A Property Tax Update – Take 2

Much can happen in 14 days in the property sector.  Since our Property Update issued earlier this month and our seminar held on 9 October 2019, we have seen the issue of further announcements impacting both property owners and property developers that we bring to your attention:

1.    Stamp duty cut for off-the-plan apartment purchases

2.    Restriction of tax deductions on vacant land

3.    Reintroduction of CGT main residence exemption Bill

4.    CGT incentives for affordable housing

5.    Sale of near new interest to foreign residents

6.    Keystart lending eligibility

 

1. Stamp duty cut for off-the-plan apartments

Off-the-plan apartment buyers in WA will receive a 75 per cent rebate on stamp duty for the next two years, capped at $50,000, under a stimulus package unveiled by the state government on 23 October 2019.

For a $500,000 apartment, the change would represent a stamp duty saving of more than $13,000.

No cap will be placed on the purchase price and multiple rebates will be available to the same applicant for additional unit or apartment purchases within the same or different developments.

Importantly, the discount will also apply to the 7 per cent foreign buyer surcharge, which was put in place in January, and to which the construction industry has long argued has caused demand from overseas buyers to plummet.  As such, the inclusion of the foreign buyer’s surcharge in the rebate is expected to provide WA apartment developers with a value proposition compared with other states.

The rebate will be available for the next two years to any purchaser who signs a pre-construction contract to purchase a new residential unit or apartment in a multi-tiered development.

2. Restriction of tax deductions on vacant land

Further to our recent Property Update (Click here to view) regarding the Government’s proposed changes to the availability of deductions for vacant landowners, we can now confirm that the Bill containing these proposed measures has been passed by both Houses on 22 October 2019 and now awaits Royal Assent.

The Bill was passed with three amendments to the measure which denies tax deductions for expenditure incurred in holding vacant land. The amendments take the form of exceptions to the measure and will apply to vacant land that is:

  • held by primary producers;
  • available for use in carrying on a business under arm’s length arrangements; and
  • structures affected by natural disasters or other exceptional circumstances (for up to 3 years).

However, despite the above exceptions, it does appear that the final measure may still have some unintended but potentially adverse outcomes for primary producers and holders of farmland.

For example, tax deductions will still be denied in the following situations:

  • A non-arms-length lease of farmland by parents to adult child (over the age of 18);
  • A non-commercial lease agreement between an entity controlled by parents and an entity controlled by an adult child; or
  • Where residential property either exists on the land or is being constructed on the farmland.

The measures will apply to expenditure incurred in respect to holding vacant land from 1 July 2019.

3. Reintroduction of CGT main residence Bill

As previously advised in our Property Update (Click here to view) both Australian and foreign resident individuals may currently access the CGT main residence exemption where the dwelling was previously their principal place of residence prior to the sale of the dwelling.  However, as part of the 2017/18 Federal Budget, amendments to the CGT rules were announced and legislation containing these changes was introduced to Parliament.  The Bill however lapsed when the 2018/19 election was called.

This Bill has now been reintroduced to Parliament as Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019, and proposes to remove the entitlement to the CGT main residence exemption for foreign residents other than where certain life events occur during the period that a person is a foreign resident where that period is 6 years or less.

A life event includes a terminal medical condition to the foreign resident, their spouse or their child under 18 years of age; death; and divorce or separation.

Impact on Australian Expats

Where the Bill is passed in its current form, there may be some adverse tax outcomes for Australian citizens who temporarily become non-residents for tax.  For example,  if you move overseas and rent out your family home, and then decide to sell your Australian home while still overseas, you will need to pay CGT on the proceeds of the sale.

The current law contains the six-year absence rule, which means that if the family home is sold within six years of moving overseas, an exemption from CGT is available.  This will no longer apply where the Bill is passed unchanged.

That being said, where Australian expats return to Australia (and take up their Australian tax residency again) and resume living in the property within six years, the main residence CGT exemption will be retained.

The measures will apply (where passed) from 7.30pm ACT legal time on 9 May 2017 (the application time) however, transitional provisions will continue the main residence exemption for CGT events that occur to certain dwellings on or before 30 June 2020, where the dwelling was held before the application time.

4. CGT incentives for affordable housing

The above Bill also contains measures to encourage investors to increase the supply of affordable housing by allowing resident investors in “eligible affordable rental housing” to obtain an additional 10% CGT discount (on top of the existing 50% discount). The additional CGT discount will be available to resident investors who hold affordable housing directly or through certain trusts.

However, to qualify for the additional discount, the affordable housing must be held for a period of at least three years from the start date of the measure and be managed through a registered community housing provider in accordance with state and territory housing policies and registration requirements.

This measure is proposed to apply to capital gains realised by investors from CGT events occurring from 1 January 2018 for affordable housing tenancies that start before, on or after 1 January 2018.

5. Sale of near new interests to foreign residents

The same Bill also contains a technical amendment that enables a reconciliation payment to be made by developers who sell dwellings to foreign persons under a “near new dwelling exemption certificate”.

By way background, the introduction of the near-new dwelling exemption certificate creates flexibility for property developers and enables them to sell near‑new dwellings (dwellings that have previously been subject to a failed settlement) to foreign persons without the requirement that the individual foreign investor seeks their own foreign investment approval for the purchase.

6. Keystart lending eligibility

Under the measures announced in the WA state government budget, Keystart’s existing income limits for borrowers have increased by $15,000 for singles and couples and by $20,000 for families until 31 December 2019. The income limits will revert to previous levels on 1 January 2020.

The temporary changes to Keystart lending rules follow the McGowan Government’s $421 million extension of its loan book in December last year, boosting its lending capacity to $4.8 billion.  Based on median loan values, the $421 million extension potentially equates to an extra 1,100 new home loans, providing a much-needed boost to WA’s housing construction sector which is expected to create new jobs and support the economy.

The measures will complement the existing first homeowner’s grants and stamp duty exemptions for first home buyers.

Next steps

For those interested in discussing the above changes in more detail and as well as any potential impact on you, please contact your Cooper Partners client engagement team.