Radical changes to the way stapled structures are taxed have been delayed until after next week's "infrastructure" budget, in a win for investors.
Treasurer Scott Morrison has confirmed a Treasury review of such structures, used heavily by the very companies the government needs on side for its infrastructure-centric budget on Tuesday, will not be finalised until the end of July.
The delay comes after Infrastructure Partnerships Australia warned the timing of the consultation had already caused "material uncertainty" for a range of recent and current proposals, including the lease of Endeavour Energy in NSW, "which is at a critical stage and changes could have adverse effects".
So too could the forthcoming sale of the WestConnex business be put at risk, IPA told Treasury in a submission.
"The scale of the change contemplated in the consultation paper invites a continued and unhealthy perception of sovereign-risk for Australian infrastructure investments...this is urgent enough to warrant action by the Commonwealth, giving both vendor state governments and investors comfort [and] thereby avoiding major price discounts of state assets."
Listed staples account for $199 billion, or 10 per cent, of the Australian stock exchange's market capitalisation, up from $149 billion two years ago.
In a statement, Mr Morrison said: "Recognising the economic significance of stapled structures in the Australian economy and that this is a complex and sensitive issue, the Government will not be responding to the issue in the budget.
"This will allow more time to formulate relevant options that minimise unintended consequences."
A consultation paper released by Treasury on March 24 cast doubt over the ongoing legitimacy of stapled structures and raised the prospect of a doubling of the rate at which they are taxed.
Stapled structures marry a trading company - typically subject to company tax rates - with an asset-owning trust, where passive income is passed through to be taxed in the hands of its unit holders.
This structure is particularly attractive to foreign investors because, when combined with rules for managed investment trusts, it allows tax to be paid at 15 per cent or lower.
As Mr Morrison reaffirmed in his latest statement, the government is worried about the growing number of companies that have "sought to re-characterise trading income into more favourably taxed passive income".
"This practice reduces the Australian tax paid by investors and may distort investment decisions and lead to reduced economic efficiency. We are taking steps to eliminate this practice."
IPA chief executive Brendan Lyon told The Australian Financial Review that the timing the review had caused "enormous uncertainty" for investors, developers and construction companies.
"The Treasury consultation paper read as if it contemplated some very substantial changes and what would be some very costly changes," he said.
"There was a fear it may be a revenue line in the budget given the timing of the consultation."
Submissions closed on April 20.
IPA in its submission called on the government to use the budget to issue a strong statement about the types of "traditional" or "critical" infrastructure assets that would continue to be allowed to sit in stapled structures, such as, such as road, rail, ports and electricity assets.
The concern from the ATO and Treasury is that stapled structures have been adopted beyond property and infrastructure sectors by entities seeking to convert active business income into tax-advantaged passive income.
An ATO taxpayer alert in February noted the existence of $10 billion in non-compliant structures over the past 18 months, with $300 million estimated to be in dispute.
ATO officials were "discouraging these type of arrangements", which would be subject to increased scrutiny, including audits and potential litigation.
