Australia

Details

  • Service: Tax, Corporate Tax, Topics, Infrastructure
  • Industry: Financial Services, Investment Management, Private Equity
  • Type: Regulatory update
  • Date: 27/03/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Angus Wilson

Angus Wilson
Partner, Tax

+61 2 9335 8288

arwilson@kpmg.com.au

Is our tax framework right to attract infrastructure investment? 

by Angus Wilson, Financial Services Specialist

The release of the Productivity Commission’s draft report into Public Infrastructure on 13 March 2014 is a timely reminder of the level of activity in the Australian infrastructure space at present. The report examines the funding and financing of public infrastructure projects and identifies the potential benefits of private sector investment.

Given the volume of Public Private Partnerships (PPPs), government divestment and foreign and domestic private investment transactions taking place right now, the outcomes of this report are particularly relevant to organisations in the infrastructure and mergers & acquisitions (M&A) spaces.

 

Relevant observations and recommendations contained in the report include:

  • Private capital markets will finance most projects at the ‘right price’.
  • Subject to appropriate processes to ensure value for money, governments should privatise electricity generation, network and retail businesses and major ports.
  • Governments should invest more in the initial concept design specifications to help reduce bid costs.

 

The key question is whether the existing Australian tax landscape lends itself to making many of the Commission’s recommendations achievable.

 

If there is to be a greater emphasis on private investment in infrastructure assets (particularly foreign sourced and often from pension funds), there needs to be ensuing tax policy in place to support the initiative. The right tax framework will ensure that Australian infrastructure continues to offer attractive investment opportunities and certainty for private sector investors. In addition, some thought should be given to how tax policy can be balanced to ensure that foreign and domestic investors are each able to bid competitively for these assets.

 

Examples of areas that may require further consideration include:

 

  • domestic restrictions on superannuation fund investments
  • treatment of certain trust income (i.e. tax deferreds)
  • appropriate managed investment trust (MIT) withholding tax rates
  • level and administration of thin capitalisation gearing limits.
 

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