Australian Budget Targets Housing, Tax Compliance

Australian Treasurer Scott Morrison’s 2017 Budget focused on measures to cool the housing market and crack down on tax avoidance.

Morrison handed down the Budget on May 9. He said the the budget would return to a surplus in 2020-21 and remain in surplus over the medium term.

The Budget included a host of measures intended to tackle the issue of rising housing costs. “There are no silver bullets to making housing more affordable. But by adopting a comprehensive approach, by working together, by understanding the spectrum of housing needs, we can make a difference,” Morrison said.

In particular, the Government will introduce a range of new rules for foreign investment in Australian housing. It will prevent foreign and temporary residents from claiming the main residence capital gains tax (CGT) exemption when they sell property in Australia, effective from Budget night. Foreign and temporary tax residents who hold property on Budget night can continue to claim the exemption until June 30, 2019.

The Government will increase the foreign resident capital gains tax withholding rate from 10 percent to 12.5 percent, and reduce the property price threshold for the regime from AUD2m (USD1.5m) to AUD750,000. The changes will apply from July 1, 2017.

Foreign owners of residential property will face an annual charge if the property is not occupied or available to rent for at least six months in each year. The annual vacancy charge will apply to foreign persons who make a foreign investment application for residential property from 19:30 AEST on Budget night. The charge will be equivalent to the foreign investment application fee which was paid at the time of application.

On the housing front, the Government will also:

• Encourage older homeowners to free up housing stock, by allowing “downsizers” over the age of 65 to make a non-concessional contribution of up to AUD300,000 into their superannuation fund from the proceeds of the sale of their principal home;
• Improve the integrity of the negative gearing system by disallowing all travel deductions related to inspecting, maintaining, or collecting rent for rental property from July 1, 2017;
• Increase the CGT discount from 50 percent to 60 percent for resident individuals who invest in qualifying affordable housing, effective January 1, 2018; and
• Allow future voluntary contributions to superannuation made by first-time home buyers from July 1, 2017, to be withdrawn for a first home deposit, along with associated deemed earnings.

The Budget contained the following tax integrity measures, under which the Government will:

• Provide AUD28.2m to the Australian Taxation Office (ATO) to target serious and organized crime in the tax system, thereby extending an existing measure by a further four years to June 30, 2021;
• Tackle hybrid mismatches that occur in cross-border transactions relating to regulatory capital known as Additional Tier 1 (AT1) by: preventing returns on AT1 capital from carrying franking credits where such returns are tax deductible in a foreign jurisdiction; and where the AT1 capital is not wholly used in the offshore operations of the issuer, requiring the franking account of the issuer to be debited as if the returns were franked;
• Extend the taxable payments reporting system (TPRS) to contractors in the courier and cleaning industries from July 1, 2018;
• Provide AUD32m for one year of additional funding for ATO audit and compliance programs to better target black economy risks;
• Prohibit the manufacture, distribution, possession, use or sale of electronic point of sale sales suppression technology and software;
• Extend the Multinational Anti-Avoidance Law to structures involving foreign partnerships or trusts;
• Amend the small business CGT concessions to ensure that they can only be accessed in relation to assets used in a small business or ownership interests in a small business;
• Require purchasers of newly constructed residential properties or new subdivisions to remit the goods and services tax (GST) directly to the ATO as part of settlement;

The Budget also commits the Government to:

• Introduce a new six-basis point levy on the five largest banks with assessed liabilities of AUD100bn or more from July 1, 2017;
• Extend the 2015-16 Budget measure providing an instant asset write-off provision for small businesses, to allow small businesses to immediately deduct the business portion of most assets if they cost less than AUD20,000 and were purchased between 19:30 AEST on May 12, 2015, and June 30, 2018;
• Introduce an annual foreign worker levy of AUD1,200 or AUD1,800 per worker per year on temporary work visas, and a AUD3,000 or AUD5,000 one-off levy for those on a permanent skilled visa;
• Align the GST treatment of digital currency with money from July 1, 2017; and
• Increase the Medicare levy low-income threshold for singles, families, and seniors and pensioners from the 2016-17 income year.