2017 Federal Budget
Treasurer, The Hon Scott Morrison last night delivered his Budget address, which outlined the Federal Governments spending and tax agenda.
We have distilled some of the key announcements that will or may have impacts on the property sector.
Housing and Property Announcements
- New Requirements on States and Territories to deliver on housing supply targets and reform their planning systems.
- Establishment of a $1 billion National Housing Infrastructure Facility, to fund ‘micro’ city deals that remove infrastructure impediments to developing new homes.
- An online Commonwealth land registry will be established detailing sites that can be made available for residential development.
- Release of land owned by Defence Department for housing development in Maribyrnong, Victoria (Potential of 6,000 home sites)
- Proposed delivery of tens of thousands of new homes needed in Western Sydney as part of our Western Sydney city deal.
- A new National Housing Finance and Investment Corporation will be established by July 1 next year to provide long-term, low-cost finance to support more affordable rental housing. States and Territories will also be encouraged to transfer stock to the community housing sector.
- New regulation to allow Managed Investment Trusts to be used to develop and own affordable housing, providing investors in affordable housing with greater income certainty by enabling direct deduction of welfare payments from tenants, and increasing the capital gains tax discount to 60 per cent for investments in affordable housing.
- First home buyers will be able to save for a deposit by salary sacrificing into their superannuation account over and above their compulsory superannuation contribution from July 1. The First Home Super Savers Scheme will attract the tax advantages of superannuation. Contributions and earnings will be taxed at 15 per cent, rather than marginal rates, and withdrawals will be taxed at their marginal rate, less 30 percentage points. Savers will not have to set up another account, they can just use their existing super account and decide how much of their income they want to put aside to save for their first home deposit.Contributions will be limited to $30,000 per person in total and $15,000 per year.
- Encouragement of older Australians to free up housing stock, by enabling downsizers over the age of 65 to make a non-concessional contribution of up to $300,000 into their superannuation fund from the proceeds of the sale of their principal home. The residence must have been owned for at least 10 years.
- Proposed legislation to extend APRA’s ability to apply controls to the non-ADI sector and explicitly allow them to differentiate the application of loan controls by location.
- Application of an annual foreign investment levy of at least $5,000 on all future foreign investors who fail to either occupy or lease their property for at least six months each year.
- Reimplementation of requirements that prevents developers from selling more than 50 per cent of new developments to foreign investors.
- Deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential property investment will no longer be available
- Deductions for plant and equipment (e.g. mechanical fixtures, dishwashers, ceiling fans etc) will also be limited to outlays actually incurred by the investor.
- Creation of new REIT asset class for “affordable housing” The managed investment trust (MIT) tax regime will be expanded to enable MITs to invest in affordable housing. The eligibility criteria includes:
- At least 80% of the MIT’s assessable income must come from affordable housing
- Housing must be provided to low to moderate income tenants with rent charged at a discount below the private rental market rate
- Affordable housing must be available for rent for at least 10 year
- Additional funding in 2017-18 to enable the National Capital Authority to undertake essential maintenance of Commonwealth assets and for strategic investment in improved asset management systems.
- $5.3 Billion of equity into the new Western Sydney Airport Corporation to build and operate the new Western Sydney airport (Badgery’s Creek), with works to commence in the second half of 2018
- $844 million will be used to upgrade the Bruce Highway, including $530 million for works from Pine Rivers to Caloundra.
- $1.6 billion in infrastructure, including funding for better road access to the Fiona Stanley Hospital precinct.
- $792 million for Perth Metronet
- $1 billion available for regional rail and other infrastructure projects, including $30 million to develop a business case for a rail link to Tullamarine Airport.
- $500 million Victorian regional rail fund will include $100 million for the duplication of the Geelong-Waurn Ponds line.
- $10 billion National Rail Programme to deliver rail connectivity projects between regional centres and capital cities.
- The Snowy Mountains Scheme will see the “Nationalisation” of this public asset, subject to the state governments of NSW and VIC agreeing to sell to the Commonwealth, their interest.
- Melbourne to Brisbane Inland Rail project with $8.4 billion in equity to be provided to the Australian Rail Track Corporation. Construction on this 1,700 kilometre project will begin in 2017-18.
- Under current tax measures, 10% GST is currently payable on newly constructed residential properties. This is ordinarily paid by the purchaser to the developer, and the developer is required to remit the GST to the ATO. Government has stated that some developers are currently failing to remit the GST to the ATO. From 1 July 2018, purchasers of newly constructed residential properties will be required to remit the 10% GST directly to the ATO as part of settlement.
- The Government will apply the CGT principal asset test on an associate inclusive basis from 7.30pm on 9 May 2017 for foreign tax residents with indirect interests in Australian real property.
- Tightening of rules on foreign investment in residential real estate will be introduced, removing the main residence capital gains tax exemption, and tightening compliance.
Information Sources: Budget Speech, Australian Financial Review 9/5/2017, Property Council of Australia.