Tax Update – March

Client Update - March 2018

GST Withholding on Residential Properties

From 1 July 2018, purchasers of new residential premises or residential subdivisions will need to withhold GST on the purchase price from the vendor, and remits GST directly to the ATO.

This is an attempt for the ATO to prevent tax evasion from property developers that dissolve their business and set up a new entity to avoid remitting GST to the ATO.

Contracts that were entered before 1 July 2018 and settled before 1 July 2020 will not be affected by this change in legislation. It is also possible for the vendor to request a cheque from the purchaser for the GST amount written to the ATO to ensure GST is paid by the purchaser.

 

Removal of Main Residence CGT Exemption for Non-Residents

From 9 May 2017, the main residence CGT exemption will be removed for non-residents. This amendment will apply to non-residents when they sell their properties and the CGT exemption will not be pro-rated to the number of days where the individual was a resident during the ownership period of the property.

For non-residents who owned a residential property prior to 9 May 2017 can still benefit from the main residence CGT exemption provided that the property was sold on or before 30 June 2019.

It is important for overseas individuals who are taking advantage of the 6-year absence rule to plan ahead as this will affect their main residence status for their property.

 

Changes to Deductions for Investment Properties

From 1 July 2017, owners of second-hand residential properties will not be able to claim existing plant and equipment depreciation from assets that were purchased by the previous owners, these include easily removable fixture and fittings such as carpets, water systems and air conditioners.

However, newly purchased plant and equipment added to the property by the new owner are depreciable.

The existing plant and equipment purchased by the previous owners will be removed from the depreciation schedule and reallocated to capital losses schedule which then can be used to offset future capital gains.

Deductions on capital works allowance remains unchanged (renovations to the property), the owners of the investment property can continue to claim the remaining years of capital works allowance available that were purchased by the previous owner.

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