If you are looking to buy, sell or develop property in Australia, you should be aware of some of the new rules concerning ownership, taxation, and incentives. These conditions were announced during the reading of the 2017-18 budget, and some took effect at the beginning of the financial year while others were to be instigated later on. To get the rundown on the changes and the implications for investors we spoke with George Kontominas from Dendra Accounting Group. Dendra are one of Australias most recognised small business and property investment tax advisors, and they are based in Blackburn, Melbourne. George Kontominas highlighted the following rule changes as the ones that are most likely to have the biggest impact on the property market.
GST collection on subdivisions and residential properties
As from 1 July 2018, property developers won’t be required to collect GST on behalf of the ATO. Instead, buyers will be required to remit the GST when they are settling the transactions. This new condition is an integrity measure that is meant to prevent developers from failing to remit the GST. Under the system that’s being phased out, there were many incidences where developers would collect GST as part of the purchase price, claim the credit, and then fail to hand over the money to the ATO.
For buyers, the government hopes that there won’t be too much of a change in the purchase process since most of them utilize conveyancing services. As for the developers, this rule will potentially have an impact on their cash flow. Initially, developers could use the GST for other things between the collection date and the remitting date, but this won’t be possible anymore. The full impact of this rule will be known when it comes into effect, but you should seek the advice of a tax accountant if you think you will be affected.
Incentives for retirees who want to downsize
Starting 1 July 2018, people over the age of 65 can make non-concessional contributions from the money gained from selling their homes. The maximum contribution is $300,000 for an individual, but for properties that are jointly owned, each spouse can make their own contribution, which means that retiring couples will be able to contribute up to $600,000. These contributions will be left out of the current work test, age test, and the $1.6 million balance threshold. This incentive will apply to the sale of primary residences that have been in the possession of the seller for ten or more years. Contributions to superannuation through this measure will count towards the Age Pension assets test.
First home owners can save for a deposit using super contributions
The First Home Super Savers Scheme which took effect on 1 July 2017 allows people who are looking to buy their first homes to withdraw their savings and use them for a house deposit. Basically, if you want to save for a first home deposit, you can now do it by contributing more of your salary to your superannuation. If your employer doesn’t provide a framework where you can contribute more than the usually compulsory amount to the superannuation, or if you are self-employed, the government will allow you to claim a deduction if you contribute voluntarily.
For those who are already contributing, withdrawals will be allowed starting 1 July 2018. You will be able to withdraw your savings alongside any deemed earnings. You will get a 30% tax offset for any concessional contributions and earnings. Individually, you can contribute up to $15,000 per year and up to $30,000 in total. If you want to buy a house with your spouse, both of you can utilize this incentive.
Foreign owners to be charged for vacant properties
If you are a foreigner who owns residential property in Australia, you will be charged for leaving your property vacant and unavailable for rent. This is an annual charge, and since the rule came into effect on 9 May 2017, the first invoices may due very soon. To avoid these charges, the residential property in question must be occupied, or it must be genuinely accessible on the rental market for at least half a year. The charge is expected to be equal to the foreign investment application fee for the property at the time of acquisition, and it’s likely to be at least $5,000.
How to take advantage of tax incentives and to avoid penalties
To fully understand how you can take advantage of these and other new tax incentives in the property market, you should seek the advice of qualified tax accountants so that you can take full advantage of all applicable incentives while avoiding or minimizing any potential penalties.