The 2017/2018 Federal Budget has now been announced and we have taken the opportunity to analyse and provide the following summary on the Federal Budget’s implications on the property industry.
Changes effective from 9 May 2017
1. No Capital Gains Tax (CGT) main residence exemption for foreign investors
The Capital Gains Tax (CGT) main residence exemption will no longer be available to foreign and temporary tax residents from 7:30PM AEST on 9 May 2017.
2. Tightening of foreign resident CGT principal asset test
The CGT principal asset test will be applied by the Government on an associate inclusive basis from 7:30PM AEST on 9 May 2017 for foreign tax residents with indirect interests in Australian real property. This shall ensure foreign residents cannot avoid a CGT liability.
3. Foreign investment approvals to face increased fees
Fees associated with approvals from the Financial Investment Review Board (FIRB) have been divided into three categories. Not only do the new fee categories include developed commercial land, but now also vacant commercial land. At present, vacant commercial land of any value attracts a fee of $10,100. The Budget will increase FIRB approval fees for vacant commercial land greater than $10 million.
Category 1 – FIRB fees for transactions below $10 million will be reduced from $25,300 to $2,000.
Category 2 – There are no changes to fees for transactions over $10 million up to $1 billion for developed commercial land however transactions for vacant commercial land will be increased from $10,100 to a flat rate of $25,300.
Category 3 – Increased fees for transactions above $1 billion from $25,300 to $101,500.
4. Foreign owners restricted to 50% in new developments
Foreign ownership in new developments will be capped at 50% and will be applicable from 7:30PM AEST on 9 May 2017.
5. Annual fee for foreign home owners leaving property vacant
An annual fee will be introduced on foreign owners of residential property where the property is not occupied or available on the rental market for at least six months of the year.
Changes effective from 1 January 2018
1. CGT discount for affordable housing
The CGT discount will increase from 50% to 60% for Australian resident individuals who invest in affordable housing which meets specific qualifying criteria. Eligibility for the higher discount will require house to be provided to low to moderate income tenants with rent discounted below the market rate. Such affordable housing must be managed by a registered community housing provider and the investment is to be held for a minimum of three years.
Changes effective on and from 1 July 2018
1. GST and residential property transactions
GST is payable on new residential properties and is usually paid by the seller to the developer. The developer is required to pay the GST to the ATO. However, a number of developers are failing to remit the GST to the ATO. So as to rectify this issue, purchasers of newly constructed residential properties will be required to remit the GST directly to the ATO at settlement.
2. Non concessional contribution to superannuation when downsizing
Non concessional contributions of up to $300,000 (or $600,000 per couple) will be permitted to be made by individuals over the age of 65 from the proceeds of their sale of home, provided they have owned the property for over 10 years. Such contributions will be additional to those currently permitted and they will receive an exemption from the existing age test, work test and the $1.6 million balance test for making non concessional contributions.