6 changes property owners need to know from the 2017 budget
1. First Home Buyers
There's a little bit of good news for first home buyers looking to save up a deposit for their first home. The 2017 federal budget states that they will be able to use their superannuation to assist with saving for a deposit for their home from 1 July 2017.
First home buyers will be able to salary sacrifice up to a maximum of $30,000 or $15,000 per year from their pre-tax income. This is over and above the compulsory superannuation contribution they currently make. You can then withdraw this cash plus any earnings a year later from 1 July 2018 to use towards a house deposit. By putting savings in your superannuation, the funds are taxed at just 15 per cent, whilst withdrawals will be taxed at 30 per cent below the marginal tax rate. This is expected to help accelerate savings by at least 30 per cent, compared to using a normal savings account. In dollar terms, it will give most first home buyers around and extra $5k towards a deposit.
Impact: This is better than nothing but for first home buyers in Melbourne and Sydney this is not enough to address affordability issues and if anything may only push up house prices slightly in the sub $600k market. The one positive that may come of this is that young people may take a greater interest in their superannuation and superannuation returns.
2. Depreciation deduction limitations on plant and equipment items
The amount that property investors can claim on depreciation deductions is also changing. Investors of negatively geared properties will be unable to claim depreciation deductions on items such as dishwashers, washing machines and ceiling fans under the new federal budget. You can now only claim deductions if you personally purchase the item yourself.
Impact: The government has shied away from tackling the big banana, negative gearing and have danced around the edges by reducing one of the tax benefits of an established investment property.
3. Tax deduction changes
The rules for property investors are also changing. Investors will no longer be able to claim tax deductions for travel expenses such as when visiting their investment property, due to many investors using this deduction for private travel instead.
Impact: This will hit interstate investors the hardest who currently can claim their accommodation and airfare when visiting their investment property. This measure is expected to save approximately $200 million annually.
4. Foreign investors
Under the new federal budget, foreign investors will be hit by a new annual $5,000 levy if their property is left vacant for more than six months. There are also new rules that will mean foreign investors in Australian property will no longer be able to claim primary residence exemption for capital gains tax purposes. This is expected to bring in an extra $581 million over the next four years. In order to give Australian buyers a greater opportunity to purchase property, developers of new property are not allowed to sell more than 50 per cent of their stock to foreign investors. This will likely impact investment property in high density areas which is not exactly the crème da la crème of investment property.
Impact: It won't assist potential home owners who are competing with cashed up overseas migrants from China and other Asian countries who have bucket loads of money and understandably want to live in our great country.
5. Rising interest rates
With Australia's five biggest banks being hit by a new multi-billion dollar levy as well as a suite of stepped-up controls and penalties, this means that home loan interest rates are expected to rise. Westpac, ANZ, Commonwealth Bank, National Australia Bank and Macquarie Group will be hit with a new levy of 0.06 per cent that is expected to reap $6.2 billion in revenue for the government over the next four years.
Impact: It is expected that although homeowners will be hit with an increase in home loan interest rates, property investors will be hit the hardest. Now might be the time to start thinking about fixing your interest rate before these rise any further.
For those living in a large house, now might be the time to sell. From 1 July 2018, people aged 65 years or over will be able to make a non-concessional superannuation contribution of up to $300,000 from the proceeds of their primary residence, provided they have lived there for at least 10 years.
If you are a couple then both members can take full advantage of this contribution, which is in addition to the current contribution rules and caps. You will also be exempt from the existing age test, work test and the $1.6 million balance test for making non-concessional contributions.
Impact: this is hoped to free up housing in established areas by encouraging older people to downsize. However, it's unlikely that a large number of four or five bedroom houses will be coming on the market straight away, with this new initiative starting from July 2018.
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