A large number of Acts and Regulations have been enacted by the Australian Government which impacted the property Industry. Here is a quick summary of legislative changes since 2017.
Foreign resident capital gains withholding regime
Starting from 1 July 2017, purchasers of certain taxable Australian property (contract price above $750,000) are liable to pay 12.5% of purchase price to the ATO by settlement, while foreign resident vendors are able to claim for withheld amount when they lodge their tax return.
Taxable Australian property includes
- A direct interest in real property situated in Australia,
- A mining, quarrying or prospecting right to minerals, petroleum or quarry materials situated in Australia,
- A CGT asset that you have used at any time in carrying on a business through a permanent establishment in Australia,
- An indirect interest in Australian real property, or
- Rights and options in relation to the above assets
Since 9 May 2017, foreign owners of residential dwellings in Australia are required to pay annual vacancy fee if their dwelling is not residentially occupied or genuinely available on the rental market for more than 183 days during the vacancy year, or the vacancy fee return is not lodged by the due date.
Vacancy year is not a calendar or financial year but is each successive period of 12 months starting on the dwelling’s occupation day (generally settlement) unique to each dwelling.
If you are a joint tenant, only one of the tenants need to lodge vacancy fee return . However, if you are a tenant in common, each tenant needs to lodge a vacancy fee return.
New rules apply to limit depreciation starting from 7.30 p.m. (AEST) 9 May 2017. Details as below:
|Cannot claim depreciation||Can claim depreciation|
|û Acquire property on or after 7.30 pm (AEST) on 9 May 2017 that has been ‘previously used’||ü Acquire new property on or after 7.30 pm (AEST) on 9 May 2017 that has not been ‘previously used’|
|û Replace existing depreciating asset with second-hand asset||ü Replace existing depreciating asset with new asset|
|û Property held before 7.30 pm (AEST) on 9 May 2017 and used wholly in 2016-17 for a non-taxable purpose||ü Property held before 7.30 pm (AEST) on 9 May 2017 and used wholly/partly in 2016-17 for a taxable purpose|
GST property withholding regime
In the past, a purchaser of new residential premises or potential residential land would need to pay GST to the vendor as part of the price, who would then remit it to the ATO with their post-settlement Business Activity Statement. However, from 1 July 2018, purchaser is required to withhold GST at settlement and remit the amount directly to the ATO.
All vendors must provide the purchaser with a specific notice before the supply is made. The notice will need to advise the purchaser of whether it needs to withhold GST, and it so, the amount and means of payment.
Holding costs for vacant land
Deductions that can be claimed for holding vacant land incurred on or after 1 July 2019 is limited, even if the land began to be held before that date. Land is considered as vacant if there is no substantial and permanent structure in use or available for use.
Exception applies if the land is
- held by companies, non-SMSFs, MITs and public unit trust;
- used in carrying on a business by you, your affiliate, spouse / child under 18 or an entity connected with you;
- held by primary producers; or
- exceptional circumstances
Proposed Main Residence Exemption changes for foreign residents
On 23 October 2019, a new Bill was proposed to deny foreign and temporary tax residents’ access to the capital gain tax (CGT) main residence exemption (MRE).
In detail, it proposes to deny the MRE for an individual who, at the time of the CGT event:
- has been a foreign resident for a continuous period of more than 6 years; or
- has been a foreign resident for 6 years or less, and during the period of foreign residency, none of the following applies (‘life events test’):
- terminal medical condition affecting the taxpayer, their spouse or child under 18 (conditions apply to child);
- death of taxpayer’s spouse or child under 18;
- CGT event happens because of marriage or relationship breakdown.
Exclusion: Transitional rule — amendments do not apply if property held prior to 7.30 pm (by legal time in the ACT) on 9 May 2017 and CGT event happens by 30 June 2020.
In conclusion, there are many changes in the taxation for real properties, which is a recent focus of ATO. Relevant rules can be complex and complicated. Therefore, it is highly recommended that property owners consult accountants for professional advice and tailored tax planning.