On 20 September 2018, the Government introduced a Bill into Parliament to give effect to various integrity measures aimed at foreign investors (Bill). This is another instalment in the review that was initially aimed primarily at stapled groups. The measures have been discussed in our prior publications from a real estate perspective (on 28 March 2018, 21 May 2018 and 30 July 2018) and from an infrastructure perspective (on 27 March 2018 and 18 May 2018). This Riposte focusses mainly on the changes from the exposure draft (ED) which will primarily impact real estate groups.
The following is a summary of the key measures from the ED that have been included in the Bill:
- imposition of a 30% managed investment trust (MIT) withholding tax (WHT) rate to distributions of certain income from cross staple arrangements (subject to various exceptions);
- imposition of a 30% MIT WHT rate to distributions attributable to trading income derived through other trusts;
- imposition of a 30% MIT WHT on income and capital gains from agricultural land;
- imposition of a 30% MIT WHT on income and capital gains from residential premises;
- requiring thin capitalisation to be calculated on a look through basis for interests of 10% or more in trusts and partnerships (rather than 50% or more); and
- restricting the sovereign immunity and foreign superannuation fund WHT exemptions to payments by entities in which the non-resident has a less than 10% interest.
The proposals are subject to transitional rules. Further detail regarding these proposals is included in our Tax Brief dated 30 July 2018.
The Bill clarifies certain aspects that were unclear in the ED, particularly regarding the transitional rules. The main policy change introduced in the Bill is that the 30% MIT WHT rate for residential premises will be extended to all forms of student accommodation (the ED had proposed an exemption for student accommodation that met the definition of “commercial residential premises”). In recognition of this change in policy, a 10 year transitional rule will apply to such assets held on 20 September 2018 (rather than 14 September 2017 as is the case for all other types of residential premises).