On 10 October 2012 the Government introduced Tax Laws Amendment
(Clean Building Managed Investment Trust) Bill 2012 into
Parliament. The Bill proposes to reduce the Managed Investment
Trust ("MIT") final withholding tax rate to 10%, from 1
July 2012, on fund payments from Clean Building MITs made to
non-residents, from countries that have an effective Exchange Of
Information ("EOI") agreement with Australia.
The key elements
A Clean Building MIT, must:
only invest in new office buildings, hotels or shopping centres
(or a combination of these) that commenced construction on or after
1 July 2012;
not derive assessable income from any other Australian property
other than certain assets that are reasonably incidental (i.e. less
than 5%) to a clean building (e.g. car parks, telecommunication
infrastructure and advertising infrastructure (e.g. billboards);
meet and maintain at least a 5 Start Green Star rating as
certified by the Green Building Council of Australia or a 5.5 star
energy rating accredited by the National Australian Built
Environment Rating System (NABERS).
The amendments also ensure that the fund payments made by Clean
Building MITs continue to maintain its character, where those funds
pass through certain entities that are not required to withhold or
through interposed MITs which subsequently makes a payment to a
non-resident of an EOI country.
Whilst the introduction of the concessional withholding tax rate
for clean buildings was as a result of a political strategy to
double the MIT withholding tax rate from 7.5% to 15% from 1 July
2012, the question remains whether the Government has done enough
to provide incentives to invest in energy efficient commercial
buildings. No doubt this green initiative is a start but where the
bigger picture is concerned, it may likely not be enough to
convince MITs to invest in Clean Buildings.
For example, existing AREITs will not be able to access the 10%
withholding tax rate as they own "non-Clean Buildings". A
flow through mechanism to retain the 10% withholding tax rate on
Clean Buildings would be desirable.
Given that the income in a Clean Building MIT must not be
tainted with income from other assets that are not reasonably
incidental, current MITs will have to establish a stapled MIT to
hold any Clean Buildings. Also, it may not be wise to group
numerous Clean Buildings into one Clean Building MIT as it takes
only one property to fall outside the Clean Building definition for
the whole MIT to be ineligible for the concessional tax rate. It is
easy to see how this may become problematic if one building is
unable to maintain its Green Star or NABERS rating.
The concessional withholding rate only applies to newly
constructed energy efficient commercial buildings so expenditure on
major improvements to make buildings more energy efficient will
also fail to benefit from the rate reduction.
There are some opportunities for special purpose MITs to be
established to develop Clean Buildings and they would be at a
competitive advantage over existing AREITs when attracting
For MITs that are considering constructing or developing new
energy efficient office buildings, shopping centres or hotels, it
is important to ensure that you utilise the most appropriate
structure to utilise the 10% withholding tax rate.
It is doubtful how beneficial the proposed legislation will be
to MITs given its practical application. It will be interesting to
see if changes are made to the legislation prior to it being
Should you require further information on the above topic please
contact the authors or your Moore Stephens Relationship
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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