2017-18 Federal Budget – Tax Measures Affecting Property

 

Treasurer Scott Morrison handed down the 2017-18 Federal Budget on 9 May 2017. Many of the announced measures impact investment in Australia’s property market. These measures are broad-ranging and may apply to both residents and non-residents, younger- and older-Australians alike.

 

Foreign resident capital gains withholding regime

 

Date of application: 1 July 2017

 

The foreign resident capital gains withholding regime is to be extended;

  • Currently, the regime applies to Australian real property and related interests valued at $2m or more. This threshold will be reduced to $750,000
  • Currently, the standard withholding rate is 10%. This will be increased to 12.5%

 

First home buyers accessing their super

 

Date of application: 1 July 2017

 

Individuals will be able to make voluntary contributions into superannuation of up to $15,000 per year and $30,000 in total. These contributions are to be used for a first home deposit.

 

These contributions must be made within an individual’s existing contributions caps. The total concessional contributions that an individual may make in 2017-18 is $25,000.

 

Concessional contributions will be taxed at 15%, along with associated deemed earnings. Upon withdrawal, concessional contributions will be taxable at the member’s marginal tax rate, less a 30% tax offset.

 

The ATO will be responsible for ensuring that people purchase their first home after they withdraw from superannuation.

 

Over 65s may contribute proceeds from downsizing into super

 

Date of application: 1 July 2018

 

A person aged 65 or older will be able to make a non-concessional contribution of up to $300,000 from the proceeds of selling their principal residence. The residence must have been owned by the individual as their main residence for 10 years or more.

 

This contribution;

  • Is excluded from the $1.6m balance test for making non-concessional contributions
  • Is exempt from the age and work tests

 

These contributions are available to both members of a couple for the same home.

 


 

Depreciation – rental properties

 

Date of application: 1 July 2017, though existing investments will be grandfathered

 

Under the current law, a purchaser of a residential property is able to allocate a portion of the purchase price to plant and equipment (broadly items that can be easily removed from a property, such as dishwashers and ceiling fans). The purchaser can then claim depreciation on the cost allocated to the plant and equipment.

 

From 1 July 2017, depreciation deductions on plant and equipment for owners of residential real estate will only be available to the party who incurred the cost, not to subsequent purchasers. The cost to subsequent purchasers will be reflected in the cost base of the property and therefore taken into taken into account for CGT purposes when the property is sold.

 

Where plant and equipment forms part of a residential property on 9 May 2017, the existing deduction rules will continue until the asset is sold or written off.

 

Rental property inspection expenses

 

Date of application: 1 July 2017

 

Travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed from 1 July 2017. However, taxpayers may continue to claim deductions for amounts paid to real estate agents or property managers to provide these services.

 

CGT main residence exemption

 

Date of application: 9 May 2017, but grandfathering provisions apply until 30 June 2019

 

Currently, foreign and temporary resident individuals are able to claim the main residence exemption from CGT. From 9 May 2017, they will no longer be able to access this exemption. However, properties already held by this date will be able claim the exemption until 30 June 2019

 

Vacant housing charge

 

Date of application: 9 May 2017

 

An annual charge will be imposed on foreign owners of residential property which is neither occupied nor generally available for rent for at least 6 months of the year.

 

The annual levy will be equivalent to the relevant foreign investment application fee imposed on the property when it was acquired by the foreign investor and will therefore be at least $5,000. A property costing between $1m and $2m will incur a charge of $10,000, while a property costing between $2m and $3m will incur a charge of $20,000.

 

The measure will apply to persons who make a foreign investment application for residential property from 9 May 2017.

 


 

CGT discount increased for affordable housing

 

Date of application 1 January 2018

 

A 60% (rather than 50%) CGT discount will apply for Australian resident individuals to gains on disposals of qualifying affordable housing.

 

To access the 60% discount;

  • The housing must be provided to low to moderate income tenants
  • The rent charged must be at a discount to the apparent market rate
  • The property must be held for a minimum of three years
  • The property must be managed by a registered community housing provider

 

The higher discount will be pro-rated for periods where the property is not used for affordable housing purposes.

 

Managed Investment Trusts – affordable housing

 

Date of application: 1 July 2017

 

Under current law, investments in residential property are not eligible for the Managed Investment Trust (MIT) tax concessions. However, from 1 July 2017, MITs will be able to acquire, construct or redevelop affordable housing.

 

To qualify for concessional tax treatment, the affordable housing must;

  • Be available for rent for at least 10 years
  • Be provided to low to moderate income tenants
  • Be rented at a discounted rate
  • Represent 80% or more of the MIT’s assessable income. The remaining funds must be derived from other eligible investment activities permitted under existing MIT rules.

 

Purchasers of new residential properties to remit GST

 

Date of application: 1 July 2018

 

Purchasers of newly constructed residential properties or new subdivisions will be required to remit the GST directly to the ATO as part of settlement of the property from 1 July 2018. Under current law, GST is included in the purchase price and the developer remits the GST to the ATO.

 

Purchasers who use conveyancing services should experience minimal impact from these changes.

 

Capping foreign ownership in new housing developments

 

Date of application: 9 May 2017

 

A new condition will be applied to New Dwelling Exemption Certificates where the application is made after 9 May 2017 – foreign ownership in the new housing development must not exceed 50%. These certificates allow the sale of new dwellings in a specified development to foreign residents without each foreign purchaser seeking their own foreign investment approval.

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