The Federal Government has released a discussion paper in which it proposes to change the carried forward loss rules for infrastructure projects.

The main changes are:

  • to remove the continuity of ownership test and same business test for entities conducting infrastructure projects
  • to allow entities conducting infrastructure projects to uplift the value of their carried forward losses by the 10 year government bond rate.

The changes, if implemented, will be a welcome boost to infrastructure investment.

Historically, the carried forward loss tests have been problematic for entities conducting infrastructure projects particularly the strictly applied same business test.

The proposal to index losses and therefore maintain their real value recognises the long lead time that many infrastructure projects have before they turn tax positive.

To be eligible for the tax concessions a project must be a designated infrastructure project. A designated infrastructure project is a project included on Infrastructure Australia's National Priority List, that is "ready to proceed" and has been approved. To be included on the list, projects must involve capital expenditure of over A$100 million or be a regional infrastructure fund project, a flagship project or a project that demonstrates unique national interest qualities.

In approving projects Infrastructure Australia will consider the following criteria:

  • the ratio of economic benefits to economic costs
  • the corporate governance arrangements in place
  • the availability of the project to multiple users
  • the benefit to the broader community.

The scheme is capped at A$25 billion. Projects that meet the criteria will be approved on a first-come first-served basis until the cap is reached.

Treasury has invited comments on the discussion paper. Submissions must be received by 9 December 2011.

In considering the implications of the proposal, clients must consider the following:

  • for major companies already undertaking a range of revenue earning activities, the proposed changes will only apply if the infrastructure project is set up in a wholly owned subsidiary or a separate trust structure
  • the inclusion of a project on the National Priority List can only be done where a project is of national significance and a submission by a project proponent that its project is of national significance may raise the likelihood that the infrastructure facility could be declared under the third party access regime in Part IIIA of the Competition and Consumer Act
  • Special Purpose Vehicles for carrying out infrastructure investments are more likely to be able to take advantage of the proposed rules and may be desirable where there is a likelihood that interests in the SPV may change
  • in light of the A$25 billion cap, clients should consider now whether their project is listed on the National Priority List and, if not, whether an application should be made.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.