By Tom Cantwell, Partner

GST and residential property transactions 1 July 2018

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 GST directly to the ATO as part of settlement.

There has been no mention of a change to the calculation of GST, so the GST will presumably remain 1/11^th of the contract price or 1/11^th of the margin, if the margin scheme is employed.

Annual charge on foreign home owners who leave property vacant 9 May 2017

The Government will introduce an annual charge 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 charge will be equivalent to the relevant foreign investment application fee imposed on the property at the time it was acquired, which starts from $5,000, increasing to $10,100 for properties valued at more than $1,000,000 in value and so on.

The measure will apply to the properties the subject of foreign investment applications lodged from 7.30pm on 9 May 2017, so will not apply to existing owners.

Expansion of capital gains tax withholding regime 1 July 2017

The capital gains tax withholding regime, which was introduced in 1 July 2016 has been extended by:

•  increasing the withholding tax rate from 10% to 12.5%
• lowering the threshold from $2 million to $750,000 which will significantly extend the number of properties subject to the regime.

No CGT main residence exemption for foreign investors 9 May 2017

Foreign and temporary tax residents will no longer have access to the CGT main residence exemption from 7.30pm on 9 May 2017.  Any currently owned properties will be grandfathered until 30 June 2019.

Tightening of foreign resident CGT principal asset test 9 May 2017

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.  This has been described as an integrity measure to ensure foreign residents cannot avoid a CGT liability by disaggregating their interests.

Trimming Deductions for housing investors 1 July 2017

Removing deductions for depreciation of plant and equipment to outlays actually incurred and travel to inspect , repair or collect rent from residential investment properties

Contributing the proceeds of downsizing to superannuation

A person aged 65 or over will be permitted to make a non concessional contribution of up to $300,000 (or $600,000 for a couple) from the proceeds of selling their home from 1 July 2018, provided they have owned it for 10 or more years. These contributions will be in addition to those currently permitted under existing rules and caps and they will be exempt from the existing age test, work test and the $1.6 million balance test for making non concessional contributions.

First home super saver scheme

From 1 July 2107, first home buyers can salary sacrifice up to $15,000 per year to a total of $30,000 to their superannuation (effectively $60,000 for a couple) and redraw it, along with any associated earnings, to buy a first home.

Increased fees for foreign investment approvals 9 May 2017

The number of fee categories for FIRB approvals have been limited to three broad categories. The new fee categories now include not only developed commercial land, but also vacant commercial land. Currently vacant commercial land attracts a flat fee of $10,100 for all vacant land irrespective of the value. The changes in the Budget will raise FIRB approval fees for vacant commercial land greater than $10 million.

Category 1 – FIRB Fees for transactions of $10 million or below

• Reduced fees for transactions of $10 million dollars and below to $2,000 (reduced from $25,300 currently).

Category 2 – FIRB Fees for transactions of above $10 million

• Flat fee of $25,300. No change to fees for transactions above $10 million and up to $1 billion for developed commercial land. However, this represents a fee increase for vacant commercial land (increased from $10,100).

Category 3 – FIRB Fees for transactions of above $1 billion

• Increased fees for transactions above $1 billion to a flat fee of $101,500 (increased from $25,300 currently).

Restrict foreign ownership in new developments to 50% 9 May 2017

The New Dwelling Exemption Certificate will be amended to cap foreign ownership in new developments at 50%.  This condition will be applied to applications made from Budget night.

Changes to foreign investment rules 1 July 2017

Following consultation with industry, the Federal Government has announced a range of amendments to the foreign investment regime which will have effect from 1 July 2017.

Importantly, this includes:

• Fixing the sensitive land provisions to reduce unnecessary screening of commercial property transactions.  This is likely to remove the current issue of all properties under designated airspace (including the Melbourne CBD) from the lower $55m FIRB threshold.
• Treating failed off the plan settlements as ‘new’ dwellings for the purposes of developer exemption certificates. ‘New’ dwellings can be purchased by both foreign and local buyers.