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Last Tuesday 9th of May, the Federal Government released the 17/18 budget. With housing affordability under the spotlight, here are five key takeouts you should know.
1. Tax Concessions
Travel expenses related to an investment property can no longer be claimed;
You can no longer claim flights, accommodation or any travel related expenses to do with your investment property.
Changes to the depreciation schedule of plant and equipment (carpets, blinds, stoves, air conditioning etc.) for your investment property. Currently, if you buy a property off plan, a new build or a renovated property you can claim depreciation on a huge list of items, like carpets, blinds, air conditioning, dishwasher etc. This will change come July 1, 2017. You can still claim depreciation on investment properties - but you must adhere to either of the following:
If you purchase a property off a developer (how we view the policy);
Build a new home and commission the builder;
Purchase a property and undertake structural or cosmetic renovations;
Purchase a property and install new items such as a dishwasher, air conditioning etc;
If you purchase a commercial property, and
For any investment property purchased prior to the 9th of May 2017.
When you will no longer be able to claim depreciation:
On second-hand properties where you have made no modifications or installed new items.
The above legislation still needs to be passed and would come into effect from the 1st of July 2017. However, if you have purchased a second-hand property after 7.30pm on the 9th of May new rules could apply and your professional service team should be consulted.
Milk Chocolate will always present properties to clients that gain the maximum depreciation possible.
Capital Gains Tax Concession related to an investment property;
An additional 10% capital gains tax concession (CGT) (an increase to 60%) for investors who invest in qualified affordable housing;
Non-residents for tax purposes will continue to be exempt from the CGT discount for investment properties.
However, the main residence exemption and temporary absence rules still apply.
2. First Home Buyers
The Federal Government have introduced the First Home Buyers Super Saver Scheme;
First home buyers will be able to make additional superannuation contributions up to $15,000 p.a to a maximum of $30,000. This can be withdrawn to go towards the deposit of a first home ($60,000 for couples). The contributions will be taxed at 15% along with deemed earnings.* The money can be withdrawn from the 1st of July 2018 and will be taxed at your marginal tax rate less a 30% discount.
3. Downsizes
This initiative gives downsizers the ability to pay money gained from the sale of their principal place of residence into their superannuation;
From the 1st of July 2018, people 65 and over can make a post-tax payment into their superannuation fund of up to $300,000 ($600,000 for couples) from the proceeds of selling their home. The catch, the home must be your principal place of residence and be owned for a minimum of 10 years.
4. Foreign Housing Investors
There will be limits placed on the number of new developments that can be sold to foreign investors and a ‘lived in' tax implemented.
50% of apartments in new developments or estates must be kept for Australian citizens;
Foreign owners must have their property lived in or available for rent for at least six months each year, or they will be slugged a $5,000 tax on the property;
As of the 1st of July 2017, the Government is also changing the foreign resident capital gains tax withholding regime by increasing the withholding rate from 10% to 12.5%. As well as increasing the number of foreign residents caught by the regime by reducing the threshold from $2,000,000 million to $750,000.
What this means in English! When a non-Australian citizen sells a property, the person buying the property will be required to hold back 12.5% of the purchase price (currently 10%) and pay that amount to the Australian Taxation Office (ATO)
Currently, this is for properties purchased for $2,000,000 or over which will drop to properties purchased for $750,000 or over.
5. Federal Government Land Releases
To increase the amount of available land to tackle the supply issues in Sydney and Melbourne, the Federal Government will be releasing Government owned land;
This includes 127 hectares of unused defence land in Maribyrnong, an area 10 kilometres outside the Melbourne CBD. It’s believed the land is large enough to develop up to 6,000 new homes. In Sydney, earmarked for development is a 3.6ha site in Penrith and land in Sydney’s South-West.
Look out for our upcoming blog on how we believe these changes will affect the price of property in Australia.
Milk Chocolate was founded seven years ago by Richie Ragel and Michael Cleary, to purchase residential and commercial property in Australia on behalf of our clients, looking for a home or investment property. To see how we can help you get in touch here.
Thanks, Michael
Source: Australian Federal Government Budget 2017-18 / Australian Taxation Office
*The amount of earnings that can be released will be calculated using a deemed rate of return based on the 90-day Bank Bill rate plus three percentage points (as per the Shortfall Interest Charge).
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