The 2017 budget announcement has raised many questions around property transactions for foreign and Australian residents. Bentleys Wealth Advisors summarised the key proposed changes you need to understand.
NSW Government Announces Plan for First Home Buyers
Under increasing pressure to improve housing affordability and availability the NSW Government has released a package of measures designed to support first home buyers. These new measures could save first home buyers up to $34,360 and are seen as a significant benefit. However, foreign investors who invest in NSW housing will be required to pay more in state taxes.
Some of the broader policies that will be implemented to improve access to affordable housing include:
- Increasing grants and concessions available to first home buyers;
- Increasing the supply of reasonably priced housing; and
- Speeding up the delivery of necessary infrastructure to support growing and new communities.
Recognising that first home buyers face a range of obstacles to getting into the market, such as rising housing prices, onerous deposits and competition from local and overseas investors, the state government has introduced a range of measures which will start from the 1st July 2017.
Briefly, these measures include:
- Abolishing all stamp duty for first home buyers on existing and new homes up to $650,000, and stamp duty discounts for homes up to $800,000, which should provide savings of up to $24,740
- Abolishing the stamp duty charged on lenders’ mortgage insurance
- A First Home Owners Grant of $10,000 will be available for builders of new properties worth up to $750,000 and purchasers of new properties worth up to $600,000
- Property buyers who are purchasing a home they plan to live in off the plan will still be entitled to a 12-month delay in the payment of stamp duty. Meaning stamp duty will be payable within 3 months of settlement or 15 months after contract date or whichever comes first. This is available irrespective of whether the purchaser is a first home buyer or not.
- The 12 month deferral of stamp duty for residential off-the-plan purchases by investors has been abolished.
Foreign investors will be the hardest hit, receiving a doubling of the Foreign Investor Surcharge from four per cent to eight per cent, and a rise from 0.75 per cent to 2 per cent on land tax.
More detailed information can be found on the NSW Government’s housing affordability package at www.nsw.gov.au/housingaffordability
Or, contact your Advisor or Accountant at Bentleys on 02 9220 0700.
Federal Budget
As previously reported in Partners Outlook, the 2017 Federal Budget includes proposals that could have a significant impact on the housing market. This includes the following proposed changes to property transactions:
1. Using superannuation for deposit
From 1 July 2017, first home buyers will be able to make voluntary superannuation contributions of $15,000 a year and a total of $30,000 to be applied towards a deposit for contracts of sale entered into from 1 July 2018.
2. Contributing downsizing proceeds to super
From 1 July 2018, individuals aged 65 or over will be able to make a non-concessional contribution to super of up to $300,000 from the proceeds of selling their home, that they have owned and resided in for at least 10 years. These contributions will not count towards the non-concessional contribution cap and the individual making the contribution will not need to meet the existing maximum age (cannot make contributions if aged over 75), work or $1.6m balance tests for contributing to super. You will need to consider the effect of the proceeds on any means-tested pension.
3. CGT withholding tax
A CGT withholding tax regime already exists whereby generally, purchasers (of property over $2m) who entered into contracts of sale from 1 July 2016 were required to withhold and remit 10% of the purchase price to the Commissioner of Taxation unless the vendor can provide to the purchaser a clearance certificate issued by the Commissioner that the vendor is not a foreign entity. The proposed changes mean the regime will apply to contracts of sale entered into from 1 July 2017 where the purchase price is $750,000 and above and the withholding tax rate will be 12.5%.
4. Main residence CGT exemption for foreign and temporary tax residents
Foreign and temporary tax residents who enter into a contract of sale after 7.30pm on 9 May 2017 cannot claim the main residence capital tax gains exemption when they sell the property. Foreign and temporary tax residents who hold property on 9 May 2017 can continue to claim the exemption until 30 June 2019.
5. Foreign ownership in new developments
Vendors can apply for a New Dwelling Exemption Certificate to sell new dwellings in a development to foreign persons. This means that individual foreign investors are not required to seek their own foreign investment approval to purchase a new dwelling in that development where the vendor holds an exemption certificate. In order to apply for the exemption certificate, the development must be multi-storey and have at least 50 dwellings.Applications for New Dwelling Exemption Certificates that are received from 7.30pm (AEST) on 9 May 2017 which are approved will be subject to a condition that the developer may only sell a maximum of 50% of the total dwellings in the development to foreign persons. This condition will not apply to existing approvals, or applications which were received before that time but are still to be processed. The Federal Government wants to ensure that dwellings in new developments in Australia are kept available for Australians.
6. Annual charge for foreign owners of vacant residential properties
The Treasurer has announced that an annual vacancy charge will apply to foreign persons who make a foreign investment application for residential property from 7.30pm (AEST) on 9 May 2017 and leave the property unoccupied or unavailable to rent for at least six months in each year.
When will we know if these changes have been approved?
Although some of the above changes are proposed to apply retrospectively, until the legislation is enacted, caution should be exercised when making decisions based on the proposals. In response to previous budget announcements, we have seen people make decisions based on a proposal that never became legislation.
