Australia

Details

  • Service: Tax, Topics, Infrastructure
  • Industry: Real Estate & Construction
  • Type: Business and industry issue, Regulatory update
  • Date: 24/07/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Saminda Fernando

Saminda Fernando
Director, Tax

+61 2 9335 8809

sfernando@kpmg.com.au

Tax loss incentives for DIP – what does it mean? 

by Saminda Fernando, Corporate Tax Specialist

The tax loss incentive for designated infrastructure projects (DIP) commenced recently. The incentive will preserve the value of tax losses incurred by the DIP entity over time by uplifting the losses by the 10-year long-term government bond rate. This is particularly relevant if projects have a long lead time/construction phase where losses are incurred before being recouped during the subsequent operational phase.

Further, access to those tax losses in subsequent years will be easier as the usual integrity rules (continuity of ownership/same business tests and the trust loss rules) are effectively disregarded.

 

Some key points to consider:

  • The activities to be carried on by the DIP entity (in particular if a tax consolidated group is involved) have to be monitored as the rules require the project entity to only carry on a single DIP and not undertake other activities.
  • The tax incentive is only available to ‘fixed trusts’. Given the uncertainty regarding the question of whether a trust can qualify as a fixed trust and depending on the level of certainty required, a request for the exercise of the Commissioner’s discretion may be required.
  • Confirmation of a project’s designation as a DIP involves an application process and as the tax incentive is currently capped at projects totalling $25 billion in capital expenditure, projects will be assessed on a first-come-first-served basis.
  • Designation as a DIP will only be granted for new or proposed projects, that is, projects that have not commenced.

 

The tax incentive will be relevant for entities that undertake nationally significant infrastructure projects (and the investors and financiers of these projects) and should be factored into the financial modelling/analysis and overall project planning.

 

Please contact me or your KPMG adviser if you would like further details regarding these rules.

 

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