Federal Budget 2017 delivered three significant changes affecting the housing market. They include changes to voluntary contributions to superannuation in order to help purchase a first home, tightening the rules around what can be claimed in relation to investment properties, and imposing a ghost house tax on foreign investors who leave properties vacant.
First home buyers
To make the task of saving for their first home easier, eligible buyers will be able to divert their pre-tax income towards a special savings account. This will mean that saving a deposit will become a little bit easier.
From 1 July 2017, individuals can make voluntary contributions of up to $15,000 per year and $30,000 in total, to their superannuation account to purchase a first home. These contributions, which are taxed at 15 per cent, along with deemed earnings, can be withdrawn for a deposit. Withdrawals will be taxed at marginal tax rates less a 30 per cent offset and allowed from 1 July 2018.
For most people, the First Home Super Saver Scheme could boost the savings they can put towards a deposit by at least 30 per cent compared with saving through a standard deposit account. This is due to the concessional tax treatment and the higher rate of earnings often realised within superannuation.
Many employees will be able to take advantage of salary sacrifice arrangements to make pre-tax contributions.
Negative gearing remains however some rules have been tightened around what can be claimed, specifically travel expenses and depreciation deductions.
Under new rules coming into effect from 1 July 2017, depreciation deductions for plant and equipment items such as washing machines and ceiling fans will only be allowed if the investor purchased them.
The ‘integrity measure’, which is intended to address concerns that such items are being claimed as tax write-offs by successive investors in excess of their actual value, is tipped to claw back $260 million over the next four years. The changes will apply to any items purchased after budget night, but existing investments will be grandfathered.
Meanwhile, investors will no longer be able to claim tax deductions for travel expenses ‘related to inspecting, maintaining or collecting rent for a residential rental property’ from 1 July 2017.
Ghost house tax will be imposed on foreign investors who leave properties vacant
To discourage foreign investors from buying residential properties and leaving these vacant, the Government will now charge foreign owners of residential properties an annual charge if the property is not occupied or available to rent for at least six months in each year.
This is expected to increase the number of homes available to Australians wishing to rent. The annual vacancy charge will apply to foreign persons who make a foreign investment application for residential property from 7:30 pm on budget night 2017.
Where a foreign-owned residential property is left vacant for more than six months in a year, a charge will be levied on the foreign owner equivalent to the foreign investment application fee which was paid at the time of application.
The new charge builds on the Government’s existing foreign investment regime which seeks to increase the number of houses available for Australians to live in. The charge provides a financial incentive for the foreign owner to make their property available on the rental market if they do not intend to reside there.
This will be administered by the Australian Taxation Office.
If you would like free advice about these changes and how they may affect you, contact Bentleys Wealth Advisors on 02 9220 0700