House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Housing and Assistant Treasurer, the Hon Michael Sukkar MP)

General outline and financial impact

Capital gains tax changes for foreign residents

Schedule 1 to the Primary Bill amends the ITAA 1997 to:

•

remove the entitlement to the CGT main residence exemption for foreign residents other than where certain life events occur during the period that a person is a foreign resident where that period is six years or less; and

•

modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity's underlying value is principally derived from TARP, the principal asset test is applied on an associate inclusive basis.

Date of effect: These measures apply from 7.30pm by legal time in the ACT on 9 May 2017.

Proposal announced: These amendments implement two of the measures announced by the Treasurer in the 2017-18 Budget as part of 'Reducing pressure on housing affordability - capital gains tax changes for foreign investors' and forms part of a package of measures concerning housing affordability.

Financial impact: These measures, together with the associated measure relating to foreign resident capital gains withholding payments that was announced as part of the 2017-18 Budget but enacted separately in the Treasury Laws Amendment (Foreign Resident Capital Gains Withholding Payments) Act 2017, have these revenue implications:

* Unquantifiable

Note that the revenue gain over the forward estimates period has been updated since the 2017-18 Budget announcement to reflect a minor policy change to the measure that will ensure only Australian residents for tax purposes can access the main residence exemption, as well as extending the application of the transitional arrangements for the main residence exemption for a further 12 months to 30 June 2020.

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 4, paragraphs 4.1 to 4.4.

Compliance cost impact: These measures are expected to result in a minor overall compliance cost impact, comprising a small implementation impact and a small increase in on-going costs for taxpayers that are foreign residents.

Capital gains tax incentive for investments in affordable housing

Schedule 2 to the Primary Bill amends the ITAA 1997 to provide an additional affordable housing capital gains discount. The additional discount of up to 10 per cent applies if a CGT event occurs to an ownership interest in residential premises that has been used to provide affordable housing.

Date of effect: This measure applies to capital gains realised by investors from CGT events occurring on or after 1 January 2018 for affordable housing tenancies that start before, on or after 1 January 2018.

Proposal announced: This measure was announced by the Treasurer on 9 May 2017 in the 2017-18 Budget as 'Reducing pressure on housing affordability - expanding tax incentives for investments in affordable housing'.

Financial impact: This measure is estimated to result in a cost to revenue of $15 million over the forward estimates period comprising:

.. Not zero, but rounded to zero

- Nil

Human rights implications: This Schedule engages human rights. See Statement of Compatibility with Human Rights - Chapter 4, paragraphs 4.5 to 4.15.

Compliance cost impact: This measure is expected to result in a small overall compliance cost impact, comprising a small implementation impact and a small increase in on-going costs.

Near-new dwelling exemption certificates

Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 enables a reconciliation payment to be made by developers who sell dwellings to foreign persons under a near-new dwelling exemption certificate.

Date of effect: 1 July 2017

Proposal announced: Budget 2017-18

Financial impact: This formed part of the 2017-18 Budget measure Streamlining and enhancing the foreign investment framework, and that measure has the following revenue implications:

Human rights implications: This Schedule does not give rise to any human rights issue. See Statement of Compatibility with Human Rights - Chapter 4, paragraphs 4.16 to 4.28.