Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018

Friday 9 February 2018 @ 12.07 p.m. | Legal Research | Taxation

On Thursday 8 February 2018, Treasurer Scott Morrison introduced the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 into the House of Representatives.  The measures in the Bill, accompanied by those in the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-New Dwelling Interests) Bill 2018, make a number of changes to current taxation laws which the Treasurer said would help to ensure homeownership is more achievable for Australians.

The Bill consists of three main schedules.

Schedule 1: Capital gains tax changes for foreign residents

This Schedule amends the Income Tax Assessment Act 1997 (Cth) to:

  • remove the entitlement to the CGT main residence exemption for foreign residents; 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.

The measures in this Schedule were previously released as an Explanatory Draft, and were open to public consultation from 21 July 2017 to 15 August 2017.

In his second reading speech, the Treasurer said:

"The main residence exemption allows individuals to disregard a capital gain they make on the sale of a property established as their main residence.

No longer allowing foreign residents to claim this exemption will send a clear message that foreign residents will have to comply with our stringent capital gains tax rules.

Secondly, this schedule addresses an integrity issue with the capital gains tax rules for foreign residents that hold indirect interests in Australian real property, such as land, from 7.30 pm AEST on 9 May 2017.

Foreign residents are required to pay tax on capital gains made in relation to interests in Australian real property, including indirect interests, where certain tests are met.

This reform addresses an integrity issue with one of these tests—the principal asset test—to require a foreign resident to consider any interests held by its associates, if it disposes of an indirect interest in Australian real property for example by selling shares in a land rich company.

This integrity fix will ensure that the principal asset test cannot be circumvented by disaggregating holdings of membership interests."

Schedule 2: Reconciliation payment for near-new dwelling exemption certificates

According to the Explanatory Memorandum, schedule 2 "enables a reconciliation payment to be made by developers who sell dwellings to foreign persons under a near-new dwelling exemption certificate."

The Treasurer described this as schedule, which amends the Foreign Acquisitions and Takeover Act 1975 (Cth) as "technical amendments" made following the introduction of the near-new dwelling exemption certificate that was introduced in June 2017.

Schedule 3: Additional Capital Gains Discount For Affordable Housing

Schedule 3 of the Bill amends the Income Tax Assessment Act 1997 (Cth) and the Taxation Administration Act 1953 (Cth) to provide an additional discount of up to 10 per cent if a capital gains tax event occurs to an ownership interest in residential premises that has been used to provide affordable housing (the "additional affordable housing capital gains tax discount").

This discount will apply from 1 January 2018.  Qualifying affordable housing will need to be provided for at least three years through a registered community housing provider.  In his second reading speech, the Treasurer noted that the "measure is estimated to have a cost to revenue of $15 million over the forward estimates period".

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Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 (Cth), Explanatory Memorandum, Second Reading Speech and Exposure Draft - available from TimeBase's LawOne service

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