From 1 July 2018, the Government will require purchasers of new residential property to remit the GST liability on such sales directly to the Tax Office as part of the settlement.
This is an integrity measure which will potentially have an impact on developers who might rely on GST to assist cash flow. A good accounting system will be necessary to ensure that the GST is calculated accurately in time for settlement.
There will be a charge on foreign owners of residential property where the property is not occupied or genuinely available on the rental market for at least 6 months per year.
Restrictions on Depreciation Deductions
Investors who purchase plant and equipment for their residential investment property will be able to claim a deduction over the effective life of the asset. Subsequent owners of a property will be unable to claim deductions for the same asset.
The Government will ease restrictions that are contributing to the supply of housing falling behind population growth by:
• Working with State governments to set house supply targets;
• The establishment of a $1bn National Housing Infrastructure Facility to address infrastructure;
• Choke-points that are impeding housing development in areas of under supply;
• The establishment of online land registry with information about Commonwealth land;
• Releasing surplus Commonwealth land; and
• Planning and zoning reform across 8 local government areas facing above average growth.
Residential Rental Property
Travel expenses relating to inspecting, maintaining or collecting rent for residential rental property will not be deductible from 1 July 2017.
Deductions claimed for holidays to inspect and maintain the rental property are gone. It will not affect investors whose business is property investment.
Increased CGT Discounts
The CGT discount will be increased from 50% to 60% for gains relating to investments in qualifying affordable housing.
Housing must be provided to low to moderate income tenants, with rent charged at a discount to the private rental market rate. It is unlikely that this is a significant market sector and appears to be no more than political window dressing.
MIT Investment in Affordable Housing
The Government will legislate to enable managed investment trusts (MITs) to invest in affordable housing. Under these new rules:
• Investors will receive concessional taxation through an MIT if the affordable housing is available for rent for at least 10 years;
• MITs will be able to acquire, construct or redevelop a property, but must derive at least 80% of its assessable income from affordable housing; and
• Qualifying housing must be provided to low to moderate income tenants at a rental below the private rental market rate.
• Again, this appears to be an unlikely market for investment.
CGT for Foreign Investors
The foreign resident capital gains tax regime will be extended by:
• Denying foreign residents access to CGT main residence exemption;
• Increasing the CGT withholding rate for foreign tax residents; and
• Reducing the CGT withholding threshold.
Foreign Ownership in New Developments Limited to 50%
A cap of 50% will be applied to foreign ownership in new developments.
First Home Super Saver Scheme
The Government will allow future voluntary contributions to superannuation made by first home buyers to be withdrawn for a first home deposit.
The maximum contribution is $15,000 per annum and the total maximum contribution is capped at $30,000. This measure is not likely to be of much assistance in the Sydney market.
For further information or if you have any questions relating to this article or the 2017 Federal Budget, please contact the author of the article Rolf Koops, Partner – Tax.
Partner – Tax
+61 2 8022 1222
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Madison Marcus Law Firm produced this article. It is intended to provide general information in summary form on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters.