Property and Construction Stakeholder Relationship Forum key messages 25 August 2020

This extraordinary meeting was held with selected members of the Property and Construction Stakeholder Relationship Forum to discuss the impacts of COVID-19 and the associated Government stimulus on the property industry.

Opening address

Tim Dyce, Deputy Commissioner Private Wealth and Sponsor of the Property and Construction Stakeholder Relationship Forum opened the meeting, discussing the intent of the group and briefly touching on some of the agenda items for the meeting.

Update from Industry

Open discussion lead by Scott Walker, chair, with members providing insights into key issues currently impacting the industry.

COVID19 Restrictions Impacting on Property Inspections:

• property sales have been impacted due to restrictions on open inspections
• less impact felt for land sales, as restrictions do not apply.

Construction

Longer term concerns for the construction industry with a predicted dip in work in the next 6–12 months, particularly considering potential withdrawal of stimulus measures and stricter lending conditions.

Pipeline and JobKeeper

Infrastructure projects and the work already in pipeline are keeping people in employment, resulting in many developers not needing to rely on JobKeeper support. We will need to monitor the uptake of JobKeeper as the pipeline of work ends, expected in the next 6–12 months.

Commercial landlords

Commercial landlords are shouldering the economic burden of COVID-19 by providing relief via rental reductions and deferrals. This has significantly impacted their revenues, decreased asset values and there are concerns this will impact foreign investment in this space.

ATO feedback

Dealings with the ATO have been positive and helpful, particularly around the current industry pain point of cash flow.

Victoria

The current COVID-19 situation in Victoria has seen restrictions on the number of persons allowed on a building site, and on movement between sites. This has severely slowed construction in Victoria, particularly regarding renovations and finishing work, and has effectively 'bottlenecked' the state's pipeline of work. Consequently, it is expected that Victoria will take longer for construction to recover.

HomeBuilder

HomeBuilder has helped the industry, seeing an upswing in enquiries, but did take time to come to fruition with states and commonwealth having to iron out the details around payments and eligibility.

It is expected that Victoria, due to current restrictions, will not benefit from this stimulus and it has been suggested that Victoria may need more than Homebuilder to drive construction recovery.

NSW relief

Land Tax - 25% reduction for landlords who provide tenants rental relief.

Payroll Tax - Certain businesses may be eligible for a 25% refund of their payroll tax and may also be eligible for 6-month deferral. Businesses opting to take the deferral will need to manage their cashflow because at the end of the deferral they will be liable for the delayed obligation along with their usual monthly obligation, making this a key/critical point in time for these businesses.

Insolvencies

The changes in insolvency laws in response to COVID-19 (changes to statutory demands, insolvent trading) saw a decrease in the number of companies entering administration. As the government stops-withdraws this support it is expected that there will be significant increases in companies entering administration, and potentially more misconduct like insolvent trading, phoenix activity and director bans.

Work is being undertaken to streamline the insolvency process, anticipating this may be needed once government measures are ceased.

Re-commencement of ATO review activities

For the last 6 months the majority of ATO audits have been on hold, unless involving serious evasion or tax crime. From October, the ATO is looking to return to business as usual in those states not significantly impacted by COVID-19.

ATO Research

The ATO is currently involved in two research programs:

• Property and Construction Research - ATO has engaged RMIT University to undertake research aiming to understand behavioural risks in the industry, identify emerging risks and opportunities to address them.
• Technology and the GST System - ATO is working with University of Technology Sydney on a research project to understand more about the impact and opportunities of new technologies on businesses and the GST system.

Redesign of property content

We are currently assessing and redesigning the GST Property Tool and our property content on ato.gov.au. Both will be assessed from an end user perspective to ensure we create a simple, logical and coherent ‘one stop’ for all property taxation information while taking them through the required processes and calculations.

Other Business

JobKeeper

We are expecting the second iteration of JobKeeper to be a better client experience, more streamlined and a faster turnaround on applications, having learned from the initial JobKeeper program.

Foreign ownership

Chartered Accountants Australia and New Zealand have been working in consultation with the ATO and Treasury on draft legislation for Exposure Draft Bill (Register of Foreign Ownership) (PDF, 292KB)This link will download a file. This will create a new foreign ownership framework that includes a foreign register of ownership. It is expected that this will be introduced to Parliament in October 2020.

Let's Talk

There have been delays on ATO 'Let's Talk' sessions with many resources being directed to COVID-19 support, we intend on having new sessions out later this year.

Vacant land deductions

Content will be released on 'Vacant land deductions', this will support advisors in addressing their clients’ queries.

Individuals and Intermediaries (IAI) area of the ATO have been covering the vacant land changes in our media, podcasts and the September issue of the tax practitioner newsletter. In addition to this, IAI have also sent over 6,500 letters to clients with links to information on the vacant land changes.

Developer as corporation manager

Arrangement whereby a subsidiary of a development company is set up as the corporation manager and this is raising ongoing conflicts of interest in multi-level development legal arrangements and regulatory oversight issues.

Reformation of the Corporations Act is required to address these issues, and we need to be aware of the tax implications of such arrangements.

Transfer pricing and interest rates

There are instances of Foreign controlled entities engaging in lending not at arm’s length and as such, being deemed dividends.

There may be reasons for lending not at ‘arm’s length’ in the current environment. Due to banks tightened lending, companies may have to seek out cross border funding (e.g. mezzanine funding) from related and unrelated parties and this attracts a higher rate than usual bank lending. We need to keep this in mind when assessing what is truly considered ‘arm’s length’ in the current climate.

Rebuilding Australia - Master Builders Australia

Master Builders Australia shared the following report Proposals for October 2020 Federal Budget (PDF, 1.1MB)This link will download a file, which details proposal for a P&C led recovery from COVID-19.

Attendees

Apologies