Residential Property Investment

Residential Rental Property Investment deductions – changes applicable to the 2018 tax year

Any travel expenditure incurred in relation to the property will no longer be deductible. The amendments apply to expenditure incurred on or after 1 July 2017.

This includes motor vehicle expenses, taxis, airfares, and any meals and accommodation costs associated with the travel.

The types of travel that the amendments are designed to catch include costs incurred when the property was first acquired or when the property is in the process of being sold, costs incurred in visiting or inspecting the property or visiting the property manager, and costs incurred in collecting rents. It covers all costs, from flying to the Gold Coast to inspect your rental apartment, to driving to the next suburb to mow the lawns at a house you rent out. Travel expenses incurred on residential premises that are being used both as residential accommodation and for another income producing purpose (for example, you lease a shop and the residential premises upstairs above the shop), the travel costs can be apportioned on a reasonable basis.

Second hand assets will not be depreciable where the premises are used for residential premises. These assets, defined as ‘assets previously used’ are assets that:

The amendments apply to income years starting on or after 1 July 2017. They apply to assets acquired on or after 7.30pm on 9 May 2017 (Budget night) unless the asset was acquired under a contract entered into before that time.

The amendments also apply to assets acquired before 9 May 2017 where the assets were first used or installed ready for use by an entity during or prior to the income year in which 9 May 2017 falls (expected to be the year ended 30 June 2017) where the asset was not used at all for a taxable purpose in that year. These measures are designed to prevent taxpayers moving personal assets into rental properties.

You should be aware the ATO will also be focusing on:

  • Excessive claims for interest expenses, such as trying to claim interest on the family home as well as investments;
  • Incorrect claims for new property purchases, and;
  • Holiday homes that were not genuinely available to rent and were mainly used by their owners, family and friends.  “Don’t forget, the ATO has access to numerous sources of third party data including access to popular holiday rental listing sites … so it is relatively easy for them to establish whether a claim that a property was available to rent is correct,”

GST withholding for property developers effective 1 July 2018

From 1 July 2018, a purchaser will be required to withhold and remit an amount to the ATO when purchasing new ‘residential property’ (subject to the transitional provisions below).

There are transitional provisions where a contract of sale is entered into prior to 1 July 2018 and any consideration under the contract (excluding the deposit) is provided before 1 July 2020. Otherwise, any consideration paid for the supply of ‘new residential premises’ after 1 July 2018, will be subject to the ‘GST withholding’.

The amount to be withheld is 1/11th of the purchase price. If the supplier uses the margin scheme, it is 7 percent of the purchase price. Settlement adjustments are ignored for determining the amount of GST withholding.

Prior to settlement, the supplier must provide a statement to the purchaser setting out the amount to be withheld and paid to the ATO (failing to provide this statement carries penalties up to $21,000).

The vendor is entitled to GST input tax credits for the withheld amount the purchaser pays. This means if the purchaser withholds an amount from the supplier, but does not pay it to the Commissioner, the supplier will not be entitled to input tax credits.

A long term lease (i.e. more than 50 years) is treated as a sale and subject to the new provisions.

Sale of a house and land package under a single contract will have different treatment (i.e. full withholding) compared to the sale of land with a separate contract for construction (i.e. withholding only on the sale of land.

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