Other than incidental construction activity that arises from the major budget announcements, the Government has not provided much by way of incentive to boost the property industry.

There are limited new developments for the property and funds management industries in the budget. The revenue raising focus of the budget has inevitably extended to this sector, impacting the viability of projects and imposing further compliance burdens on fund managers. However, benefits are expected to flow from some minor reforms.

There are no further developments that impact on the Managed Investment Trust (MIT) regime and Investment Manager Regime (IMR). These previously announced reforms will continue through normal channels.

Thin capitalisation

As noted in our Business Tax section, the Government proposes to tighten the thin capitalisation rules, which restrict a taxpayer's debt deductions once permissible debt levels are exceeded. Under the proposed new safe harbour test, the maximum permissible debt to total assets ratio of general entities will be reduced from 75% to 60%. Further, the Board of Taxation will be engaged to conduct a review of the arm's length test, which allows greater debt levels than an entity's safe harbour amount in certain circumstances. Access to arm's length test is expected to be restricted following the review. These changes will make it more difficult to fund large property and infrastructure projects in the future.

However, the thin capitalisation limits will be eased in other areas:

  • Inbound investors will be granted access to the worldwide gearing test, which is normally only available to outbound investors. Broadly, the worldwide gearing test allows a taxpayer to retain a gearing level that reflects 120% of their group's worldwide gearing level.
  • The de minimis exemption will increase from $250,000 to $2 million of debt deductions.

The proposed amendments are scheduled to apply from 1 July 2014.

Withholding tax on capital gains distributed to non-residents

From 1 July 2016, where a foreign resident disposes of certain taxable Australian property, the purchaser will be required to withhold and remit to the ATO 10% of the proceeds from the sale. Accordingly, fund managers will need to have reporting systems in place to identify acquisitions of affected taxable Australian property and collect the withholding tax.

Foreign non-portfolio dividends

The Government will expand the scope of the tax exemption available for foreign non-portfolio dividends so that it applies where an Australian company receives foreign non-portfolio dividends from an interposed trust. Accordingly, fund managers will need to identify and report such dividends to investors. The proposed amendment is scheduled to apply from 1 July 2014.

Significant Investor Visa

On a brighter note there are no changes to the Significant Investor Visa which is seen as a major source of fund flow into the sector.

Attachments

Property and Funds Management - Moore Stephens Federal Budget 2013 Insights

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