![]() ![]() Banks also began creating complex financial instruments involving stapled securities and businesses holding valuable intellectual property rights began implementing what are now referred to as “royalty staples”. Over this period, stapled structures started to emerge in a wider variety of investment types including agriculture and mining. ![]() By 2014, stapled securities accounted for approximately 10% of the total Australian equity market capitalisation. Within a decade, 93% of all listed A-REITs and 95% of all listed infrastructure funds utilised stapled structures. This was exacerbated by a marked increase in privatisation activities involving the sale by state governments of a range of infrastructure assets, including ports and electricity assets, as well as the rise in public private partnerships for the construction of roads and other infrastructure. In 1998, changes to the regulation of investments structures introduced by the Managed Investments Act 1998(Cth) prompted a sharp increase in the use of stapled structures for both A-REITs and infrastructure funds. Envestra followed in 1997 and, in 1997, Mirvac listed another stapled A-REIT. In that year, stapled securities were issued by both Transurban and Macquarie Infrastructure. In 1996, the stapled structure was first issued for infrastructure assets. A further A-REIT using stapled securities was listed in 1994. The first staple arrangement to appear on the Australian Securities Exchange ( ASX) was for the creation of an Australian real estate investment trust ( A-REIT) by the Stockland Group in 1988. 2 Staple arrangementsĪ staple arrangement is one where two or more security interests are issued (by one or more entities) that cannot be traded separately. The restraint on the separate trading of the securities is usually enshrined in the articles and/or constitution of the issuing entity and is sometimes also formalised in a subscription agreement or separate “stapling deed”. Moreover, the application of Part IVA itself is dependent upon the application of the 8 matters in s 177D(2) and not upon notions of economic equivalence. In the absence of exceptional circumstances, that is an incorrect characterisation of the stapled product. ![]() The Commissioner’s rationale for the potential application of Part IVA is that the stapled structure has the effect of fragmenting an “integrated trading business” and does so for the purpose of re-characterising trading income into more favourably taxed passive income. In the authors’ opinion, whilst the application of Part IVA will always depend upon the particular facts and circumstances of a given case, the mere fact that an infrastructure investment is acquired and held within a stapled structure will be insufficient to attract the operation of Part IVA. This paper examines whether, and if so how, Part IVA might apply to the entering into and carrying out of a scheme under which an infrastructure investment is acquired and held within a stapled structure. The ATO states that, even if such arrangements are effective under the “substantive” provisions, it is concerned the arrangements are being entered into or carried out for the dominant purpose of obtaining a tax benefit so as to attract the operation of Part IVA of the 1936 Act. The Alert identifies various provisions of the Income Tax Assessment Act 1997 ( 1997 Act) and the Income Tax Assessment Act 1936 ( 1936 Act) that may or may not be satisfied in respect of 4 different types of staple arrangements. In its Taxpayer Alert, TA 2017/1, the Australian Taxation Office ( ATO) states that it is reviewing arrangements which “attempt to fragment integrated trading businesses in order to re-characterise trading income into more favourably taxed passive income”. A paper prepared for the Tax Institute’s National Infrastructure Conference, by Mr Greg Davies QC and Mr Eugene Wheelahan of the Victorian Bar – on.
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