Proposed Federal Budget Measures

 

Following the announcement of the Federal Budget, the AIQS is aware of potential changes to what is allowable for depreciation of plant and equipment for residential properties and is taking those issues up with Government. 

The AIQS will be working collaboratively with the ATO in providing further information relating to the proposal budget measures.  





The following are the relevant sections of the proposed budget measures:

 

Reducing Pressure on Housing Affordability — capital gains tax changes for foreign investors

Revenue ($m)

 

2016‑17

2017‑18

2018‑19

2019‑20

2020‑21

Australian Taxation Office

*

150.0

100.0

150.0

200.0

Related expense ($m)

 

 

 

 

 

Australian Taxation Office

4.8

4.7

4.7

4.8

 

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 prior to this date will be grandfathered until 30 June 2019;
  • increasing the CGT withholding rate for foreign tax residents from 10.0 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 also 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.

This measure is estimated to have a gain to the budget of $581.0 million over the forward estimates period. 


Reducing Pressure on Housing Affordability — limit plant and equipment depreciation deductions to outlays actually incurred by investors

Revenue ($m)

 

2016‑17

2017‑18

2018‑19

2019‑20

2020‑21

Australian Taxation Office

40.0

100.0

120.0

 

From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties. Plant and equipment 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.

These changes will apply on a prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30PM (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.

Investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property.

This measure is estimated to have a gain to revenue of $260.0 million over the forward estimates period.