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  • Property and Construction Stakeholder Relationship Forum key messages 16 March 2023

    Key topics discussed at the Property and Construction Stakeholder Relationship forum 16 March 2023

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    Opening address

    Louise Clarke, Deputy Commissioner Private Wealth, opened the meeting by welcoming members and discussed the need for confidentiality when discussing certain topics.

    Charter

    A draft Charter was tabled for discussion and is expected to be endorsed at the next meeting with member feedback incorporated and the conflict-of-interest issue addressed.

    Action item

    Charter

    Due date

    Before next meeting

    Responsibility

    All Members

    Action item details

    Provide comment once draft is issued to members.

    Master Builders Australia economic forecast

    The economic environment is likely to remain difficult over the short term.

    Interest rates are not likely to peak until much later in 2023.

    New home building is currently in reverse gear. Following a couple of years in the doldrums, a decent pace of growth is likely to resume. By 2026–27, we anticipate that total new home building starts will have recovered to around 210,000 from a trough of 169,600 in 2022–23.

    For non-residential building, the combination of strong government-funded project work as well as the recovery in the areas worst hit by the pandemic mean that modest growth is likely to occur consistently over our forecast horizon.

    Civil and engineering construction activity faces a reasonably steady outlook to 2026–27.

    Capital versus revenue ATO website guidance

    New website content was published 6 December 2022 on ato.gov.au for taxpayers and their advisers to better understand the Tax consequences on sales of small-scale land subdivisions.

    Thank you to all forum members who contributed to the development of this web content through providing feedback during the existing consultation period. Two examples are currently provided in the web content, but we are now considering expanding with the adding of more.

    Additional examples are currently being drafted and will further inform taxpayers and tax advisers on how the ATO might interpret the distinction between capital and revenue in relation to small scale property development activities. The ATO will consult again with forum members, seeking feedback on the drafting of these examples.

    Employee versus Contractor guidance

    On 15 December 2022 the ATO released:

    The draft ruling provides the Commissioner of Taxation’s views on the legal principles involved in determining if a worker is an employee, in light of the High Court’s decision in CFMMEU v Personnel Contracting [2022] HCA 1. It is complemented by the draft PCG, which provides a ‘risk zone’ framework which the Commissioner will follow in deciding when to allocate compliance resources to investigate whether an arrangement has been correctly classified.

    The comments period for the products closed on 17 February 2023. The ATO has considered the feedback raised in submissions and is considering any necessary revisions to the products before they are finalised.

    ATO research

    The Royal Melbourne Institute of Technology is undertaking research into the influencers on real property transactions to:

    • define the lifecycle of a property development
    • identify the key influencers of decisions made in the property industry
    • identify at what point in the property development cycle these influencers can provide advice/influence decision making
    • identify the extent to which each identified influencer may impact property decisions.

    The research outcomes are designed to enable the ATO to prioritise, target and effectively leverage influencers at different property development stages as required.

    The University of New South Wales is undertaking research into the effectiveness of GST concessions available for property transactions.

    The research will consider whether the use of these concessions are increasing the cost of compliance for entities undertaking property transactions and the cost to regulators. The ATO is reviewing the effectiveness of these measures, from both a real cost and administrative perspective.

    The research will consider:

    • impacts on both seller and purchase
    • whether costs are passed on to purchasers
    • the relative cost as a percentage of the concession
    • whether these costs or benefits impact property prices.

    Margin scheme valuations legislative instrument

    External feedback that was received is currently being considered.

    Commissioner of Taxation versus Landcom

    On 22 December 2022, the Full Federal Court handed down an unfavourable decision to the Commissioner in Commissioner of Taxation v Landcom [2022] FCAFC 204 (Landcom). The Commissioner has not sought special leave to appeal to the High Court.

    The Full Federal Court confirmed the Federal Court’s decision that for the purposes of applying the margin scheme to the supply of land comprised of multiple freehold titles, Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (Goods and Services Act) is applied separately to each individual freehold interest.

    The Federal Court also found that the Court did have jurisdiction to consider the correctness of the advice in the private ruling issued by the Commissioner relating to notional GST liability.

    Debt approach

    Our approach to managing debt is centred on transparency, ensuring clients are aware of their obligations and what is expected of them, their options, and support and assistance they can access and clarity of the next steps we may take if they do not act.

    Payment plan take-up has also improved significantly to pre-COVID-19 levels as clients engage with us and bring their debt into a management arrangement.

    Effective management and reduction of aged debt that has further accumulated throughout the pandemic remains an area of focus.

    BAS lodgment performance continues to be impacted by a growing number of clients who are showing limited or no signs of business or employer activity.

    ANZ/Property Council Survey

    The Confidence Index dropped 6 points nationally in the December quarter yet remained in positive territory (113 index points) but below the long-term average (123 index points). A score of 100 in the Confidence Index is considered neutral.

    Majority of respondents expect continued increases in interest rates.

    Overall expectations for economic growth and debt finance availability remain negative.

    Survey respondents expect asset prices for office and residential sectors to decline, while industrial asset prices are expected to increase.

    Housing supply and affordability continues to be the most major elected issue for both the federal and state governments.

    Australian Securities and Investments Commission

    Insolvencies have increased in 2022–23 year to date (up 66.2%) on last financial year.

    Comparing 2022–23 financial year to date to the base year (an average of the 3 financial years 2017, 2018 and 2019, pre-COVID-19), we see that insolvencies are down 6.2%.

    The increase in insolvencies which started at the beginning of calendar year 2022, continues but is still down on the base year. The only type of insolvency appointment which is still below the base year is court appointed liquidations.

    More information about Australian Securities and Investments Commission insolvency statisticsExternal Link is available.

    Action item

    Action item

    TR 2018/3 and Kurts principle

    Due date

    Before next meeting

    Responsibility

    Sian Sinclair

    Action item details

    Provide details of suggestions to Ashley Warner, ATO.

      Last modified: 10 May 2023QC 72512