The Federal Government is aiming to encourage more investment in infrastructure by sweetening the ability of investors to claim greater tax deductibility in potentially high-risk major infrastructure projects.

The revised tax treatment will allow for losses in projects to be passed along to new investors by liberalising of the tax rules relating to business continuity and same business tests.

 

Generally if a business changes ownership, the prior tax losses cannot usually be passed through to any new owners. There have been some major road infrastructure development projects in recent years that have incurred heavy and ongoing losses and have had to be sold to new owners, and the prior tax losses have not been able to be recouped.


Under the new rules outlined in the Budget, the new owners will be able to claim a write-off for losses which had been incurred on projects prior to the change of ownership.

 

The tax losses will be effectively indexed to the government bond rate which means that the value of the losses will not be eaten away by inflation.

The likely effect will mean that the sale price for failed infrastructure projects will most likely rise which, in turn, offsets some of the risk for investors when contemplating investing in new projects.

However the Government is limiting the extent to which it is prepared to allow these tax losses to be claimed. The new tax treatment will only apply to infrastructure projects deemed to be of national significance and only $25 billion worth of projects, in aggregate, will be able to qualify over the next six years.