ATO quickly wields its big new property tax

If you thought the election debate on negative gearing was interesting watch the new property debates get a whole lot hotter with the Australian Taxation Office’s (ATO’s) latest bombshell announcement which guaranteed will send shockwaves through property markets.

No doubt this is just the next step following the ATO being handed total ownership of the Australian property transaction register in mid – 2015, a role they had been champing at the bit to control for quite some time.

From Friday July 1 2016 (the day before the federal election) all sellers of residential and commercial property worth in excess of $2 million will be deemed as an overseas investor unless they can attain a special tax clearance. Failure to attain the special tax clearance certificate means the seller must deduct ten (10) percent from the purchase price which is immediately paid to the ATO.

No doubt lawyers, accountants and conveyancers would be rejoicing at these newly discovered revenue streams although what has not been announced is when a seller receives their compliant special tax clearance are the associated costs in receiving the compliance tax deductible?

This is all aimed at closing loopholes solely aimed at the leakage of tax revenues. Australian residents will get their tax clearance so long as they are up to date with tax returns, proving that they acquired the property within their declared earnings – which I see as a very good move.

When the ATO took over the property reins they quickly started extrapolating all property transactions back to 1985, so it will take a while to complete the register. This new legislation is simply closing the door on those who acquired property illegally either from proceeds of crime or as non – residents.

For the last five years foreign investors have been running amok buying Australian real estate. The federal governments have laid out the welcome mat when they raised off – the – plan purchase restrictions in 2008 from 50 percent to 100 percent.

This week Fitch Ratings warned that Australia clearly has a significant ‘hidden’ offshore property buyers risk. Andrea Jaehne, a director at Fitch Ratings, stated that she was shocked by the increase of foreign buyers since 2010, where the Foreign Investment Review Board experienced an eightfold increase in approvals up to 2015. She said that it was difficult to know the true number of properties being sold offshore because foreign investment rules did not require an approval for foreigners buying apartments off the plan.

The question that needs to now be asked is (with the recent property frenzy which conveniently replaced the mining boom) with all these new measures what will happen to property prices? Well foreign buyers will almost certainly now hold back and watch what happens to the Australian markets particularly Melbourne and Sydney – we can expect some big corrections in these investment markets.

With a further 250,000 apartments to hit the domestic markets within the next two years it is very difficult to see a happy outcome for these markets – more particularly as we have more evidence that these markets are significantly slowing. Then throw in the latest Australian Bureau of Statistics data which shows that Australian wages are growing at the slowest rate for at least 18 years.

Furthermore, we are now hearing that market analysts are now coming to the conclusion that low interest rates actually cause more damage to the economy. As one commentator said this week “very low interest rates around the world are inhibiting economic recovery rather than encouraging it.”

Australia is now just 44 days away from getting a clearer indication of what will happen to the markets more particularly with negative gearing. Now is not the time to start tinkering with investors clearly preferring existing properties. Agents will tell you that when an existing apartment comes onto the market the ratio of home buyers to investors inspecting is generally 50/50. Take away half the market and of course prices will come down – which in turn will drive rents up.

Of course the opposition treasurer could produce his modelling to show otherwise, however this has not been forthcoming so one can then conclude that no modelling is in existence.

With all that’s happening on the Australian property landscape the timing is a potential disaster. In the meantime, watch how many vendors try and offload their properties before the new ATO legislation comes into effect. No doubt the ATO will be watching too.

Mosman – 2088

Number of houses on the market this time last year – 65

Number of houses on the market last week – 55 

Number of houses on the market this week – 55 

Number of apartments on the market this time last year – 47

Number of apartments on the market last week – 50

Number of apartments on the market this week – 50

CREMORNE – 2090

Number of houses on the market this time last year – 5

Number of houses on the market last week – 7 

Number of houses on the market this week – 11 

Number of apartments on the market this time last year – 10

Number of apartments on the market last week – 23 

Number of apartments on the market this week – 22

Neutral Bay – 2089 

Number of houses on the market this time last year – 6

Number of houses on the market last week – 8

Number of houses on the market this week – 8 

Number of apartments on the market this time last year – 29 

Number of apartments on the market last week – 21

Number of apartments on the market this week – 22

ROBERT SIMEON is a director of Richardson Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985. 
He has also been writing real estate blog Virtual Realty News since 2000.