Australia: Infrastructure early stage tax losses - Welcome reform but issues remain

Last month the Federal Government released Exposure Draft (ED) legislation setting out tax loss incentives for "designated infrastructure projects".

The reforms are designed to allay investor concerns about the preservation of tax losses when there is a significant change in the ownership of an infrastructure project.

While the proposals are step in the right direction, the eligibility requirements don't reflect the commercial reality of all projects and will leave some commonly employed structures out in the cold.

The tax loss incentives for infrastructure projects were originally announced in the 2011/12 Federal Budget and, if enacted, they will apply to tax losses incurred in the 2012/2013 tax year onwards.

Additional funding for Infrastructure Australia to implement the measures was allocated in the 2013/14 Budget released on 14 May 2013.

While the ED is largely consistent with Treasury's previous Discussion Paper, there are some notable exceptions, such as consolidated groups (and potentially partnerships) being ineligible for the incentives. Further, some issues remain with the underlying design of the reforms.


The lifecycle of major infrastructure projects generally has two main stages:

  • Construction (greenfield) – characterised by significant capital expenditure and early stage tax losses being quarantined within special purpose entities.
  • Operation (brownfield) – being a mature operational project with established revenue streams and utilisation of the tax losses generated through the construction phase.

The ownership of projects may change between these stages, including as a result of pre-determined sell downs by financiers at the completion of construction, contribution of deferred equity by project partners and, in more extreme circumstances, the sale of underperforming projects.

To encourage investment in projects, impediments to such ownership changes need to be minimised to ensure infrastructure critical to the delivery of services to industry and/or the public is not disrupted. This is particularly important given the main alternative is often a contribution of public funds to the project which may be unpalatable in the current economic and policy environment.

Concern about the preservation of tax losses has been one such impediment to significant changes to the equity of projects and, while the reforms set out in the ED are welcome, some key issues remain.


  • A project must qualify as a "designated infrastructure project" as a precondition to accessing the incentives. A newly established Infrastructure Co-ordinator will be responsible for such designation and will draw from the pool of "ready to proceed" projects (for final designation) on the Infrastructure Priority List published by Infrastructure Australia.
  • Tax losses associated with designated infrastructure projects will be exempted from the current tests for determining the ability to carry forward and utilise early stage tax losses, namely the continuity of ownership test and the same business test (for companies and some listed trusts) or the 50% stake test (for fixed trusts). Significant changes in equity will therefore not result in tax losses being "burnt".
  • The tax losses will be uplifted by the 10 year government bond rate (currently approximately 3.15%). This measure recognises the erosion of the real value of early stage tax losses as a result of the often long lead time before the establishment of the project's income stream.


The issues that remain to be resolved include:

  • Only designated infrastructure projects within the capital expenditure cap for all such projects are eligible. The cap is set at $25 billion and will be assessed on a first-come-first-served basis which is likely to result in early interest from project sponsors.
  • However, it's unclear what will happen to an amount allocated to a project from the cap if that project's designated status is revoked towards the end of the incentive (scheduled for 30 June 2017). The ED does address one of the criticisms of the Treasury Discussion Paper by providing for provisional designation of a project which ought to go some way towards allowing more certain modelling and pricing of projects (taking into account the designation) and therefore encouraging financiers to commit funding.

  • Consolidated groups are not eligible for the incentive. This is a clear departure from the proposals outlined in the Treasury Discussion Paper which would have allowed a project carried on by a head company of a tax consolidated group to be quarantined within a stand alone entity or a separate tax consolidated group (refer to our Corrs in Brief).
  • Further, other commonly employed structures (eg. partnerships) will not easily qualify. It might be concluded that the measure will not reflect the commercial reality of some projects. For projects that do qualify as designated infrastructure projects, greater emphasis will be placed on the ring fencing provisions in project documents.

  • The project entity must satisfy what is being labelled the "sole activity test". That is, it must only engage in activities for the purpose of the designated infrastructure project. On many projects, one of the ways for bidders to enhance value and therefore differentiate themselves from their competitors is to identify commercial opportunities that will ultimately reduce the cost of the project to the public sector. Examples of such opportunities are the utilisation of "air rights", development of land adjacent to the project land, signage rights, retail space etc. Although project entities might be said to only engage in such activities for the purpose of the relevant project, there remains some uncertainty whether they would satisfy the sole activity test as currently drafted.

Legislation to enact the incentives (Tax Laws Amendment (2013 Measures No 3) Bill 2013) is expected to be introduced into Parliament during the winter sittings (scheduled from 14 May 2013 to 27 June 2013).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.