The Government will seek to reduce pressure on housing affordability by introducing the following measures:
Travel expenses related to residential rental properties disallowed
From 1 July 2017 deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed.
Expenses in relation to investors engaging third parties such as real estate agents for property management services will remain deductible.
Depreciation deductions limited for residential rental properties
From 1 July 2017 plant and equipment depreciation deductions will be limited to outlays actually incurred by investors in residential rental properties.
Plant and equipment items are usually things which can be “easily” removed from the property such as dishwashers and ceiling fans. There will be no deduction for acquisitions of existing plant and equipment items by subsequent purchasers of the property. The building write off (2.5% deduction) is unaffected.
These changes will apply on a prospective basis, with existing investments grandfathered.
Investors who purchase plant and equipment for their residential rental property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of the property will not be able to claim deductions for plant and equipment purchased by the previous owner of that property.
Purchasers of new residential property to remit GST
From 1 July 2018 GST on new residences will be remitted to the ATO by the purchaser, rather than by the developer.
This will apply to sales of new residential property or land from new subdivisions. This is a GST integrity measure, but will have a material cash flow impact on property developers.
It is anticipated that the GST is to be remitted by the conveyancer as part of the settlement process and as such purchasers are unlikely to experience any negative consequences.
Downsizing your main residence
There are certain superannuation concessions available where you are downsizing your main residence. Please refer to the superannuation section of the budget update.
First home buyers
First home buyers may be able to save the deposit for their first home through their superannuation fund. Please refer to the superannuation section of the budget update.
Expanding tax incentives for investment in affordable housing
From 1 January 2018, the Government will increase the CGT discount from 50% to 60% for resident individuals who invest in qualifying affordable housing. Qualifying housing must be provided to low to moderate income tenants, with rent charged at a discount below the private rental market rate.
To qualify for the 60% CGT discount the following conditions must be met:
- the housing must be provided to low to moderate income tenants;
- rent must be charged at a discount below the private rental market rate;
- the affordable housing must be managed through a registered community housing provider; and
- the investment must be held for a minimum period of three years from 1 July 2018.
Managed investment trusts investing in affordable housing
From 1 July 2017, the Government will encourage investment into affordable housing by allowing Managed investment trusts (MITs) to invest in affordable housing, enabling investors to receive concessional tax treatment which includes the increased 60% CGT discount and MIT tax concessions.
In order for investors to receive concessional tax treatment through a MIT, the affordable housing must be available for rent for at least 10 years and the MIT must derive at least 80% of its assessable income from affordable housing.
Foreign Tax Resident measures
Capital Gains Tax changes for foreign investors
Foreign and temporary tax residents will no longer be eligible for the main residence exemption from 7:30PM on 9 May 2017. However, existing properties held prior to this date will be grandfathered until 30 June 2019. Sales after this date will not be eligible for the main residence exemption.
Changes to withholding obligations for foreign tax residents
Currently, the foreign resident CGT withholding obligation applies to foreign tax residents disposing of Australian real property and related interests valued at $2m or more. This threshold will be reduced to $750,000 from 1 July 2017, therefore increasing the number of properties and interests subject to this withholding obligation.
The CGT withholding rate will also be increased from 10% to 12.5% from 1 July 2017.
Annual charge on foreign owners of underutilised residential property
The Government will introduce an annual ‘levy’ on foreign owners of residential property where the property is not occupied or genuinely available on the rental market for at least six months per year.
The annual levy will be equivalent to the relevant foreign investment application fee (minimum fee is $5,000) imposed on the property when it was acquired. The measure will apply to those who make a foreign investment application for residential property from 7:30pm on 9 May 2017.
Restrict foreign ownership in new developments to no more than 50%
The Government will impose a 50% cap on foreign ownership in new developments through a condition on new dwelling exemption certificates.