How the 2017 Federal Budget affects property investors
Affordable housing, infrastructure planning and some property investment tax changes are strong focus points for investors in Scott Morrison’s second Federal Budget. So what does this mean for current investors and property owners, as well as for future investors investing in property in the 2017/2018 financial year?
“The 2017 Federal Budget has been generally well received by the public as a whole. On the plus side for property investors there are some encouraging policies to improve planning and supply, stimulate more affordable housing and funding of new infrastructure projects. It’s disappointing however to see a 50 per cent limitation imposed on foreign investors within new projects however this will likely only impact supply in the Melbourne inner city market. The biggest talking point though is not the removal of travel benefits for investment property owners, but the decision to restrict some depreciation entitlements to only the first purchaser of new investment properties. It is still unclear the full implications of this new policy, however it is likely to impact the appeal of second hand property to some investors. Those with a long-term focus and investing in new property though will be less impacted.” said Ironfish Property Director, Grant Ryan.
Here’s our comprehensive breakdown of all the key aspects for property investors:
Super Incentives for first home buyers and downsizing retirees
- First home buyers will be allowed to contribute up to $30,000 of pre-tax income (up to a maximum of $15,000 in one year) into their superannuation account. These contributions will be taxed at 15% and can be put towards a first home deposit.
- Retirees over 65 have an incentive to downsize in the form of being able to make a non-concessional contribution of up to $300,000 into their super fund from the proceeds of the sale of their principal residence.
Tax changes for investors
- Negative gearing has been a hot topic however this remains in place.
- Depreciation rules, however, have been tightened around what can be claimed by investors. According to tax depreciation specialists, BMT, under the new rules which are yet to be legislated by Parliament, investors will be able to depreciate new plant and equipment assets within a new property and items they add to their property; however subsequent owners who acquire a property after 9th of May 2017 will not be able to claim depreciation on existing plant and equipment assets. The new legislation will be in force from 1 July 2017.
- From 1 January 2018, there are some restrictions to claimable expenses for investment properties, e.g. travel expenses.
- Investors of qualifying affordable housing will be eligible for an increase in capital gains tax discount from 50 to 60 per cent as of 1 January 2018. The investment must be held for three years.
- Investment into affordable housing is further encouraged by enabling Managed Investment Trusts to invest in affordable housing. To gain tax concessions the MIT must get at least 80 per cent of its income from affordable housing and the housing must be available for rent for at least 10 years.
Restrictions for overseas property investors
- A levy will apply on all future foreign investors who fail to either occupy or lease their property for at least six months a year; the levy will be equal to the foreign investment application fee imposed on the property at the time it was acquired.
- Developers will be prevented from selling more than 50 per cent of new developments to foreign investors.
- Foreign resident capital gains tax withholding will increase from 10 per cent to 12.5 percent and the threshold reduced from $2 million to $750 000.
- Foreign and temporary residents would be denied CGT principal residence exemption from 9 May 2017.
Planning reforms to increase housing supply
- The Government will establish a $1 billion National Housing Infrastructure Facility to speed up new development opportunities.
- Housing agreements with States will be renegotiated to ensure States meet housing supply targets and work to reform planning systems.
- The Government is also helping to deliver tens of thousands of new homes in Western Sydney by offering incentive payments for planning and zoning reform.
New transport and regional infrastructure
- The Government has committed to a second Sydney airport with a rail link, as part of a major transport infrastructure program. The airport has the potential to enable further development in South West Sydney.
- A broad range of regional infrastructure projects with a budget of $472 million are designed to grow local economies and communities.