Australian tax change and the wind farm industry
Chartered Accountants and Financial Planners | Hawthorn East, Melbourne | Accru Danby Bland Provan
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Ongoing international tax change
A review of
Australia’s international taxation regime has been ongoing since 2002.
Initiatives which have already been enacted out of this review include
an exemption available to resident Australian companies on gains on sale
of shares in a foreign company, a temporary resident modified tax
regime, and the recent repeal of Foreign Investments Rules.
of this reform, new rules around how non residents are taxed on their
Australian assets and a new definition of Australian capital gains tax
(‘CGT’) assets were introduced in 2005. The objective was to bring
Australia in to line with measures on offer in other countries, thereby
making Australia more internationally competitive and more attractive as
a base for regional headquarters.
As a result, Australian owned
companies have a different CGT outcome than foreign owned companies
when disposing of Australian CGT assets. A capital gain or loss made by a
foreign resident from a CGT event can be disregarded unless the event
relates to an asset that is taxable Australian property.
taxable “Australian asset property” includes direct and indirect
interests in Australian real property assets and the business assets of
an Australian permanent establishment.
Impact on the wind farm development industry
new tax rules have been designed to encourage inbound capital
investment by only taxing non residents where there is a substantial
investment in tangible real property in Australia. However as is often
the case with tax reforms, not all eventualities are considered and
there are implications for newer emerging industries such as wind farm
development which are unique.
A critical aspect of developing a
wind farm is to secure the site upon which the potential wind farm will
be constructed. In Australia there are so many conditions that have to
be completed before a wind farm site is viable and due to the high level
of uncertainty in meeting these conditions, the typical arrangement
entered into with a landlord is an “agreement to lease” rather than a
A developer can spend a couple of years and substantial
funds determining aspects such as the suitability of the land, the wind
assessment which includes constructing temporary meteorological masts,
grid capacity and connection, turbine supply and pricing and finally
securing a long-term power purchase agreement. Any one of these aspects
is critical to the long term viability of a wind farm. If all elements
do not come together, the developer has to be prepared to walk away from
their investment and the agreement to lease with the Landlord lapses.
the other hand, if the development is successful then the site is often
on-sold to an infrastructure institution who actually enters into the
lease with the landlord and builds the wind farm. The important point in
this context is the tax consequences of the sale of the wind-farm site
for the developer company who is in the business of identifying
greenfield sites and developing them to resell: Is any gain going to be
taxable as a revenue receipt rather than as a capital gain for CGT
Under a private ruling recently obtained, the ATO have
taken the position that they would treat the sale of shares by a non
resident in a wind-farm development company as the sale of Australian
taxable assets under Division 855. This was due to the existing
“agreement to lease” being treated as Australian real property, despite
the fact that in the accounts of the developer the wind-farm site
project costs would likely be expensed to profit and loss because the
site is not at a point considered viable.
The policy objective
behind Division 855 was to encourage inbound capital investment by
relieving gains on investment in developing business assets by non
residents. However wind-farm development certainly gets the rough end of
the stick under this Division.
For overseas companies involved
in alternative industry in Australia, it is always important to seek the
advice of your accountant who is experienced in this sector before
undertaking any major business transactions.
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