Federal Budget 2017: ‘Ghost House Levy’ for Non-Residents!
The 2017 Federal Budget continues to hit non-residents of Australia, with several initiatives directed toward collecting more revenue for the government. For example:
New $5000 annual levy (‘ghost house levy’!) on non-residents who have an Australian property unoccupied or not available for rent for 6 months or more. One wonders how this will be monitored (keep the lights on?);
The withdrawal of being able to access the ‘quantity surveyor’ report benefits and claiming non-cash tax deductions for property acquisitions from 10 May 2017 will significantly impact upon non-residents, reducing their incentive to acquire in Australia (though it is unclear if the benefit will apply to 'new residential' properties or not, for all investors);
No ‘main residence’ exemption for foreign and temporary tax residents from 9 May 2017 (but existing property holdings grandfathered to 30 June 2019);
Strengthening of CGT rules for foreign investors selling property. And withholding threshold to drop from current $2m to just $750,000 from 1 July 2017. Also from this date the rate of CGT withholding will increase from 10% to 12.5% - this is going to capture many more property disposals and cause chaos for some, including Australian citizens who happen to be non-resident when selling properties.
There has been a lot of media attention about the ‘overheated’ property market in Australia over the last few years. The overheating is much more related to the Reserve Bank of Australia keeping interest rates too low for too long, and this upward movement in prices largely represents a catch-up of a long period of under-performance, Whilst some of the overheating is real, it is 'more real' in Sydney and Melbourne than Hobart or for people already losing money in Perth.
Foreigners have even been blamed for pushing up property prices and stealing opportunity from first home buyers.
The truth is, generally foreigners can only purchase ‘new’ property. If foreigners were not buying so much new property, there would not be so much new supply coming onto the property market. Property is only ever new once. When sold, it must be to a domestic purchaser. Australia, as always, has needed foreign investment to build this country, and if we ‘ban’ or discourage foreigners from buying new property in Australia, Australia will have less housing supply over the medium to long term, and reduced supply will be the biggest factor pushing up house prices into the future with increasing demand.
So we can either know the facts or we can be narrow minded ignorant journalists writing in decreasingly popular newspapers.
For non-residents – including innocent and hardworking Australian citizens living and working and learning from international employment and business opportunities, there are many changes for non-residents of Australia in their interaction with the Australian tax system, and almost all of them are bad.
CGT opportunities continue to narrow, and deductions curtailed, and the previously introduced 10% withholding tax that was only supposed to affect relatively few property sales over $2 million, will now be 12.5% on properties sold from $750,000. This is going to capture almost every property sale in Sydney and Melbourne, and will be a significant impost on conveyancing/solicitors in coming months. One wonders how the ATO will cope, issuing all the required ‘clearance certificates’, especially if they experience more catastrophic IT outages as occurred in December 2016 and February 2017.
The ATO IT / computer systems being down and out may hold up property sales.
Aussies often leave Australia at short notice and with little planning when an international work opportunity arises. It is exciting, to transfer life to another country, immerse yourself into its lifestyle and culture, be able to host family and friends in your new country, and so many things to urgently do and organise such as renting out your old home in Australia, setting up bank accounts overseas, finding a home overseas, and so many other things besides.
One of the last things most people can do, is think about their tax situation. Yet the ATO has been increasingly targeting Australians earning foreign income, and expats earning income from Australia.
Every person’s situation is unique, and advice is so critical and may be the difference in you saving, making, or losing, thousands of dollars, or hundreds of thousands of dollars.
If you are an Aussie expat that has income/investments, particular ongoing investments in Australia whether it is a bank account or a property that was once the family home, to protect yourself you should consider the opportunity of getting tax advice to protect yourself and save - potentially - a huge amount of tax, whether with our office or another suitably experienced tax professional.
If you don't know, you might find out when you least expect it, it will be too late to plan for it, and it will be too late to change decisions that could put you into a much better position for the future.
Our office has so often helped expats who have ‘duly’ kept their tax lodgements up to date whilst overseas, such as by lodging via etax/myTax, but lodged every income tax return comprehensively incorrectly and left themselves significantly exposed with the ATO. Others have just ignored it, or thought it too hard, and given up opportunities for smart long-term tax planning, and left it ‘too late’ when they want to head back to Australia only to discover they have terrible outstanding tax matters to resolve.
Changing tax laws means ignoring/deferring tax matters for Aussie expats, including those who are non-residents, could be subject to increasing taxation exposure if advice is delayed.