Second Reading SpeechMr Sukkar (Deakin-Assistant Minister to the Treasurer)
That this bill be now read a second time.
Housing is fundamental to the wellbeing of all Australians and is a driver of social and economic participation, promoting better employment, education and health outcomes.
To support Australian households, the government has designed a comprehensive package of measures which include assisting first home buyers, increasing the supply of affordable housing and reforms to housing related payments to the states and territories.
The government is ensuring home ownership is more achievable for Australians, and that they have access to secure and affordable housing, while continuing to strengthen the integrity of Australia's tax system.
This bill implements measures announced in the government's 2017-18 budget housing affordability package to both improve the integrity of the tax system and increase the supply of rental accommodation.
The first two schedules of this bill deliver on the government's commitment to reduce pressure on housing affordability by better targeting deductions relating to residential investment properties.
Travel related to use of residential premises
Schedule 1 to this bill amends the Income Tax Assessment Act 1997 to disallow deductions for travel costs relating to residential investment properties.
The existing law allows deductions for travel relating to income produced or gained from residential investment properties. When a property is used for a mixed purpose, such as a holiday home and rental; or where the travel is for a mixed purpose, such as travelling to maintain an investment property and simultaneously go on a family holiday; travel expenses need to be split between income-producing and private purposes.
The problem here is there has been widespread abuse around excessive travel expense claims relating to residential investment properties.
As a result of these changes, travel costs for individual investors inspecting and maintaining residential investment properties will no longer be deductible.
This will stop residential property investors from using the tax system to pay for their holidays by claiming costs as a rental expense.
However, these changes don't prevent investors from engaging third parties, such as real estate agents, to provide them with any necessary property management services. These expenses will remain deductible.
We have consulted the community and stakeholders in developing this measure. Public consultation on the exposure draft legislation and explanatory material occurred over four weeks.
Some minor technical changes have been made in response to the consultations, to provide clarity to taxpayers.
Disallowing travel related to residential investment properties has an estimated gain to revenue of $540 million over the forward estimates.
The changes will improve the integrity of the tax system by addressing the systemic risk of excessive and incorrect claims for travel expenses associated with residential investment properties.
Limiting depreciation deductions for plant and equipment in residential premises
Schedule 2 to this bill will amend the Income Tax Assessment Act 1997 to limit deductions for plant and equipment assets used for producing assessable income from residential premises to when the asset was first used for a taxable purpose.
The tax system currently creates opportunities for plant and equipment to be depreciated by multiple owners of a property in excess of its actual value. Plant and equipment items are usually mechanical fixtures or those that can be easily removed from a property such as a dishwasher and ceiling fan.
We have seen significant abuse of the tax system with property investors claiming excessive deductions for these items. These changes will improve the integrity of the tax system by better targeting deductions for plant and equipment forming part of residential investment properties.
As a result of the changes in this bill, investors who purchase new plant and equipment for their residential investment property after 9 May 2017 will still be able to claim a deduction over the effective life of the asset. However, subsequent owners of the property will not be able to claim deductions for that plant and equipment. Instead, acquisitions of existing plant and equipment items will be reflected in the cost base for capital gains tax purposes for those subsequent investors.
These changes will not affect capital works depreciation deductions relating to residential property investments though.
These changes will apply on a prospective basis, with existing investments grandfathered. Plant and equipment used or installed in residential investment properties as of 9 May 2017, or acquired under contracts already entered into on 9 May 2017, will continue to give rise to deductions for depreciation until either the investor no longer owns the asset or the asset reaches the end of its effective life.
Again, the government has consulted the community and stakeholders in developing this measure. In addition to releasing exposure draft legislation and explanatory material for a four-week consultation, Treasury also engaged with key stakeholders, including quantity surveyors, accounting organisations and a large range of industry representatives.
In particular, this bill allows investors to claim a deduction for plant and equipment installed in a new residential investment property where the property has been purchased within six months of completion, even if the property has been tenanted.
This means investors who have purchased a newly-built residential investment property are not disadvantaged when no other person has claimed a depreciation deduction.
The change to limit these depreciation deductions has an estimated gain to revenue of $260 million over the forward estimates.
Together with the changes to travel deductions, this bill will improve the integrity of the tax system by better targeting deductions for residential investment properties.
The full details of the measures are contained in the explanatory memorandum.