Too busy to read the full budget update? Here’s a summary of changes affecting property investors only.
We suggest that real estate agents have a good read as well, especially if you help your clients out with cash flow projections to see if they can afford a certain property.
While it may take a long time for these to be legislated, the government expects you to follow the new rules from the budget night or 1 July where applicable.
In July 2016, the government introduced withholding obligations upon sale of property to non-residents. With the threshold of $2m back then, not many of you were impacted. However, from 1 July 2017, the withholding obligations apply with the following changes:
- for real property disposals where the contract price is $750,000 and above (currently $2 million)
- the FRCGW withholding tax rate will be 12.5% (currently 10%).
The existing threshold and rate will apply for any contracts that are entered into before 1 July 2017, even if they are not due to settle until after 1 July 2017.
Remember: For you as a seller to not have the obligation to withhold tax, you MUST obtain a clearance certificate from the ATO – https://www.ato.gov.au/FRWT_Certificate.aspx
Real estate agents can download the ATO factsheet HERE.
Limit on depreciation
From July 1, 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans.”
This means property investors can only claim depreciation on dishwashers, fans and other fixtures that they paid for themselves, presumably by buying the property brand new.
BMT Tax Depreciation CEO Bradley Beer said Budget changes made buying second-hand properties less attractive as it will be more costly for the investors short term. Any plant and equipment that you will not be allowed to write off will form part of the cost base of the investment property for when you decide to sell it.
You will still be able to claim Division 43 write off for the actual construction expenditure so it may still be worth getting the quantity surveyor in.
Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30 pm (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.
No deduction for residential rental investment property
Travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed from 1 July 2017.
This measure will not prevent investors from engaging third parties such as real estate agents for property management services. These expenses will continue to be deductible.
Increased CGT discounts for investments in affordable housing
At the moment, if you are an individual investor and you hold investment property for over 12 months, you are eligible for 50% discount of the gain upon the sale of the investment property.
From 1 January 2018, the CGT discount for individuals will be increased from 50% to 60% for gains relating to investments in qualifying affordable housing.
To qualify for the higher discount, housing must be provided to low to moderate income tenants, with rent charged at a discount to the private rental market rate. Tenant eligibility will be based on household income thresholds and household composition.
The affordable housing must be managed through a registered community housing provider and the investment held for a minimum period of 3 years.
This measure is not limited to new properties, so should you decide to supply your existing investment property for affordable housing you may be eligible too.
New residential premises – purchaser to pay GST directly to the ATO
It is proposed, that from 1 July 2018, purchasers of newly constructed residential properties (or new subdivisions) will be required to remit the GST directly to the Tax Office as part of settlement.
Currently, GST is included in the purchase price and it is the developer who is responsible for remitting any GST to the Tax Office.
However, some developers are failing to remit the GST (despite having claimed GST credits on their construction costs).
The Government thinks that the impact on the purchasers will be minimal?? It will be interesting to see the logistics of this measure. Will the cost of this extra reporting be absorbed by the conveyancers or will it become more expensive for the purchasers to buy a new property? Will the seller have the correct GST figure ready upon settlement? If this is found to be incorrect in the future, who will be responsible for relevant amendments?
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