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  • Property and Construction Stakeholder Relationship Forum key messages 15 September 2021

    Opening address

    Louise Clarke, Deputy Commissioner Private Wealth opened the meeting, discussing the importance of the property and construction industry to Australia and the economy.

    Economic Forecast: Master Builders Australia

    Residential – Detached dwellings

    A combination of the HomeBuilder grant and Covid-19 behavioural changes (working from home) has seen approvals soar.

    There are concerns that bringing forward of future housing demand caused by HomeBuilder will lead to low demand for detached housing over the coming years.

    Other concern is Australia’s low immigration rate due to Covid-19 restrictions, as immigration is the largest influencer on housing demand.

    Residential – Home renovations

    Home renovations have been on the of big beneficiaries of Covid-19, seeing significant increases in approvals for home renovations across all states, driven in part by low interest rates and growing housing prices.

    Non-Residential Market

    The non-residential market was down over the last year, but latest figures show the non-residential is on an upswing again.

    Industrial – Biggest beneficiary of pandemic, with expose supply chain issues leading to firms shoring up their domestic production and onshore warehousing facilities.

    ATO Foreign investment program

    The ATO has published new webpage content on ‘New and Near New Dwelling Exemption Certificates’ to the ATO website, which includes a reporting template for property developers.

    The ATO is continuing to promote increased use of Exemption certificates for foreign investors of residential real estate and the benefits for foreign investors seeking approval.

    Three new webinar productsExternal Link have been published to ATO TV that aim educate audiences on how to comply with the Vacancy Fee program and how to apply for Exemptions Certificates.

    The FIRB Annual ReportExternal Link has been published on FIRB.gov.au

    Key contact for Foreign investment Program, Public Groups and Internationals is FIRBATOCOMMS@ato.gov.auThis link opens in a new window

    Covid-19 lockdowns – Open discussion

    Construction industry has been impacted by lockdowns with capacity limits for workers on site and supply chain issues affecting the completion of projects.

    Border restrictions/closures have impacted flows of capital from overseas investors into Australian commercial property.

    A key priority is reactivating central business districts, noting that NSW is currently researching and developing a recovery strategy.

    Employers are taking the initiative to get employees vaccinated, offering staff incentives but are concerned about the potential fringe benefits tax implications.

    Employers have also expressed concerns that the Australian government has provided guidance on what a ‘Covid-19 safe’ workplace looks like.

    Working remotely is expected to become a permanent trend – not just for staff, but also principals and owners taking up this option.

    Action item

    Vaccine Tax Incentives

    Due date

    Before next meeting

    Responsibility

    Peter Chester, ATO

    Action item details

    Guidance required from the ATO regarding whether there are any tax incentives for offering vaccinations to employees.

    Stimulus measures

    Temporary full expensing is directed toward stimulating investment in new assets, where eligible businesses can deduct in full the business portion of the cost of eligible depreciating assets of any value in the year they are first held, and first used or installed ready for use for a taxable purpose. The business portion of the cost of improvements to existing eligible depreciating assets made during this period can also be fully deducted.

    Loss carry back is intended to interact with temporary full expensing, which may result in tax losses. Eligible corporate tax entities may make the choice to carry back tax losses, this may result in a tax refund, which will increase business cash flow

    Extension announced in 2021–22 Budget to include 2023 income year.

    Instant Asset Write Off. From 12 March 2020 until 30 June 2021, eligible businesses with an aggregated turnover of less than $500 million (Different dates) can use the instant asset write-off for each asset purchased by 31 December 2020 and costing less than the $150,000 threshold. Instant asset write-off will apply for assets first used or installed ready for use until 30 June 2021. can only be claimed if you do not claim a deduction under temporary full expensing.

    Backing business investment. To be eligible to claim the accelerated deduction in your 2020 tax return, each depreciating asset must: be new and not previously held by another entity (other than as trading stock) and be first held on or after 12 March 2020.

    RMIT Research Update

    The full RMIT research reportThis link will download a file (PDF 1.96MB)This link will download a file has been published.

    Some of the key findings:

    • Data – The ATO’s primary data source is land registry data from the States and Territories, which is not provided consistently across states. The ATO are working on improving the on quality, quantity, timeliness of the data.
    • Valuations – Research identified that the value of the property has major implications for goods and services tax (GST) revenue, particularly when determining market value for the margin scheme.
    • Build to Rent (BTR) – Main issue being inconsistency in understanding and definitions for BTR across states, government, and industry.

    Action item

    RMIT Research Out of Session Discussion

    Due date

    Pending ministerial approval

    Responsibility

    Loretta Bishop-Spalding, ATO

    Action item details

    Organise an out of session discussion for RMIT Research for those who may like to provide feedback on the findings.

     

    Action item

    Valuations

    Due date

    Pending ministerial approval

    Responsibility

    Loretta Bishop-Spalding, ATO

    Action item details

    Organise an out of session discussion regarding a valuation case study.

     

    Action item

    Distribute Published RMIT Research

    Due date

    Pending ministerial approval

    Responsibility

    Matt Breton, ATO

    Action item details

    When published, distribute link to the RMIT Research on the ATO website to all members.

    Acreage and capital gains tax (CGT) curtilage

    Sparke Helmore Consulting out of session update

    There was out session discussion between the ATO and Sparke Helmore Consulting (SHC) regarding the 2-hectare concept for the CGT main residence exemption and the definition of residential premises for GST purposes.

    SHC brought up the inconsistency between the capital gains tax provisions and the GST law as resulting in uncertainty for both the purchaser and vendors of land.

    Despite the differences in treatment raised, the ATO’s guidance and administration of the GST relating to the purposes and use of real property is consistent with the law.

    Build to Rent

    BTR is expected to become a lot more prevalent in the Australian property market over the coming years. We’ve already seen advocacy pushes for BTR and the States and Territories have signalled their support via various concessions and incentives.

    Taxpayers looking to get the concessions offered must meet certain criteria to be considered BTR by the States and Territories definitions, which differ from each other and differ from what the ATO considers commercial residential. This inconsistency is confusing for taxpayers.

    We are currently proposing that the ATO, States and Territory governments and industry set up a working group to collaborate on a working definition for BTR to provide certainty for industry going forward.

    Action item

    Build to Rent sub-group

    Due date

    February 2022

    Responsibility

    Loretta Bishop-Spalding, ATO

    Action item details

    Organise BTR sub-group

    Australian Securities and Investments Commission view on liquidations

    The number of insolvencies is increasing, but from a low base figure (compared to baseline trend).

    Construction had second highest number of insolvencies by industry.

    Voluntary administrations are up proportionally, compared to other forms of insolvency. While court appointed insolvencies have increased slightly – suggesting that creditors are starting to pursue recovery proceedings more often.

    Government relief measures introduced last year kept a lot in business, expected to see increased insolvencies with the withdrawal of these measures – but this has not been seen yet. The concept of the ‘zombie’ business was nowhere near as bad as expected with lots of support out there for business.

    Other business – Open discussion

    Withdraw of Residential Colleges Tool – The ATO conducted a feasibility study, finding that the tool does not meet requirements and was not viable to change the tool, so it will be withdrawn on 31 December 2021. The ATO is working with affected areas the sector to support them in managing this change.

    Development Lease Case – A recent case in the ACT involving the inclusion of preparatory works as part of consideration under the margin scheme was discussed. The case was favourable for the Commissioner in the primary issue. The ATO view is maintained.

    GST Real Property Tool update – We are now in the testing phase for the updated tool which should go live at the end of this month. The updated tool now includes registration, margin scheme calculations and GST at Settlement.

    Note – the Property Tool is currently offline for testing and will be back online in late October, early November.

    ATO Let’s talk – ATO is not going to proceed with publishing this and is looking to what we can do regarding advice and guidance. We will be consulting with stakeholders on this.

      Last modified: 19 Oct 2021QC 67068