Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)
General outline and financial impact
Travel related to use of residential premises
Schedule 1 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to ensure that travel expenditure incurred in gaining or producing assessable income from residential premises is:
- not deductible; and
- not recognised in the cost base of the property for capital gains tax (CGT) purposes.
The amendments improve the integrity of the tax system by addressing concerns that some taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private purposes.
The amendments are not intended to affect deductions for institutional investors in residential premises, as the same integrity concerns do not arise for such investors. The amendments also do not affect deductions for travel expenditure incurred in carrying on a business, including where an entity carries on a business of providing property management services.
Date of effect: The amendments apply to losses or outgoings incurred on or after 1 July 2017.
Proposal announced: This measure was announced in the 2017-18 Budget as 'Reducing Pressure on Housing Affordability - disallow the deduction of travel expenses for residential rental property' and forms part of a package of measures concerning housing affordability.
Financial impact: The measure is estimated to result in a gain to revenue of $540 million over the forward estimates period:
.. not zero but rounded to zero
Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - paragraphs 1.44 to 1.48.
Compliance cost impact: This measure is estimated to result in a small reduction in compliance costs.
Limiting depreciation deductions for assets in residential premises
Schedule 2 to the Bill amends the ITAA 1997 to deny income tax deductions for the decline in value of 'previously used' depreciating assets used in gaining or producing assessable income from the use of residential premises for the purposes of residential accommodation.
However, the amendments do not affect deductions that arise:
- in the course of carrying on a business; or
- for corporate tax entities, superannuation plans other than self-managed superannuation funds, public unit trusts, managed investment trusts and unit trusts or partnerships, all the members of which are entities of a type listed here.
The proportion of the decline in value of an asset that cannot be deducted is recognised as a capital gain or loss when the asset ceases to be used.
Date of effect: The amendments apply in income years commencing on or after 1 July 2017 unless:
- the asset was acquired by an entity before, or under a contract entered into before, 7.30 pm on 9 May 2017; or
- the start time for the asset occurred during or before the income year containing 9 May 2017 and the entity was not entitled to a deduction under Division 40 or
Subdivision 328-D of the ITAA 1997 for the asset in that income year.
Proposal announced: These amendments implement the measure announced in the 2017-18 Budget as 'Reducing Pressure on Housing Affordability - limit plant and equipment depreciation to outlays actually incurred by investors' and forms part of a package of measures concerning housing affordability.
Financial impact: This measure is estimated to result in a gain to revenue of $260 million over the forward estimates period, comprising:
Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - paragraphs 2.95 to 2.100.
Compliance cost impact: The measure is estimated to result in a moderate ongoing decrease in compliance costs.
Vacancy fees for foreign acquisitions of residential land
This Schedule implements an annual vacancy fee on foreign owners of residential real estate where residential property is not occupied or genuinely available on the rental market for at least six months in a 12 month period.
The Foreign Acquisitions and Takeovers Fees Imposition Amendment (Vacancy Fees) Bill 2017 (Fees Amendment Bill), imposes the vacancy fee and establishes the amount payable. Broadly, the fee which will be payable when a dwelling is left vacant is the fee that was payable at the time of the foreign investment application.
Date of effect: From 7:30PM (AEST) on 9 May 2017.
Proposal announced: 2017-18 Budget.
Financial impact: The vacancy charge is estimated to have a gain to budget of $16.3 million over the forward estimates period.
Funding of $3.7 million over four years from 2017-18 will be provided to the Australian Taxation Office (ATO) to implement the vacancy charge.
Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights -paragraphs 3.98 to 3.111.
Compliance cost impact: Low. There will be minor regulatory cost for foreign persons who buy residential real estate from 9 May 2017 onwards, to report their usage of the property. Furthermore, the requirement to use the property may mean that investors also have to take steps to ensure that the property is occupied for at least 6 months of a given 12 month period.