Presentation by Miranda Stewart
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Transcript Presentation by Miranda Stewart
Housing and the New Charities Act
Some tax and housing background
Miranda Stewart
[email protected]
2 December 2013
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www.law.unimelb.edu.au/tax
‘The luxuries and vanities of life occasion the principal
expense of the rich, and a magnificent house embellishes
and sets off to the best advantage all the other luxuries and
vanities which they possess. A tax upon house-rents,
therefore, would in general fall heaviest upon the rich; and
in this sort of inequality there would not, perhaps, be
anything very unreasonable.’
Adam Smith, An Inquiry into the Nature and Causes
of the Wealth of Nations (1776) book V, Ch II, pt 2, art 2, p 355
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Overview – Housing in the tax law
Housing “tenures” and tax treatment
Income tax
Goods and Services tax
Stamp duty
Land tax
Taxing housing as a collective investment
Taxable investors
Not for profits
Henry Tax Review and other reform proposals
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Housing tenures and policy goals
Housing tenures:
Home owners (owner-occupation)
Private rental: Landlords and tenants
Social housing or cooperatives (intermediary)
Public housing
Housing policy goal: tenure-neutrality for home
ownership and private rental markets
Tax policy goal: raise adequate revenue fairly without
distorting investment decisions
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A few housing statistics
Proportion of Australian households owning their
own home is 67% in 2011-12
Decline from 71% in 1994-95
31% of households own home outright
(decreased from 42%)
37% have a mortgage (increased from 30%)
Proportion of Australian households renting in the
private market increased form 18% to 25%
Only 4% are in public rental housing
See ABS Publication 4130.0 - Housing Occupancy and Costs, 2011-12 released 28/08/2013
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Home ownership and tax
Income tax
No income tax on “imputed rent” ie, benefit from
living in your own home is tax-free
No deduction for home mortgage interest
CGT main residence exemption (up to 2 hectares)
GST
No GST on “imputed rent”
No GST on sale of your home
But, GST at 10% on sales of new housing (developer
pays, but may access “margin scheme”)
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Home ownership and tax
Stamp duty
States levy stamp duty on the purchaser
Victoria: progressive from 1.4% up to 5.5%
First home owner grants/exemptions
Land tax
Main residence exemption
Rates
Levied by councils
Developer levies on new housing
May be passed on in price to purchasers
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Home ownership and tax
Welfare system
Principal home is exempt from asset test for age
pension and other federal welfare benefits
First Home Saver Accounts
Income tax concession: 15% rate
In 2013-14, maximum contribution is $6,000
eligible for 15% tax rate; government co-contribution
of up to $1,020
See, http://www.ato.gov.au/Individuals/First-homesaver-account/
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Rental housing
Tenants
No income tax deduction for rental payments
ie, tenants are taxed on rent, contrast home
owners who are not taxed on imputed rent
Landlords
Rent received is assessable to income tax
Deductions allowed for all costs including mortgage
interest on investment, maintenance, depreciation
on building, fixtures etc
No GST on supply of rental property
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Rental housing (landlords)
State taxes
Stamp duty on purchase of investment property
Land tax applies at progressive rate on aggregate
basis, ie rate increases with no. of properties
Council rates
Land tax and rates are deductible for income tax
CGT on capital gain on investment property
CGT 50% discount (max. rate approx 24%)
Reduce taxable CG by stamp duty, purchase costs
Capital loss can only be used against capital gains
If in a business, marginal rates; companies 30%
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Negative gearing
Rental expenses deductible against all sources of
landlord income eg salary, business profits
Majority of deduction is mortgage interest
ie, net rental loss “shelters” other income from tax
But, only half capital gain is taxable
NB. Can “negatively gear” share investments, but
less common
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Negative gearing (ATO statistics)
In 2010-11, net rental losses of $7.8 billion in total
80% of individuals claimed interest deductions
Most rental losses sheltered other income from tax
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Negative gearing (ATO statistics cont.)
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What is wrong with negative gearing?
1. Reduces tax revenues but we need to plug the deficit
2. Gives rental property an advantage compared to other
kinds of investment, eg active businesses
3. Inequitable subsidy (higher incomes benefit more)
4. Does not generate lower rents where needed
Not targeted at affordable rental property but
operates to subsidise debt funded investment
5. Subsidises “cottage industry” of individual investors
Does not benefit large scale investment in
affordable rental property
90% of rental investors own 1 or 2 properties only
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Affordable housing (NRAS subsidy)
Designed to encourage large scale investment in
affordable housing
Income tax credit for investment that qualifies for NRAS,
in 2012-13 (indexed):
$7,486 per dwelling/year
Refundable; can apply even if property is also
negatively geared (generating net rental loss)
State/Territory contribution $2,495 per dwelling/year
Applies for a period of 10 years
Companies, super funds; individuals can invest through
unit trusts, partnerships ( “consortium” model)
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Affordable housing (NRAS subsidy)
Does participating in NRAS impact on charitable status
for tax purposes?
ATO says:
Existing charities could participate in establishment
phase (2008-09, 2009-10) without affecting
charitable status, due to transitional provisions
Since 2010-11, “the charitable status of a charity may
be affected by participating in the NRAS, as normal
definitions of a charitable purpose apply”
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Henry Tax Review and other reform proposals
40% savings discount for investment income and gains
including net interest income, net residential rental
income, capital gains and losses, and interest in respect
of share investments.
This would reduce negative gearing
Could retain 50% discount, negative gearing for NRAS
Retain CGT exemption for main residence
Some have suggested applying CGT to gains above a
high property value threshold (eg $2 m?)
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Henry Tax Review reform proposals (State taxes)
Eliminate stamp duties (v. difficult)
Reform land tax (ditto)
Expand base to include home ownership
Reform minimum thresholds, harmonise valuations
on unimproved value (this could be achieved)
Ensure land tax applies per separate property not
on aggregate holding (removes disincentive to hold
multiple property)
Councils should be able to increase local rates
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Reforms to support collective investment in housing
Remove impediments for eg Real Estate Investment
Trusts and super funds esp. for NRAS program.
Reform land tax so that it does not increase
exponentially with multiple holdings
Ensure that residential investments are classified as
“capital” investments so CGT concessions apply
Ensure that residential investments do not cause
property trusts to be taxed as companies because seen
as a “business” activity.
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THANK YOU!
Questions?
Miranda Stewart
[email protected]
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