Infrastructure

Reforms to promote private investment in infrastructure

The Government announced measures which are stated to remove impediments in the tax system to invest in infrastructure projects of national significance. Broadly, these measures will:
  • uplift project losses associated with "designated infrastructure projects" at the Government bond rate, and
  • exempt project losses from the continuity of ownership test and the same business test.
Due to the nature of infrastructure projects, there is often a significant gap between the commencement of the relevant infrastructure project and the recoupment of losses generated in the early years. Under the current tax rules, changes in ownership of the project vehicle can result in tax losses being lost. The proposed changes are aimed at ensuring that tax losses maintain their value over time, and are able to be recouped even where there is a change in ownership of the project vehicle.

What is not clear, is whether this proposal will be restricted to companies. If this is the case, the removal of the same business test may not be of much assistance as most project companies are special purpose companies. In the event that the proposal extends to include trusts, the measure will be of more assistance.

The proposal to index early year losses may be of benefit to project economics as it may defer the taxing point of the project and allow for more borrowings.

A decision maker will be empowered to confer "designated infrastructure project" status to privately financed public infrastructure projects of national significance based on a range of criteria. These criteria are yet to be determined, but will include a global expenditure cap of $25 billion over the period from the date of enactment of the enabling legislation to 30 June 2017.

While this is a step in the right direction for privately funded infrastructure projects in Australia, much of the detail is still to come. We expect further consultation in relation to design features of this measure, including criteria for "designated infrastructure projects", in the coming months.