‘Ghost Tax’ package attempts to tame runaway house prices but won’t take the ‘fright’ out of the market

16 November 2017

Lance Cunningham, National Tax Director, BDO, said the Federal Government’s Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 is an attempt to be ‘seen as doing something’ about the runaway housing prices and lack of rental accommodation in Australia’s major cities.

The amendment includes measures such as:

  • a residential property vacancy tax – known as the ‘Ghost Tax’
  • no tax deductions for travel expenses associated with residential property investments and restriction of deductions for depreciation of items in residential rental properties.  

“Although the ‘ghost tax’ on foreign owned residential property, which is left vacant for more than half the year, may help to increase rental housing supply, it will have little effect on the purchase price of properties,” Mr Cunningham said. 

“The vacancy tax could free up the rental market but it will create a compliance headache for foreign owners, even if they have their properties occupied for the full year because there will now be a requirement to lodge annual vacancy tax returns and maintain records of occupancy in case of an audit by the ATO. 

“This annual vacancy tax return is not based on the usual tax year (i.e. 1 July to 30 June) but starting on the date the foreign owner 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.

“Separately, it’s difficult to see how the restrictions on travel expenses and depreciation deductions for rental expenses will help to tame runaway house prices.” 

“Disallowing the tax deductions for these expenses will have little, if any, effect on the vast majority of housing investors.” 

“It will also penalise those investors who actively manage their rental properties.  For example, if an individual taxpayer holds five rental properties in various parts of a city and they actively manage the properties by doing repairs, lawn mowing and other maintenance, the travel expenses to conduct these repairs and maintenance are now non-deductible.  This could have a flow on effect on the pricing of rental accommodation.

“The amendments to stop depreciation deductions for previously used assets could have little impact on availability and pricing – it won’t free-up supply or make it cheaper.”

“The Treasurer has said ‘limiting plant and equipment depreciation deductions will remove the existing opportunities for items to be depreciated by multiple owners in excess of their actual value’, but the existing law deals with this by requiring the depreciable items to be valued at their actual value.  It may be that some property owners are overvaluing such depreciable items but that is more an issue of compliance with the existing law than a problem that requires a change to the law.

“While these deductions of depreciable items may have some attraction to residential property investors, the only effect that their removal will have on the property market is that such residential property investors may be inclined to purchase ‘new-build’ properties instead of existing stock.  This is because the depreciable items in new properties will continue to be depreciable as they have not previously been used.”

Background

  • The Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 passed the Senate this week
  • The Bill implements an annual vacancy charge on foreign owners of residential real estate where property is not occupied or genuinely available on the rental market for at least six months in a 12 month period. The legislation also enacts better targeted deductions relating to residential investment properties.