The 2017 Federal Budget boasts several measures designed to increase housing affordability. Here’s a snapshot of the main ones:
First home buyer savings incentives
From 1 July 2017 buyers saving for their first home will be able to voluntarily contribute up to $15,000 per annum and $30,000 in total to their superannuation accounts via concessional contributions which may later be withdrawn to assist with buying their first home.
The contributions and their ‘deemed earnings’ will be able to be withdrawn to be used as a deposit on a property. Although the withdrawals will be taxable, a 30 per cent offset will reduce the tax payable.
GST on new residential property
From 1 July 2018 purchasers of new residential property and new subdivisions will be required to remit the GST arising from such sales directly to the ATO rather than to the developer as is presently the law.
Foreign Resident Property Withholding tax
From 1 July 2017 the withholding tax is set to increase to 12.5 per cent (up from 10 per cent) and the threshold below which no withholding is required decreases to $750,000 (down from $2 million).
Buyers need to be aware that this tax is not only applicable to foreign residents. The onus is on all purchasers, including Australian residents, to determine whether the seller is a foreign resident and pay the withholding tax to the ATO.
Main Residence Exemption removed
The budget has announced the removal of the CGT main residence exemption for foreign and temporary tax residents
These rules are proposed to apply from budget night for new property acquisitions, however, for those who already have a main residence in Australia, the proposed impact does not commence until 30 June 2019.
Ghost Tax
The commonly dubbed “Ghost Tax” is to be charged immediately to foreigners who make a new foreign investment application for Australian residential property. The tax is to apply when a residential property is not occupied or genuinely available on the rental market for at least six months per year.
Travel Expenditure Deductions denied
From 1 July 2017, the Government is proposing to remove tax deductions for travel costs incurred in relation to visiting rental properties.
Rental Property Capital Allowances limited
Depreciation on plant and equipment will now be limited to those assets actually purchased by investors of residential real estate properties. This will remove the ability to continue depreciating existing assets in your newly acquired rental property. Although the Budget papers refer to smaller items such as dishwashers and ceiling fans, this change potentially defers thousands of dollars of deductions on significant items such as lifts, air conditioners, garage doors, and common property in unit blocks until the property is sold.
Downsizing incentives
If you are 65 or over you can make additional non-concessional contributions to your superannuation from the proceeds of the sale of your home from 1 July 2018, however to qualify the following conditions must be met:
- The property must have been your principal place of residence and owned for at least 10 years;
- $300,000 of proceeds from the sale of the property may be contributed to superannuation as non-concessional contributions;
- The concession is available for each person, meaning that couples are able to use this provision to contribute a total of $600,000 to superannuation from the same sale;
- No work test applies; and
- No other restrictions or limitations apply to the contributions.
