2017 Budget Impacts on Property Investors

Federal Treasurer Scott Morrison’s 2017 budget was one of the most keenly anticipated in recent history, as the federal government faces a number of challenges ahead. Education funding, company tax cuts, funding an East Coast inland rail line and a second international airport in Sydney, as well as tackling the growing housing affordability issue all figured in pre-budget speculation. (You can have your say about Housing Affordability in our survey HERE)

Federal Budget Challenges

The budget is also seen as a litmus test for the Coalition government’s claim to be the best economic manager for the country. Prime Minister Turnbull and Treasurer, Mr. Morrison, have the dual responsibility to promote economic growth and keep a lid on both the federal government’s budget deficit and inflation, while at the same time using the budget as a policy tool to shape the nation in the years ahead.

Managing all of this, while also striving to reach a budget surplus by 2021 as stated by the government, is no easy task.

Negative Gearing

Property investors would have been watching anxiously as pre-budget speculation re-ignited the debate around whether the government would remove or significantly change negative gearing tax deductions for property investors. Some this has a big role to play in the strong property market, notably in Sydney and Melbourne. It is not the first time that negative gearing has been a potential target by the government, most notably when the former Prime Minister, Paul Keating, was treasurer in 1983.

Just as Keating decided against removing negative gearing tax-deductibility, the Turnbull-Morrison government have left negative gearing largely untouched, except for some tightening of the rules and how it operates. Property investors will now be unable to claim tax deductions for transport to and from their properties. The rules around claiming deductions for plant and equipment, such as dishwashers and ovens, have also been tightened amid claims that successive investor-owners have claimed deductions above the value of the plant and equipment.

Foreign Investors

Foreign property investors will now pay a charge of $5,000 for properties left unoccupied. Foreigners owning property in Australia will also be unable to claim Capital Gains Tax discounts, whether they reside in the property or rent it out. The Capital Gains Withholding rate has been increased from 10% to 12.5% and now applies from properties valued over and above $750,000 rather than the current level of $2 million.

The government hopes these measures will help to put downward pressure on property prices and address rental property shortages.

First Home Super Savers Scheme

Prior to the 2017 budget, there was also speculation that a scheme would be made available for first home buyers to use their superannuation for a house deposit, addressing fears first home buyers can’t access the real estate market because of rapidly increasing prices. While pre-budget commentary attempted to water down the prospects of this becoming a reality, Scott Morrison’s budget did in fact introduce measures for first home buyers to use their super for a home deposit.

In what is perhaps the most exciting development from the 2017 federal budget, first home buyers will be able to make extra non-compulsory contributions to their super funds and draw-down on these extra contributions to use for a house deposit. The extra super contributions can be salary sacrificed and will be taxed at a lower concessional rate of 15%. The extra funds will also be taxed at lower thresholds while parked in super accounts and on exit as people need to withdraw their accumulated contributions. The scheme is capped at $30,000 less the required tax on withdrawal. Couples will both be eligible, effectively doubling the amount which can be applied towards a first home.

Building/Development of Social Housing

The Government is taking action to encourage investment in new and existing affordable rental housing by increasing the Capital Gains Tax discount from 50 per cent to 60 per cent for qualifying affordable housing. To qualify for the higher discount, housing must be provided to tenants on low to moderate incomes, with rent charged at a discount below the private rental market rate. The affordable housing must be managed through a registered community housing provider and the investment held for a minimum period of three years.

Downsizers

People over the age of 65 will be encouraged to downsize their homes by being able to make non-concessional contributions of up to $300,000 into their super fund from the sale of their principal home.

Snapshot of the Budget

Overall, the 2017 Budget seems reasonable and property investors around the nation are likely to be less anxious as negative gearing measures have been largely preserved. People who prefer to rent will also be relieved, since removing negative gearing has been predicted to reduce rental property availability and the rental market is already tight in many parts of Australia.

Affordability – What do you think?

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CLICK HERE to answer our quick ‘Affordability Survey’ or Contact Us to chat about Budget changes that may relate to your financial situation.