Moore Stephens today commended the Government for introducing the tax-preferred asset financing legislation (Division 250) and removing the existing draconian tax provisions, alleviating the tax impediments on project structuring. The new legislation will promote investment in property, infrastructure and Public Private Partnership (‘PPP’) projects by providing certainty on the tax outcomes.

Stephen O’Flynn, Chairman of the Moore Stephens Property Group, believes the legislation’s introduction is timely as most state governments have recently flagged large infrastructure upgrades and the changes will provide a better environment for PPPs.

“The reforms will deliver significant benefits for domestic project structuring,” Mr O’Flynn said. “The private sector will generally be able to gear its investment up to 80 per cent without having to apply Division 250. However the same concession is not afforded to investment in foreign assets which are being used by non-residents.”

Mr O’Flynn called on the Government to raise the gearing threshold from 55 per cent to 80 per cent for assets leased to non-residents. “There is no policy reason for a differential,” he said. “The 55 per cent gearing threshold will hinder property funds which are seeking to diversify their portfolios with foreign properties, at a time where domestic property investment opportunities are limited.”

There are a number of safe harbour rules introduced to ensure that the legislation only applies to larger transactions, in particular the exclusion for net assets valued under $20m (and $40m for leased property) was particularly welcomed.

An independent member of Moore Stephens International Limited – members in principal cities throughout the world “Similar to the predecessor rules, a criticism that Division 250 may also face will be where projects are not primarily tax driven, they may still be caught by the anti avoidance provisions,” Mr O’Flynn said. “For example, where a large property is acquired and there are both ordinary tenants and tax-preferred tenants, there will be significant compliance costs related to determining how to calculate the tax adjustments that relate to each lease.”

Mr O’Flynn urged the Government to reconsider the gearing threshold for foreign acquisitions and to fine-tune the rules where there are assets leased to both tax preferred and ordinary taxpayers.

While the legislation will apply from 1 July 2007, Mr O’Flynn commented that he was pleased that the Government has introduced transitional measures, including:
applying the current division 16D (as opposed to the draconian section 51AD) to transactions entered into between 1 July 2003 and 30 June 2007.
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About Moore Stephens
Moore Stephens is a leading national network of six independent firms of business advisors and chartered accountants in all mainland capital cities of Australia. All Moore Stephens firms are long-standing members of their local business communities and specialise in providing highly personalised, expert and commercially astute audit, accounting, tax and advisory services to their clients.

All member firms are also independent members of Moore Stephens International Limited, a global network of 316 independent member firms with 539 offices in 93 countries and more than US$1.5 billion in annual fee income.

For further information:
Joel Lentin - General Manager, Moore Stephens Australia
Telephone: (03) 8635 1900 Mobile: 0412 105 945
jlentin@moorestephens.com.au