After a number of positive years, tax reform for Australian
property investors appears to have stalled, and may even have gone
into reverse. There is little good news for the property industry,
and non-resident investors. The property industry will be
particularly disappointed to see increases in Managed Investment
Trust withholding rates and the removal of tax breaks for green
The budget contains few incentives to increase Australia's
position as a financial services hub, and may fall further behind
its competitors such as Singapore and Hong Kong.
Managed Investment Trust Withholding
In a significant change, the Managed Investment Trust
withholding tax rate will increase from 7.5% to 15% from 1 July
2012, saving $260 million over four years.
The tax is a final withholding tax which applies to certain
managed investment fund distributions made to foreign investors.
Although a statutory rate of 30% applies, this is reduced to 7.5%
for foreign investors residing in countries with whom Australia has
an exchange of information agreement. Most of Australia's main
trading partners fall within this category, so in practice the 7.5%
rate is common. Unfortunately the rate will now increase to 15%;
doubling the tax rate for most foreign investors.
Removal of CGT discount for non-residents
The 50% CGT discount will be removed for non-resident investors
from 7:30pm on 8 May 2012. Previously, non-resident individuals,
partnerships and trusts have been able to discount any capital
gains. Foreign residents are generally only taxed on direct and
indirect investment in real property assets, so this measure will
disproportionally impact on the property industry.
From a practical perspective, this measure will require registry
services to include additional disclosure on investor statements.
The increase in transaction costs is likely to be a deterrent for
nonresidents to realise capital gains by disposing of their
investments, and may also deter future investment.
Tax breaks for green buildings gone
The Government will not proceed with its previously announced
tax breaks for green buildings program. This program had been
flagged to commence on 1 July 2012, and would have provided
property groups with additional tax deductions for energy efficient
investment. This valuable measure will be missed by many in the
industry as they prepare for the introduction of the carbon pricing
Green building fund closed
The Green Buildings Fund has been closed to new applications.
This program was established in 2008 and provided grants of $50,000
to $500,000 for a range of measures to reduce greenhouse gas
emissions for energy consumed in buildings.
In the Government's view, this program did not provide value
for money when compared with other measures. It believes that the
property industry can continue to access funds through the Clean
Energy Future package and finance though the Clean Energy Finance
Corporation. These measures will provide financing for $10 billion
in renewable energy, energy efficiency and low emissions
Greenhouse and Energy Minimum Standards
$37.1 million in funding will be provided over four years to
introduce a nationally-consistent legislative framework to regulate
the energy efficiency of equipment appliances.
Investment Manager Regime
The Government has said that it will extend the previously
announced conduit income measures of the investment manager regime
from 1 July 2011. Broadly, this previously announced regime is
intended to increase Australia's attractiveness as a financial
services hub. One aspect of the regime ensures that foreign managed
funds will not be subject to tax on gains on disposal of foreign
assets or non-portfolio conduit foreign income. Australian sourced
income and gains on portfolio investments will also be exempt.
While this measure will be welcomed by some funds, it is unclear
whether it will have a significant practical impact on Australian
asset/fund managers, or foreign funds investing in Australia.