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Federal Budget 2017-18 – Investor Update

By Siobhan Hawken

The theme of the Federal Budget this year was honesty, Fairness and opportunity. The Treasurer, Scott Morrison noted that small businesses deserve our respect and support. He further noted that this year’s budget is about making the right choice for Australian’s who are working hard for their families.

Residential Rental Properties

The Treasurer announced the deductions for travel expenses relating to inspecting, maintaining or collecting rent for a residential property will be disallowed. This change will come into effect from 1 July 2017. Cost of engaging third parties for property services with continue to be deductible. The treasure further noted that the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties. This means that owners will not be able to claim deductions for plant and equipment purchased by previous owner of the property. The acquisition of these items will however be reflected in the cost base of the property for CGT (Capital Gains Tax) purposes.

Purchasing Residential Properties – Remission of GST

The Treasurer announced that, from 1 July 2018, purchasers of newly constructed residential properties or new subdivisions will be required to remit the GST directly to the Australian Tax Office (ATO) as part of settlement. The Treasurer that his technical change to the GST law to ensure that GST payable is collected as intended, and does not affect the amount of GST payable.

First Home Super Saver Scheme

The Treasurer announced that, from 1 July 2017, individuals will be able to make voluntary contributions of up to $15,000 per year – and $30,000 in total to their superannuation account to purchase a first home. Essentially first home buyers will be able to save for a deposit by salary sacrificing into their superannuation fund over and above their normal compulsory superannuation contributions. There voluntary contributions, along with associated deemed earning, will be able to be withdrawn for a first home deposit from 1 July 2018. Contributions can commence from 1 July 2017.

Contributing the Proceeds of Downsizing Superannuation

The Treasurer announced that a person ages 65 years or over will be able to make non-concessional contributions of up to $300,000 from the proceeds of selling their home, where they have owned it for a minimum of ten years. This measure will apply to sales of a principal residence and will commence on 1 July 2018. Both members of a couple will be able to take advantage of this measure for the same home, meaning $600,000 per couple can be contributed to superannuation though the downsizing cap. It is expected that this measure will encourage older people to downsize, which may free up larger family homes for younger growing families.

CGT Concessions for Investments in affordable housing

The Capital Gains Tax (CGT) discount will be increased for individuals who choose to invest in affordable housing. The current 50% discount will increase by 10% to 60% for resident individuals who elect to invest in qualifying affordable housing.

Foreign and Temporary Residents – Property Implications

Foreign and temporary residents will be excluded from the main residence exemption. The main residence exemption excludes private homes from CGT. From 1 July 2017, changes will be made to the CGT withholding Rate (increased from 10% to 12.5%) and the CGT withholding threshold (decreased from $2 million to $750,000) which will also impact foreign tax residents.

A 50% cap will be imposed on foreign ownership in new developments. In effect, any new development will need to ensure that less that 50%of the purchasers are foreign residents. This cap commences the night of the Federal Budget announcement (9 May 2017)

Source Credit Dobbyn & Carafa, charted accountants & corporate advisors
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