Budget 2017 and property investors

Couple Planning Tax

Budget 2017 delivered less bad news than many property investors anticipated, but the hits came from unexpected directions.
 
In the lead-up to Budget 2017, housing affordability was the hottest topic and property investors were firmly in Government sights.
 
After the Budget was handed down on 9 May, many property investors heaved a sigh of relief as the imposts detailed were not as extensive as many had feared. Speculation was rife beforehand that negative gearing incentives would be abolished, the CGT discount would be removed, or there would be a limit to the number of investment properties that could be negatively geared etc.
 
That’s not to say that negative gearing was not ‘tweaked’ and those with interstate investment properties or those who have purchased established homes are likely to feel the effects.
 
Here’s a run-down of the budget measures announced that may touch some property investors:
 
Tax deductions for travel expenses scrapped
From 1 July 2017, investors will no longer be able to claim tax deductions for travel expenses “related to inspecting, maintaining or collecting rent for a residential rental property”. Previously, investors had been able to claim travel costs and there had been no limit to the number of times an owner could claim for visits. Property management fees for third parties such as real estate agents will remain tax deductible. Treasury expects to bring in an extra $540 million in revenue over the next four years with this measure.
 
Depreciation on plant and equipment restricted
Investors will only be able to claim deductions related to plant and equipment (dishwashers, ovens, ceiling fans, hot water systems etc.) that they incurred directly (i.e. bought themselves). Depreciating appliances and utilities purchased by previous owners or installed in recent builds will no longer be allowed. The changes apply from Budget night but existing investments will be grandfathered. Taxation statistics from 2014-15 reveal that $3.013 billion in capital works deductions were claimed and Treasury expects to bring in $260 million over four years from this measure.
 
Incentive to invest in affordable housing
From 1 January 2018, investors in affordable housing will be able to claim an extra 10 per cent capital gains tax (CGT) discount – taking the discount to 60 per cent. To qualify for the extra discount, the housing must be provided below market rent, made available for eligible tenants on low-to-moderate incomes, be managed through a registered community housing provider and the investment held for a minimum of three years.
 
Long-term leases
The Government announced it intends to provide “more security for renters” by working with state and territory governments to “standardise use of long-term leases”. Little detail has been provided on this measure to date.
 
Cap on foreign investment in new developments
Foreign investment in new developments will be capped and developers will be limited to selling no more than 50 per cent of dwellings to foreign investors. The cap will apply to housing developments that are multi-storey and comprise at least 50 dwellings. 
 
Levy on vacant foreign investor-owned properties
A minimum of $5,000 p.a. will be levied on foreign owners who keep their property vacant for at least six months in a year. The charge levied will be equivalent to the foreign investment application fee which was paid at the time of application.
 
CGT and foreign investors
From Budget night (but grandfathered for existing properties until 30 June 2019), foreign investors will no longer be able to access the main residence exemption. In addition, the CGT withholding rate for foreign tax residents increases from 10 per cent to 12.5 per cent and the CGT withholding threshold reduces from $2 million to $750,000.
 
APRA to have oversight over non-ADIs
New legislation will extend APRA’s remit to include non authorised deposit-taking institutions. Non ADIs or the ‘shadow banking’ sector has become more active since APRA stepped up regulatory changes aimed at slowing investor demand. The change will make it harder for investors, foreign buyers and businesses turned away from the major banks to fund their property purchases.
 
Levy on banks
The six basis point levy on funding of banks with at least $100 million in liabilities is tipped to be passed on in the form of higher interest rates for mortgage holders.