Housing affordability was indeed a headline issue for the Federal Government to address in this week’s Budget.
While there were a range of tax and superannuation measures introduced, there were two significant housing measures – the “first home super saver scheme” and the higher superannuation cap for “downsizers”.
Of course, property investors must always look at purchasing investment grade properties, but the 2017-18 Federal Budget has introduced various new surprises that investors need to understand.
First Home Super Saver Scheme
From 1 July 2017, first homebuyers will be able to withdraw future voluntary concessional and non-concessional contributions to super for a deposit for their first home.
Eligible homebuyers can contribute up to $15,000 per year and $30,000 in total to super, within the existing contribution caps (please note from 1 July onwards, the concessional contribution cap will be $25,000 a year).
If a couple is saving for their first home together, the cap is per person.
These amounts can then be withdrawn from 1 July 2018.
Withdrawals of concessional amounts will be taxed at the MTR (Marginal Tax Rate), less a 30 per cent offset, whereas non-concessional amounts will not be taxed when withdrawn.
Higher Superannuation Cap for “Downsizers”
From 1 July 2018, the Federal Government will allow persons aged 65 and over to make a non-concessional contribution of up to $300,000 from the proceeds of the sale of their home.
This contribution is additional to the existing rules and caps.
It’s also exempt from the existing age test, work test and the $1.6 million test for making non-concessional contributions.
The sale must be a principal place of residence and owned for the past 10 or more years.
Both members of a couple can take advantage of this measure for the same property (house) – so that means the $300,000 is per person.
Capital Gains Tax tinkering
Foreign and temporary tax residents will no longer be able to access the main residence exemption for Capital Gains Tax (CGT).
While this change will be effective immediately, existing foreign and temporary resident will still be able to access the exemption until 30 June 2019.
Capital Gains Withholding Tax
From 1 July 2017, the CGT withholding tax threshold for foreign tax residents will reduce from $2 million to $750,000.
This change will result in most buyers requiring a clearance certificate at the time of settlement.
Travel expenses associated with investment property to inspect, maintain or collect rents will no longer be a deductible expense from 1 July 2017.
This measure is likely to impact investors who own property interstate in particular.
For residential property, there has been a big change to depreciation on plant and equipment.
The measure means that this deduction will now only be available if the plant or equipment was actually bought new by the investor.
The deduction will remain available to existing investors, but for purchases as of 9 May 2017 – including those with contracts in place as at 7.30pm on budget night – the deduction will continue until either the investor sells the asset or the asset reaches its effective life.
Subsequent owners will not be allowed to claim depreciation on plant and equipment purchased by the previous owner.
Effective from 1 July 2018, purchases of newly constructed residential property will be required to submit the GST directly to the ATO as part of settlement.
While not increasing costs, it will add an administrative burden.
But for the ATO it will receive this amount at time of settlement, not when the developer completes their next business activity statement.
From 1 July 2017, foreign owners of residential property will now be liable for an annual levy equivalent to the foreign investment application fee when the property is underutilised, not occupied, or made available for rent for at least six months per year.
The Federal Government’s suite of housing affordability measures are likely to please some investors and annoy others.
It’s still early days, and more information is needed to best understand some changes, which we’ll keep you updated with as it becomes available.