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Taxation

On behalf of its members, the Real Estate Institute of Australia proposes that the Commonwealth Government advocate that the States review their commitment to Commonwealth/State funding arrangements to immediately significantly reduce, and subsequently phase abolition of, State property taxes in order to provide a consistent tax system which helps to promote State, and national, economic development.

Currently, Australia ranks the fifth highest nation in OECD countries in respect of its reliance on property taxes. Governments in Australia now collect nearly as much from property taxes as they collect from motor vehicles, general payroll taxes, and gambling taxes combined.

The States reliance on property taxes as a tax base is volatile because the property market is cyclical. The current buoyant property market encourages inefficiencies in other revenue areas and unsustainable government commitments to State projects and/or programs. Past experience shows that cyclical increases in revenue tend to be matched by increases in spending. Inevitably, the property market will stabilise, and State governments can respond in such circumstances with abrupt adjustments to the State budget with potentially adverse effects on the economy, GDP investment, and welfare.

In 2000, REIA received a commissioned report from Access Economics which demonstrated a clear economic case for cutting State taxes on real estate. The key findings of the report were that:

Reducing stamp duties on conveyances of non-residential property would result in gains to economic welfare, economic activity and investment many times greater than the gains from reducing payroll taxes by the same amount, and
Reducing any of the State taxes on property individually would provide economic benefits greater than the benefits that would be achieved by reducing payroll taxes by the same amount.

The report concluded that the most broad-based, stable, and robust growth tax is payroll tax. The States dependence on property taxes significantly discriminates against home ownership, and will ultimately have an adverse effect on socio-economic development in Australia.

Click here to view the Access Economics Report: The Economic Impact of Reducing State Taxes on Property. (PDF 233kb)

Click here for a copy of the Access Economics report, Business Tax Reform at the State Level: a Brief Overview of Unfinished Business after the New Tax System. This was compiled by the Business Coalition for Tax Reform, of which REIA is a member. (.doc 320kb)

For more information on stamp duty, click here

Tax Links

Australian Taxation Office

ATO Assist provides information for individuals, businesses and tax and superannuation professionals.

A guide to ATO Online Services is available at: www.ato.gov.au/onlineservices

Now available from the ATO: a guide to 'Tax Smart Investing' brochure for property investors, home buyers and sellers.
To obtain a copy, click here

Agents' commission and fees, and GST

The ACCC has confirmed that agents may choose whether to calculate their commission on either the GST-exclusive or GST-inclusive price of a property, or by some other method, eg a flat fee. Click here for more information.

GST and non-resident property owners

Prior to 1 April 2005, supplies of some services to non-resident owners of Australian residential properties were GST-free. Further information on pre - 1 April 2005 GST and non-resident property owners is available by clicking on the links below, or by calling the ATO on 13 28 66.

ATO Information Sheet.
GST and real estate services for non-resident property owners.
GST and repair services for non-resident property owners.
GST paid on services to non-resident property owners.
Declaration of non-resident status: entities other than individuals.
Declaration of non-resident status: individuals.
Request for joint private ruling: non-individual.
Request for joint private ruling: individual.

From 1 April 2005, services supplied to a non-resident owner of a rental property are subject to GST if the owner intends to make a supply of the property by:
· renting the property, or
· selling the property (excluding the sale of new residential premises).
GST must be included on tax invoices provided to non-resident property owners and reported on BAS statements.
More information is available from the ATO website:
GST and real estate services for non-resident property owners - supplied on or after 1 April 2005, Click here
GST and repair services for non-resident property owners - supplied on or after 1 April 2005, Click here

ATO Releases New Rulings

The Australian Taxation Office has recently released new rulings on deductions for depreciating assets in residential rental properties.
Click here for more information.

ATO and rental properties

The ATO publication, Rental Properties 2003-04, contains information on taxation and rental properties. It is available from Tax Office shopfronts or by phoning the ATO Publications Distribution Service on 1300 720 092,quoting the publication number NAT 1729-6.2004.

Changes to GST and margin scheme announced

The Tax Laws Amendment (2005 Measures No. 2) Bill 2005 received Royal Assent on 29 June 2005. The amendment relates to GST and the application of the margin scheme. As a result of the amendment, buyers and sellers of property must enter into a written agreement for the margin scheme to apply. The change applies to all contracts entered into from 29 June 2005.

The ATO has issued a related tax determination MSV 2005/2, available at:
www.ato.gov.au

Further changes are being considered regarding the determination of an agreed valuation date in instances where the margin scheme is applied and the property was originally acquired GST-free. The REIA does not support changes which would provide for tax to be paid on any increase in value which occurred prior to acquisition of the property.

The REIA will participate in a Property Industry Forum and is liaising with the ATO and Treasury on this matter.

GST and Long-Term Non-Reviewable Contracts Act 2004

The Tax Laws Amendment (Long-term Non-reviewable Contracts) Act 2004 received royal assent on 22 February 2005. The Act provides for the payment of GST on taxable supplies made on the basis of long-term non-reviewable contracts on or after 1 July 2005, that may have been GST-free under Section 13 of the New Tax System (Goods and Services Tax Imposition - General) Act 1999 if they had been made before 1 July 2005.

The Act provides for three methods to deal with GST treatment of non-reviewable contracts. First, both parties might agree to a revised contract price that includes GST, i.e. the recipient pays GST. Second, the supplier might choose to accept GST liability on the existing contract price without seeking an adjustment. Third, the GST liability can shift to the recipient, either because they elect to pay the GST liability or because they have failed to accept an arbitrated offer of a price adjustment. The arbitrated offer process must occur within a specified time frame (28 days for the initial offer to be considered, 28 days for the assessor to make a determination, and 21 days for a response to the final offer).

The REIA recommends agents seek specific taxation and legal advice relating to long-term non-reviewable contracts. Because the arbitration process can take up to 77 days, and because the Act comes into effect from 1 July 2005, agents should seek such advice promptly.

For more information, click here

Tax smart investing – Australian residents and overseas real estate

The ATO has released a new publication, Tax smart investing – Australian residents and overseas real estate, designed to assist Australian residents with tax issues relating to overseas real estate. Rent, rental deductions and capital gains tax issues are discussed. It is available by calling 1300 720 092 and requesting publication number, NAT 14233-2.2006