Property Related Observations:
There was little significant negative change in this years budget directly relating to property with one exception. Fears that this year’s Federal Budget would include changes to negative gearing or capital gains tax changes on property sales have proved unfounded but there was one unheralded change that will effect owners of vacant land in respect to what they can claim in their tax returns. More on that later, but it does add to significant things that effect vacant land holders bringing changes to two.
That other big change to the way Government will collect taxes from July 1st 2018 affecting owners of vacant land that you can read about here.
The lack of major property tax changes left the real estate focus on measures to better increase housing supply. This included a commitment to establish the $1 billion National Housing Finance and Investment Corporation and release more land suitable for housing.
Allocation of billions of dollars in transport infrastructure upgrades may help unlock cheaper housing in regional areas by making them more accessible and affordable. The $3.5 billion ‘Roads of Strategic Importance’ initiative would hopefully be a key measure in boosting demand for cheaper regional housing for instance.
Other major projects with the potential to draw more house hunters into cheaper regional areas included the Federal Government’s funding of the Bruce Highway in Queensland.
One of the real estate cuts was a drop in funding to state affordable housing services. The Commonwealth committed $1.6 billion this year to support the services, a roughly $295 million drop from last year’s Budget.
Another was a change to the tax treatment related to holding vacant land which the Government hopes will discourage land banking and by so doing increase the supply of land and therefore reduce its cost, making home ownership potentially more affordable.
Property owners sitting on vacant land targeted in budget measures
This cutback on tax incentives for vacant land was one of the few specific property-related measures in this year’s federal budget. Under the move, property owners will no longer be able to claim expenses such as council rates and maintenance costs for vacant land in their tax returns. The government will deny deductions for costs associated with holding vacant land from July 2019.
Under current tax settings, property owners can claim deductions for land they never tend to make an income from while banking the land with the hopes of later selling it for a windfall when property prices have increased. The new changes apply to vacant non income producing land where approvals for development are being sought but not to vacant land owned to carry out a business, including a business of primary production or other uses such as car parking where an income is being generated [and declared of course].
Some of the denied deductions such as borrowing expenses and council rates will be able to be claimed against the capital gains tax when a property sold, but costs for services such as lawn mowing, cannot be deducted at a later date apparently.
Labor’s proposed changes of changing the rules relating to Negative Gearing and the Capital Gains Tax exemption percentage are designed to broaden the tax base. They say that they are definitely not going to be retrospective and will only apply to new property holdings. Broadly they propose that negative gearing will only be allowed on newly built property and the capital gains exemption will be reduced from the current 50% down to 25%. Like all things to do with taxation, the devil will be in the detail.
Please note: Do not take this as specific financial advice – you should always approach you accountant or financial adviser to ascertain how these changes may affect you own circumstances – this is general information only