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HOUSING AFFORDABILITY - 2017 FEDERAL BUDGET

Wednesday, 10 May 2017

The Government announced a number of Budget measures to address housing affordability and homelessness.

But in his Budget speech the Treasurer Scott Morrison said, “There are no silver bullets to make housing more affordable. But by adopting a comprehensive approach, by working together, by understanding the spectrum of housing needs, we can make a difference. “

He said the Commonwealth will replace the National Affordable Housing Agreement that provides $1.3 billion every year to the States and Territories, with a new set of agreements, with the same funding, requiring the States to deliver on housing supply targets and reform their planning systems, he said.

It is also establishing a $1 billion National Housing Infrastructure Facility, based on a UK model, to fund ‘micro’ city deals that remove infrastructure impediments to developing new homes.

 

Deductions for travel expenses

From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.

This is an integrity measure to address concerns that many taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private travel purposes. As part of the Government’s strategy to improve housing outcomes, this measure will provide confidence in the tax system by ensuring tax concessions are better targeted.

This measure will not prevent investors from engaging third parties such as real estate agents for property management services. These expenses will remain deductible.

This measure is estimated to have a gain to revenue of $540.0 million over the forward estimates period.

 

New limits on investment deductions

From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate. The items are usually mechanical fixtures or those which can be easily removed from a property such as dishwashers and ceiling fans.

This is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value. Acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for subsequent investors.

The changes will apply prospectively, with existing investments grandfathered. The estimated gain to revenue is $260.0 million over the forward estimates.

 

Capital gains tax discount on affordable housing

The Government announced the capital gains tax discount for investments in affordable housing will increase to 60 per cent.

This and other measures will support State, Territory and local governments imposing inclusionary zoning requirements on new development sites and provide more vehicles for superannuation funds to invest in affordable housing, the Budget said.

The Government will encourage investment into affordable housing by enabling Managed Investment Trusts (MITs) to invest in affordable housing. For investors to receive concessional taxation treatment through a MIT, the affordable housing must be available for rent for at least 10 years.

MITs allow investors to pool their funds to invest in primarily passive investments and have them managed by a professional manager. The MIT will be able to acquire, construct or redevelop the property but must derive at least 80 per cent of its assessable income from affordable housing. Qualifying housing must be provided to low to moderate income tenants, with rent charged at a discount below the private rental market rate. It will start from 1 July 2017.

Under the MIT withholding tax regime, non-resident investors are generally subject to a reduced rate of tax if they are a resident of a country with which Australia has an effective exchange of information treaty. Non-resident investors are generally subject to a 15 per cent final withholding tax rate on fund payments from the MIT. Resident investors are taxed at their marginal tax rates, with capital gains remaining eligible for the capital gains tax discount.

Up to 20 per cent of the income of the MIT may be derived from other eligible investment activities permitted under the existing MIT rules in the income tax law. If this is breached, or less than 80 per cent of the MIT’s income is from affordable housing in an income year, the non-resident investor will be liable to pay withholding tax at 30 per cent on investment returns for that income year. Properties held for rent as affordable housing for less than 10 years will be subject to a 30 per cent withholding tax rate on the net capital gains arising from the disposal of those assets.

 

Bond aggregator

The Government will provide $63.1 million over four years from 2017-18 (including $4.8 million capital) to the Treasury to establish the National Housing Finance and Investment Corporation (NHFIC).

The NHFIC will operate an affordable housing bond aggregator. The function is to provide cheaper and longer term finance for community housing providers by aggregating their borrowing requirements and issuing bonds to the wholesale market at a lower cost and longer tenor than bank finance. The design of the affordable housing bond aggregator and the NHFIC will be informed by the Affordable Housing Implementation Taskforce.

 

Social Impact Investments

The Government will provide $10.2 million over 10 years from 2017-18 to partner State and Territory Governments to trial Social Impact Investments in funding some innovative programs aimed at improving housing and welfare outcomes for young people at risk of homelessness. The trial will target priority groups, including those supported by specialist homelessness services, leaving the out-of-home care system or institutions such as juvenile detention.

 

National Housing Infrastructure Facility

The new National Housing Finance and Investment Corporation will administer a $1 billion National Housing Infrastructure Facility, which will provide financial assistance to local government.

The facility will provide financial assistance to local government from 2018-19 for infrastructure that supports new housing, particularly affordable housing. The NHIF will provide financial assistance of up to $1 billion over five years from 2018-19, including concessional loans, grants, and other financial instruments.

The cost of $118.0 million over three years from 2018-19 includes the grants component and the balance impact of the concessional loans. The revenue component relates to interest earned on the concessional loans and is not for publication because of commercial sensitivities.

 

Super for first home savers

The Government will encourage home ownership by allowing voluntary contributions to superannuation made by first home buyers from 1 July 2017 to be withdrawn for a first home deposit, along with associated deemed earnings.

Concessional contributions and earnings that are withdrawn will be taxed at marginal rates less a 30 per cent offset. Combined with the existing concessional tax treatment of contributions and earnings, this will provide an incentive that will enable first home buyers to build savings more quickly for a home deposit.

Up to $15,000 a year and a total of $30,000 can be contributed, within existing caps. Contributions can be made from 1 July 2017. Withdrawals will be allowed from 1 July 2018 onwards. Both members of a couple can take advantage of this measure to buy their first home.

This is expected to cost revenue $250.0 million over the forward estimates.

 

Superannuation concession for downsizing

The Government will encourage older Australians to free up housing stock by enabling downsizers over the age of 65 to make a non-concessional contribution of up to $300,000 into their superannuation fund from the proceeds of the sale of their principal home.

The Treasurer said Mum and dad investors will continue to be able to use negative gearing, supporting the supply of rental housing and placing downward pressure on rents.
Regulatory agencies will continue to use their flexible and calibrated controls.
Mr Morrison said the Government will legislate to extend APRA’s ability to apply controls to the non-ADI sector and explicitly allow them to differentiate the application of loan controls by location.

These contributions will be in addition to those currently permitted under existing rules and caps and they will be exempt from the existing age test, work test and the $1.6 million balance test for making non-concessional contributions.

This measure will apply to sales of a principal residence owned for the past ten or more years and both members of a couple will be able to take advantage of this measure for the same home.

This measure reduces a barrier to downsizing for older people. Encouraging downsizing may enable more effective use of the housing stock by freeing up larger homes for younger, growing families.

 

Changes for foreign home owners

The Government will introduce a charge on foreign owners of residential property where the property is not occupied or genuinely available on the rental market for at least six months a year. The charge will be levied annually and will be equivalent to the relevant foreign investment application fee imposed on the property at the time it was acquired by the foreign investor. This measure will apply to foreigners who make a foreign investment application for residential property from 7:30PM (AEST) on 9 May 2017. It is estimated to have a gain to budget of $16.3 million over the forward estimates period.
It is intended to encourage foreign owners of residential property to make properties available for rent where they are not a residence and so increase the dwellings available for Australians to live in.

The Government will extend Australia’s foreign resident capital gains tax (CGT) regime by:
• denying foreign and temporary tax residents access to the CGT main residence exemption from 7:30PM (AEST) on 9 May 2017, however existing properties held before this will be grandfathered until 30 June 2019;
• increasing the CGT withholding rate for foreign tax residents from 10 per cent to 12.5 per cent, from 1 July 2017; and
• reducing the CGT withholding threshold for foreign tax residents from $2 million to $750,000 from 1 July 2017.

The Government will improve the integrity of the foreign resident CGT regime by applying the principal asset test on an associate inclusive basis from 7:30PM (AEST) on 9 May 2017, for foreign tax residents with indirect interests in Australian real property. This will ensure that foreign tax residents cannot avoid a CGT liability by disaggregating indirect interests in Australian real property.

The measure is estimated to increase Government reveneue by $581 million over the forward estimates.

 

Foreign ownership cap

The Government will introduce a 50 per cent cap on foreign ownership in new developments through a condition on New Dwelling Exemption Certificates. The cap will be included as a condition on New Dwelling Exemption Certificates where the application was made from 7:30PM on 9 May 2017.

New Dwelling Exemption Certificates are granted to property developers and act as a pre-approval allowing the sale of new dwellings in a specified development to foreign persons without each foreign purchaser seeking their own foreign investment approval. The current certificates do not limit the amount of sales that may be made to foreign purchasers.

This will ensure that a minimum proportion of developments are available for Australians to purchase. This sends a clear message that the Government expects developments to increase the housing stock for Australian purchasers.

 

New National Housing and Homelessness Agreement

The Government will work with States and Territories to reform the National Affordable Housing Agreement and provide ongoing, indexed funding for a new National Housing and Homelessness Agreement (NHHA) from 2018-19. The NHHA will combine current funding under the National Affordable Housing Specific Purpose Payment (NAHSPP) and the National Partnership Agreement on Homelessness (NPAH).

As part of the NHHA, the Government will provide an additional $375.3 million over three years from 2018-19 to fund ongoing homelessness support services, with funding to be matched by State and Territory governments.

The Government will provide $6.5 million over four years to the National Competition Council to assist NHHA implementation and assessment.
Cooperatives

The Government will provide $6 million over four years from 2017-18 towards a national rollout of the Homes for Homes initiative, established by The Big Issue to encourage property vendors to donate 0.1 per cent of sale proceeds to fund social and affordable housing projects across Australia.

 

Click below to view source

Budget Paper 2 Part 1 Revenue, Treasury pages 26, 27, 28, 29, 30-31

Budget Paper 2 Part 2 Expenses, Social Services pages 155, 156, 169

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