' test to be failed. Further,
project companies or trusts may not be able to rely on satisfying
the 'same business test'; particularly non-widely held
trusts. As a consequence, all the losses associated with the
project may potentially be forfeited due to a significant change in
The Proposed Tax Incentive: The purpose of the
tax incentive is to promote private and superannuation sector
investment in infrastructure by allowing tax losses to be carried
forward and uplifted at the Government bond rate. Any such uplifted
losses will be exempt from the continuity of ownership test and the
same business test. Certain infrastructure projects designated to
be of national significance will be eligible for the tax
While further consultation will be undertaken on the details of
the incentive, it will be operative from the time of Royal Assent
of the enabling legislation through to 30 June 2017.
A decision maker (to be determined) will select certain
designated infrastructure projects based on a range of criteria (to
be agreed) up to a capital cost cap of $25 billion over the
incentive period. Infrastructure Australia and industry
participants will be further consulted on the details of the
If this incentive is enacted as planned, we will likely witness
a 'beauty parade' of infrastructure projects vying for
'designated' status. For those successful and designated
infrastructure projects, this incentive will allow greater and more
reliable value to be captured/realised for these early stage tax
losses for both existing and successor owners of each
infrastructure project. We consider the incentive to be a move in
the right direction to alleviate in part some of the tax
difficulties faced by major infrastructure projects.
DLA Phillips Fox is one of the largest legal firms in
Australasia and a member of DLA Piper Group, an alliance of
independent legal practices. It is a separate and distinct legal
entity. For more information visit
This publication is intended as a first point of reference and
should not be relied on as a substitute for professional advice.
Specialist legal advice should always be sought in relation to any
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