Earlier this month, the government secured passage of the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017, implementing a residential property vacancy tax, no tax deductions for travel expenses associated with residential property investments, and restriction of deductions for depreciation of items in residential rental properties.
The vacancy charge, administered by the ATO, came into effect retroactively from 7:30PM (AEST) on 9 May 2017 for foreign persons who make a foreign investment application for residential property.
BDO national tax director Lance Cunningham believes the vacancy charge will cause fresh compliance headaches for foreign investors, while questioning its desired effect on property prices.
“This measure has the possibility of freeing up some accommodation for the rental market but it will cause much more compliance requirements for foreign owners, even if they have their properties occupied for the full year,” Mr Cunningham said.
“There will be the new requirement to lodge annual vacancy tax returns and maintain records of occupancy in case of an audit by the ATO.
“The annual vacancy tax return is not based on the usual tax year, i.e. 1 July to the following 30 June, but rather will be based on the year starting on the date the foreign person obtains the right to occupy the dwelling and the subsequent anniversaries of that date. In most cases this will not mesh well with the lodgement dates of the owner’s income tax returns.”
Further, travel costs for individual investors inspecting and maintaining residential investment properties will no longer be deductible and will come into effect retroactively from 1 July 2017.
Plant and equipment depreciation deductions will also be limited for residential investment properties to assets that are not previously being used.
In a joint statement, Treasurer Scott Morrison and Assistant Minister to the Treasurer Michael Sukkar said the changes were estimated to generate $800 million in budget revenue over the forward estimates.
Mr Cunningham believes the changes will not see an effect on pricing or availability of housing.
“It will have an inappropriate effect on some investors who actively manage their rental properties,” said Mr Cunningham.
“For example, if an individual taxpayer holds five rental properties in various parts of a city and they actively manage the properties by doing the repairs, lawn mowing and other maintenance, the travel expenses to conduct these repairs and maintenance are now non-deductible.
“It is difficult to see how this outcome is appropriate and it is also hard to see what effect it will have on availability and pricing of rental accommodation.”
His comments echo the sentiments of the Institute of Public Accountants senior tax adviser Tony Greco, who earlier this year said that the measures went against the basis of Australia’s tax system.
“The premise behind our tax system is the ability to claim an expense against the revenues, so what they're doing is they're altering that fundamental right,” Mr Greco said.