2017 Federal Budget: Snapshot of changes to the property market

The 2017 Federal Budget was handed down on 9 May 2017, bringing a range of changes to property markets. The major changes affecting real estate include the following:

First home buyers

The Budget has introduced the First Home Super Saver Scheme which will allow first home buyers to contribute up to $15,000 per year ($30,000 in total) to their superannuation fund. The contributed funds together with the earnings can then be withdrawn to be used towards a house deposit. As voluntary superannuation contributions are taxed at concessional rates, the scheme creates incentives for first home buyers to save more. Contributions can be made from July 2017 and withdrawals allowed from July 2018.

Expansion of capital gains tax withholding regime

Where a foreign resident sells certain taxable Australian property, the purchaser is required to withhold an amount from the purchase price and pay that amount to the ATO. The Budget has introduced the following changes to the foreign resident capital gains tax withholding regime which will significantly extend the number of properties subject to the regime:

• an increase in the withholding tax rate from 10% to 12.5%; and
• a reduction in the threshold from $2 million to $750,000.

Australian resident vendors selling property over the $750,000 threshold will need to obtain a clearance certificate prior to settlement, to ensure they are not subject to the 10% non-final withholding tax.

Foreign investment in new development

Foreign ownership in new developments will now be capped at 50% of the development. The remaining 50% of the development will be required to be sold locally in the aim to increase the supply of property for local buyers.

Vacancy charge for foreign investors

An annual “vacancy” charge will be introduced for foreign owners of “underutilised residential property”. Where foreign owned residential property is unoccupied for more than 6 months, a charge to the value of the foreign investment application fee (starting from $5,000) will be charged each year. This change is anticipated to increase the number of vacant properties being made available on the rental market.

Negative gearing for property investments

Investors who previously claimed tax deductions for travel expenses for inspecting, maintaining or collecting rent for an investment property will no longer be available.

Higher CGT discounts

The Budget will bring an increase in the capital gains tax discount from 50% to 60% for Australian resident investors who in qualifying affordable housing.

The requirements to qualify are as follows:

• housing must be provided to low to moderate income tenants;
• the rent charged must be below market rent;
• the property must be managed through a registered community housing provider; and
• the property must be held as affordable housing for a minimum of three years.

Downsizing for retirees

From 1 July 2017, Australians aged over 65 will be allowed to contribute up to $300,000 to superannuation from the proceeds of sale of properties owned for more than 10 years.