Tax Laws

<html><body>
Amendments being pushed through by Revenue Minister Kelly O’Dwyer will deny property and share investors the special low small business company tax rate.
The changes seek to prohibit firms that earn 80 per cent or more of their revenue from passive or investment income from claiming the lower tax rate. Tax experts say it will only add another layer to the complexity of the tax system and highlight avoidance opportunities.
O’Dwyer said the government’s decision to cut the tax rate for small companies was not intended for passive investment companies.
“The Turnbull government is committed to lower taxes on business because we want to see them invest and grow,” she said. “These amendments will provide greater clarity about who qualifies for the lower company tax rate.”
The legislation would mean companies that have a blend of investment and conventional business activities will have to carefully structure them for tax purposes.
Tax Institute senior tax counsel, Bob Deutsch was quoted by The Australian as saying that the new two-tiered company tax system would raise issues about which rate to apply in what circumstances.
“There may be questions about whether it is appropriate, for example, for all rent to be classified as passive income for this purpose. At a broader level, the need for a policy decision of this type highlights the inevitable complexity arising from a two-tier corporate tax rate system,” Professor Deutsch said.
Director of the Australian ­National University’s Tax and Transfer Policy Institute, Miranda Stewart, said the draft legislation introduced a concept to tax law of “base rate passive entity income”.
“Previously only those who worked in technical areas would have had to deal with concepts like this, but now small businesses and their advisers will have to come to grips with it,” she was quoted by The Australian.
“We now have another boundary line between predominantly passive income and active business income.”
KPMG tax partner Grant Wardell Johnson said it had long been obvious as soon as the low small business tax rate was announced that there would be problems with whether a company with passive investment income was “carrying on a business”.
“The government found it hard to accept that in political terms,” he said. “I welcome the government’s move to establish a ‘bright line’ test.”
</body></html>

jonathanchancellor-7SQnKwU6yx

Property investors to miss out on low tax rate in new legislation push

<html><body>
The new financial year has started with a slew of new or amended taxes, rules, grants and concessions, related to property, especially for foreign investors.
Federal changes  
<ul>
<li>First home buyers will be able to access specific voluntary contributions made in to superannuation after 1 July 2017. The voluntary contributions will be accessible by individuals from 1 July 2018. </li>
<li>There is a cap of $15,000 per year on the contribution to superannuation and a total of $30,000 can be contributed to the super fund. </li>
<li>Foreign tax residents will be charged a higher Capital Gains Tax withholding rate of 12.5%, up from 10%, and a reduced CGT withholding threshold of $750,000 (down from $2 million).</li>
<li>ATO will disallow deductions for travel expenses relating to inspecting, maintaining, or collecting rent for a residential rental property.</li>
<li>The major banks CBA, Westpac, NAB, ANZ and Macquarie will be charged a levy that is expected to add raise more than $6 billion and it is anticipated that there will be flow on increases in home and commercial lending rates.</li>
<li>In addition to these federal tax changes, there are state tax changes as well that will come into force from July 1.</li>
</ul>
NSW
<ul>
<li>The biggest changes are stamp duty concessions in NSW, with the tax abolished for first home buyers on existing and new properties up to $650,000 while discounts apply for properties up to $800,000. The First Home Owners grant is also available to new homes up to $600,000.</li>
<li>Also, only FHBs benefit with concession on residential off-the-plan purchases, getting up to 12 months to pay.</li>
<li>Application fees for foreign purchases of residential properties worth less than $10 million will also rise by 10 percent on the current fees.</li>
<li>In addition, vacancy taxes kick in for unoccupied properties more than six months. The charge will be equivalent to the relevant foreign investment application fee imposed on the property at the time it was bought by the foreign investor.</li>
</ul>
VICTORIA
<ul>
<li>First-home buyers in the city can get a $10,000 First Home Owner Grant but the state has incentivised buying in regional Victoria with a doubling of the grant.</li>
<li>Stamp duty abolished for first-home buyers for homes up to $600,000 and reduced for homes priced up to $750,000.</li>
<li>Victoria also launched a ‘Homes for Victorians’ pilot scheme where the state will co-purchase the home with the state government</li>
<li>For off-the-plan concessions, only first home buyers who entered into contracts from 1 July 2017 will be eligible.</li>
<li>The existing stamp duty exemption for transfers of properties between spouses will be removed (but the existing stamp duty exemption applicable to transfers of principal places of residence between spouses, and transfers following a relationship breakdown, will remain).</li>
<li>The state also announced earlier this year a <a href="https://www.urban.com.au/news/69963-2017-budget-introduces-ghost-home-tax-for-foreign-purchasers-of-vacant-kept-australian-property" target="_blank">vacancy tax </a>to charge investors who leave their properties vacant for a length of time as a means to increase supply.</li>
</ul>
ACT
<ul>
<li>The ACT has also announced a land tax on vacant properties from July 2018.</li>
<li>Meanwhile, there will a rate rise of 7 percent on average from what the  government collects for Canberra homes. Unit rates will rise by an even higher 19 percent the coming financial year as the government changes the way it calculates rates for apartments and units. However, there is a $100 rebate to unit and apartment owners.</li>
</ul>
QUEENSLAND
<ul>
<li>In Queensland there will be a 1.5% surcharge for absentee payers of land tax, applying to land holdings of $350,000 or higher in addition to other land tax payable (does not apply to Queensland residents but anticipated to impact on property investment), according to a blog on Queensland Economic Advocacy Solutions (QEAS).</li>
<li>The state has also completely cut stamp duty on first-home buyer purchases of $600,000 or less and reduced it for homes priced up to $750,000.</li>
<li>To assist first home buyers entering the housing market, the Queensland First Home Owners’ Grant is being temporarily increased from $15,000 to $20,000 for contracts on newly constructed homes entered into between 1 July 2017 and 31 December 2017.  </li>
</ul>
NT
<ul>
<li>There’s an increase in the maximum stamp duty rate (from 5.45 percent to 5.95 percent) for conveyances, including landholder duty, for contracts signed on or after 1 July 2017 where the dutiable value is $3 million or more but less than $5 million, the rate is 5.75 percent of the dutiable value and where the dutiable value is $5m or more, the rate is 5.95 percent of the dutiable value, the eliteagent.com.au reported citing KPMG.</li>
<li>Meanwhile, first home buyers will see stamp duty abolished on purchases of homes up to $500,000, while discounts would be applied for properties up to $650,000, on established homes. </li>
</ul>
TASMANIA
<ul>
<li>The fee for issuing a Land Tax Search certificate will increase from $11.47 to $11.62 from 1 July 2017.</li>
<li>The first home owner grant of $20,000 has been extended one year from 1 July 2017 to 30 June 2018.</li>
<li>The Tasmanian government announced partial duty relief for most types of house and land package purchases, through amendments to be made to section 19(2) of the Duties Act 2001 which come into effect on 1 July. These are mostly to do with calculations as they relate to improvements, the Elite Agent said citing the state Treasury and Finance department.</li>
</ul>
SOUTH AUSTRALIA 
<ul>
<li>Foreign investors have been slugged with a 4 percent conveyance duty surcharge on residential properties from 1 Jan 2018.</li>
<li>Stamp duty concessions of $15,500 for off the plan apartments have got a one-year extension.</li>
<li>Further, first homebuyers who purchase off-the-plan could be entitled to more than $40,000 in assistance under state government measures to stimulate jobs and activity in the building industry. People who have previously owned a home will be eligible to receive up to $25,500.</li>
<li>In a reprieve to investors, there will be no land tax for five years if they buy eligible off-the-plan apartments.</li>
<li>A new $10,000 pre-construction grant for the next three months for off the plan apartments in buildings yet to be built is being introduced.</li>
</ul>
 WA
<ul>
<li>First home buyers will see their grant being slashed to $10,000 from the current $15,000. </li>
<li>First home buyers purchasing a new or established home will continue to be exempt from duty on homes valued up to $430,000 or vacant land valued up to $300,000, and to receive a concessional rate of duty on homes valued up to $530,000 or vacant land valued up to $400,000.</li>
</ul>
In addition, there are other changes as well. 
The <a href="https://www.urban.com.au/expert-insights/buying/70129-what-s-in-the-2017-18-budget-for-housing-and-homelessness-ahuri" target="_blank">National Housing and Homelessness Agreement</a> (NHHA) will replace the National Affordable Housing Agreement (NAHA) from 1 July 2018 and will combine funding currently allocated under the National Affordable Housing Specific Purpose Payment (NAHSPP) and the National Partnership Agreement on Homelessness (NPAH).
The NHHA will target jurisdiction-specific priorities including supply targets, planning and zoning reforms and renewal of public housing stock while also supporting the delivery of frontline homelessness services. Funding for both the housing and homelessness sectors will be ongoing and indexed.
 
</body></html>

Foreign investors to feel the heat most from July 1 tax changes

<html><body>
GUEST OBSERVER
All Australians should be able to retire with dignity and decent living standards, states the recently released superannuation report of the Committee for Economic Development of Australia (CEDA).
CEDA’s report is commendable. And although I agree with most of its recommendations, including what the purpose of super should be, how retirement income products dealing with longevity risk should be developed and how super tax laws should be made more equitable, I have one serious misgiving: I do not believe active employees should be able to use their super funds to invest in owner-occupied housing.
The American 401(k) system (also a defined contribution model like Australian super) provides a cautionary tale on the damage caused by what’s known as pre-retirement leakage. Unlike Australia, it is fairly easy for US workers to access their 401(k) retirement accounts during active employment. Even prior to preservation age, which is 59<a href="https://www.propertyobserver.com.au/"></a>½ in the US, individuals are able to use their workplace retirement accounts for a number of purposes, both with and without tax consequences.
For instance, the US tax code allows individuals under specified circumstances to take loans against the value of their retirement funds without tax penalty. Although such funds are required to be secured and paid back like any other commercial loan, studies show many employees are never able to restore the money to their 401(k) accounts. Not only does this lead to diminished pension pots, it also means there will be less money upon which interest or investment returns can build on in the long-term.
The US 401(k) system also permits employees to take hardship distributions for a number of reasons, including purchasing of a first home, university education and medical expenses. In these circumstances, not only does the individual not face any tax penalties for the withdrawal (except for having to pay ordinary income tax), they are also not required to pay back the money to their account.
Finally, employees can take money out of their 401(k) accounts if they “really” want. What I mean is, absent even an authorised loan or hardship distribution, employees before preservation age can withdraw funds from their retirement accounts. We call this “expensive money” because both a 10% excise tax and 20% employer withholding of funds apply. In the end, these employees receive 70 cents in the dollar for withdrawing money prematurely from their retirement account.
Such leakage in the US causes a significant erosion of assets in retirement - approximately 1.5% of retirement plan assets “leak” out every year. This can potentially lead to a reduction in total retirement assets of 20% to 25% over an employee’s working years, according to experts.
<h2>Remember the role of super</h2>
I do not disagree with the CEDA report that housing makes a critical contribution to sustaining living standards and helping to address elderly poverty. Needless to say, there should be a multipronged federal government response to the spectre of increasing poverty in old age because of the lack of home ownership. Many useful suggestions are made in the CEDA report in this regard.
But using super, even if only for first-time home buyers, should not be the answer. Indeed, CEDA agrees with much of the recent Financial System Inquiry report (the Murray report), which concludes that super legislation should state explicitly and clearly that its purpose is to provide retirement income.
While increasing home ownership for younger workers is an admirable policy prescription, it is not consistent with the retirement income focus of super. Allowing workers to use their super funds to buy homes means there will be much less money in the pension pot to grow over time to provide the necessary retirement income.
And the harm is ongoing. Making such a change would lead to a further constrained supply of housing, meaning more money chasing the increasingly limited stock of property, tending to drive home prices up even further.
Of course, when, not if, the housing market crashes, much of the super savings tied into such property will also be lost. This problem stems from a lack of diversification in one’s retirement portfolio through an over-investment in the family home. The consequent lack of investment diversification among asset classes means super is less likely to be able to survive future shocks to the Australian economic system.
The lesson from the United States is clear: pre-retirement leakage from super should be permitted only under the most exceptional of circumstances. Even for the very best of reasons, like first-time home ownership, Canberra should prevent super fund leakage during active employment to ensure the primary objective of super: retirement income adequacy.
Paul Secunda is senior Fulbright Scholar in Law (Labour and Super) at University of Melbourne and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/paul-secunda-187662" target="_blank">here.</a>
</body></html>

Tax Laws

Editor's Picks

Have something to contribute?

Developments

New apartments

New townhouses

News

Tax Laws

Editor's Picks

Receive the latest news stories to your inbox

Have something to contribute?

Developments

New apartments

New townhouses

News