"Hundreds of millions in revenue is potentially being forgone because of staples and broader tax concessions. Left as is this could grow to be in the order of billions of dollars."

Described by Mr Morrison as an "integrity" package, the measures will serve, among other things, to limit access by stapled structures to lower tax rates under the managed investment trust (MIT) regime.

'Bad news' for privatisation

EY tax partner Richard Lambkin said the changes were "bad news" for future asset privatisation programs because foreign investors often provided low-cost capital for such ventures.

"If you increase the tax on this investment … that increased cost will flow through to both state governments and consumers," he said.

Stapled structures occur when separate securities, such as a share in a company and a unit in a trust, are joined. They are used in land-based investments such as property, infrastructure, energy and agribusiness.

The government is worried stapled structures are being used to aggressively minimise tax by re-characterising trading income as passive income, which makes it eligible for the more favourable 15 per cent rate under the MIT regime.

Listed staples account for $199 billion, or 10 per cent, of the Australian stock exchange's market capitalisation.


The Property Council of Australia noted that traditional real estate trusts were unaffected.

Existing stapled structures will be quarantined for seven years and the government has sought to shelter state asset privatisation with a 15-year exemption for "nationally significant economic infrastructure assets".

Strong reactions

Mr Lambkin said that under the proposed changes gearing limits would also be further tightened and exemptions for foreign pension funds and sovereign wealth funds would be wound back.

"Most of the changes are slated to take effect from 1 July 2019 but are subject to complex transitional provisions for existing investments," he said.

King & Wood Mallesons Sydney partner Scott Heezen agreed the effect of the changes was to make Australia less attractive to foreign investors.

"What it does is effectively increase the tax rate to 30 per cent for foreign residents when they were previously subject to 15 per cent tax," he said.

"We are competing for capital and this is certainly one thing that will be a significant consideration going forward for investors."


Gilbert + Tobin partner Muhunthan Kanagaratnam described the government's approach as "xenophobic" and said the changes went well beyond stapled structures to affect foreign investors in all MITs.

"The government has targeted the use of MITs by foreign investors in a blatant reversal of original policy objectives while couching the proposed package in terms of levelling the playing field," he said.

"Investors with any interest in a trust or foreign pension funds and sovereign wealth funds must keep an eye out for more details, some of which may well come in the upcoming federal budget."

Gadens partner Peter Poulos said: "The largest impact of the crackdown will be on new infrastructure deals, whereas existing infrastructure arrangements will continue to benefit from the 15 per cent rate until 2034.

"Disturbingly, the government intends to cherry-pick new projects of national significance that can benefit from a replacement MIT regime."