Extensions, Concessions and Tax Breaks for the Property Sector– what you need to know

Posted on by Admin

23 December 2020

Like many industries, the COVID-19 pandemic has had a significant impact on the property and construction industry.  However, in recognising the importance of these industries to the Australian economy, the Federal and State Governments have been quick to create a number of stimulus measures designed to keep businesses operating in the current uncertain environment. 

Here in WA, the State Government is providing a $24.5 million support package for the construction workforce and has also announced an extension to the emergency period to which the COVID-19 commercial tenancy laws apply.

In this bumper article, we summarise these measures, as well some additional matters impacting businesses and taxpayers operating in the construction and property markets:

  • Extension of the Federal HomeBuilder Grant
  • Extension of the WA Building Bonus program
  • Extension of the Federal First Home Loan Deposit Scheme
  • WA Stamp duty concessions
  • REIWA’s call for stamp duty reform
  • Removal of CGT for granny flats
  • Commercial tenancies – emergency period extension

HOMEBUILDER GRANT – Federal

HomeBuilder is a tax-free grant program initiated by the Federal Government (and administered by the States and Territories) to stimulate the residential construction sector in response to the economic downturn.  The HomeBuilder scheme provides eligible owner-occupiers (including first homebuyers) with a grant of $25,000 (for contracts signed before year-end) and $15,000 (for those contracts signed in the new year) to build a new home or substantially renovate an existing home.

To access HomeBuilder, eligible participants must be an owner-occupier, building or renovating a home and meet the following criteria:

  • Be an individual that is an Australian citizen aged 18 or over (No access to the scheme for companies and trust).
  • For individual applicants, annual income must be less than $125,000* and for couples, the combined annual income must be less than $200,000*.
  • Applicants must submit their grant application by the revised date of 14 April 2021.

*Based on taxable income for the 2018-19 year or later.

Participants must enter into a building contract between 4 June 2020 and 31 March 2021 to either:

  • Build a new home as a principal place of residence (investment properties are not eligible), with the property value capped at $750,000 (*different thresholds exist for NSW and Victoria – see below for further detail); or
  • Substantially renovate an existing home as a principal place of residence, where the renovation contract is between $150,000 and $750,000* (NSW and Victoria are subject to higher price caps), and the value of the existing property (house and land) does not exceed $1.5 million (pre-renovation).
Government extends terms

In response to the scheme’s success in driving demand in the construction sector and the protection of jobs, the Morrison Government announced on 29 November 2020, that it was extending the HomeBuilder Scheme until 31 March 2021.

Importantly, the extended scheme is subject to a reduction in the grant amount and extensions to the application date, the construction commencement time and the price cap thresholds for some states.

The following table outlines the changes to the HomeBuilder Scheme:

Snapshot of the changes

Source: Federal Treasury

Construction time extended

The construction commencement timeframe will be extended from three months to six months for all HomeBuilder applicants. This will apply to all new eligible contracts signed on or after 1 January 2021 as well as those contracts entered into on or after 4 June 2020.

TIP: Applicants are required to provide evidence (such as a builder’s declaration) that construction has commenced.

Builders subject to new requirements

The scheme will now also be subject to the following registration requirements for builders and developers.

  • For those contracts signed before 29 November 2020, the builder must have held a valid licence or registration before 4 June 2020.
  • For those contracts signed after 29 November 2020, the builder must have held a valid licence or registration before 29 June 2020.

BUILDING BONUS – Western Australia

Eligibility extended

On the 20th October, the McGowan Government announced that it was extending the terms of the current Building Bonusprogram to allow more Western Australians the opportunity to qualify for the $20,000 grant, by giving homebuilders more time to commence site works.

Under the previous program, homebuyers only had six months to start construction.  However, due to the high demand for the grants and the resultant demand for construction work, considerable concern was expressed that six months was not enough time to commence construction.  Under the extension, home builders wishing to access the grant, now have a period of one year from the time their contract is signed to commence construction. 

The Government’s extension is welcome news to homebuyers and the industry alike and will ensure the pipeline of construction work generated as a result of the program will continue through to 2022 and will continue to stimulate the construction and job markets.

Building Bonus – Key points
  • The WA Building Bonus grants are available to any homebuyer who signs a contract by 31 December 2020 to build a new house or purchase a new property in a single-tier development (such as a townhouse) prior to completion of construction.
  • The program is not subject to means testing or caps on the purchase price or value of the contract and multiple grants are available where eligibility criteria satisfied.  Furthermore, the program complements the Federal and other WA-based housing grant programs, offering up to a potential $55,000 for some first homebuyers (see further below for a breakdown).
  • The grant is open to a number of applicants (over the 18 years of age) including:
    • owner-occupiers and investors;
    • Australian citizens, permanent residents and foreign persons; and
    • natural persons, corporations and trustees.
  • Homebuilders have one year to commence site works from the time their contract is signed.

TIP: For new builds, construction commences when significant works begin and it is noted that preparatory works such as site clearing, fencing, markings, delivery of building products will not be enough for a contract to have commenced.

The HomeBuilder grants will not be available for property additions that are not connected to the main residence, such as pools, outdoor spas and saunas, tennis courts, granny flats, sheds or garages.

So how much can WA home builders access under the Federal and State schemes?

* The first home owner grant is a one-off $10,000 payment to encourage and assist first homebuyers to buy or build a new residential property for use as their principal place of residence. The grant is subject to caps on the total value of the home and land, which vary depending on where the home is located.

First homebuyers may also be eligible for concessional rates of transfer duty.

FIRST HOME LOAN DEPOSIT SCHEME                  

The First Home Loan Deposit Scheme (FHLDS) allows eligible first homebuyers to purchase a property with as little as a 5% deposit and without the need to take out lenders mortgage insurance (LMI).  The scheme works with the Federal Government guaranteeing the difference between the amount saved and the 20% deposit threshold that most lenders require before they will provide a loan without LMI.  So, while the scheme does not offer a cash payment, not having to take out LMI, can result in considerable savings for first homebuyers.

Importantly, eligible borrowers can use the guarantee in conjunction with other government programs like the First Home Super Saver Scheme, state and territory First Home Owner Grants and stamp duty concessions.

Scheme extended and price caps increased

The Federal Government recently announced that it will extend the existing LHLDS to allow an additional 10,000 first homebuyers to obtain a loan under the scheme.  The extended scheme will run from 6 October 2020 to 30 June 2021.

Who can access this scheme?

To access FHLDS, eligible participants must be an owner-occupier, and meet the following criteria:

  • Be an individual that is an Australian citizen aged 18 or over.  Importantly, this means that permanent residents are not eligible for the scheme.
  • Applicants must be first homebuyers.
  • For individual applicants, annual income must be less than $125,000 and for couples, the combined annual income must be less than $200,000.
  • Couples are only eligible for the scheme if they are married or in a de-facto relationship. (Other persons buying together, including siblings, parent/child or friends, are not eligible for the Scheme).
  • Applicants must have a deposit of between 5% and 20% of the property’s value.

The extended scheme is subject to timeframes for purchasing and building a new home.

Increased price caps for extended scheme

STAMP DUTY CONCESSIONS

The WA Government’s Off-the-Plan Duty Rebate Scheme continues to be available to owner-occupiers and investors who enter into:

  • a pre-construction contract between 23 October 2019 and 23 October 2021 (inclusive) to purchase a new residential unit or apartment; or 
  • a contract signed between 4 June 2020 to 31 December 2020 to purchase a new unit or apartment under construction.

The rebate amount is 75% of the duty paid, capped at a maximum of $50,000 for the pre-construction contract and $25,000 for a contract under which construction has already commenced.

There is no cap on the purchase price or value of the unit or apartment and multiple rebates can be paid to the same applicant on separate transactions for the purchase of units or apartments in the same or different developments.

REIWA’S CALL FOR STAMP DUTY REFORM

In the wake of the significant impact the COVID-19 pandemic has had on many property arrangements, REIWA has outlined a set of recommendations that it believes will help boost the economy and enable more people to enter the property market.  Specifically, REIWA is calling on the WA Government to commit to a full state tax review and is recommending major stamp duty reform to boost WA’s economic recovery post COVID.

REIWA recommendations to encourage more property transactions include:

  • Stamp duty payment options that would give buyers the choice to either pay the stamp duty upfront or pay an annual fee for the duration of ownership. 
  • Stamp duty concession for seniors over the age of 65 to encourage downsizing and free up their existing housing by obtaining a concession on stamp duty costs for their next home.
  • Making the 75% rebate for off-the-plan apartments permanent to encourage ongoing construction and pipeline projects.

CGT EXEMPTION FOR GRANNY FLATS ANNOUNCED

As part the recent Federal Budget, the Morrison Government announced the removal of CGT for granny flats.  The proposed tax exemption is aimed at providing safe accommodation for elderly or disabled Australians and to boost the construction sector.

The tax consequences associated with granny flats have historically been seen as a key impediment to formalising the living arrangement between the parties, however the lack of such agreements (and legally enforceable rights and obligations) can lead to financial exploitation.

What are the tax consequences under the current law?

Under the existing law, granny flat arrangements give rise to a number of significant tax issues, including:

  • The homeowner (adult child) may realise a CGT liability (i.e. where they are paid cash by their parent to build a granny flat) that is neither eligible for the main residence CGT exemption or the 50% CGT discount.
  • The arrangement may affect the adult child’s ability to claim the main residence exemption on subsequent disposal of their property; and
  • The potential CGT consequences that may arise when the granny flat interest is varied (for example, change of location) or terminated (for example, when an older person enters aged care).
Proposed tax exemption

Under the new measure, which is expected to be implemented as of 1 July 2021 (subject to the enactment of the law) the CGT provisions will not apply to the creation, variation or termination of a formal written granny flat arrangement providing accommodation for older Australians or people with disabilities. 

This change will only apply to agreements that are entered into because of family relationships or other personal ties and will not apply to commercial rental arrangements.

COMMERCIAL TENANCIES – EMERGENCY PERIOD EXTENSION

From 29 September 2020, existing WA tenancy protections have been extended until 28 March 2021.  The laws will be modified to target only those tenants who have experienced financial hardship due to the pandemic. 

What protection is available for commercial tenants?

Under the Commercial Tenancies (COVID-19 Response) Act 2020 and the WA Code of Conduct, the following will apply for eligible tenants:

  • the landlord cannot take prohibited action or increase rent;
  • in relation to rent relief, the parties can either continue current arrangements or make a new agreement (noting that rent relief should be adjusted to reflect changes in the tenant’s turnover); 
  • any rent that has been deferred will not payable until after 28 March 2021 (or end of the lease, whichever is earlier); and
  • an act or omission of the tenant required under law in response to the COVID-19 pandemic is not a breach or grounds for action.
Which tenants are eligible for tenancy protection?

After 29 September the above measures will only apply to “eligible tenants”, who are defined as tenants with small commercial leases, that have:

  • an annual turnover of less than $50 million; and
  • which qualify for the JobKeeper scheme or have experienced a decline in turnover of 30% or more compared to the same period last year (15% for not-for-profits)
What can commercial landlords do?

WHERE WE CAN ASSIST YOU

If you are interested in discussing the above changes in more detail and as well as any potential impact on you, please contact our leaders in Property, Marissa Bechta, Michelle Saunders or Jaco de Jager of Cooper Partners on 08 6311 6900.

This newsletter is current as of 23 December 2020, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve.  Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.