The 1st July sees the introduction of the new Goods and Services Tax into the Australian Economy.
This is no doubt the most significant change Australia has seen to its taxation system ever.
As detailed in our previous newsletters, the impact of GST on the Residential Property Investor shall be minor and there is no need to register or change the manner in which you handle your investments in any way.
Residential Property includes Houses, Apartments, Units, Townhouses, Serviced Apartments and individually owned Hotel Suites.
In these cases no GST is required to be charged on the rental collected, nor is it payable on the interest paid on your property loan or government service charges.
GST will be levied on items such as property maintenance, agent fees and insurance. These items are generally low cost and therefore the effect of GST is expected to be less than $300 per annum for most properties.
This small additional annual cost should be easily absorbed by all landlords and you should check with your Real Estate Agent as to whether you may be able to increase your rent at the next review date.
Remember to be reasonable as a good tenant is a valuable asset and you should not seek to push the rents up unnecessarily.
We have some quick worksheets available so you can calculate the additional annual cost of GST on your property. Simply call the Singapore office and we will be happy to forward one to you.
It is also important to note that no GST is payable when the investor sells their established residential property so you will be pleased to know that your sale price shall not be reduced by the impact of GST.
If you have a commercial property you will be required to obtain an Australian Business Number (ABN) and if your annual rental income is in excess of A$50,000, you will be required to register for GST and collect the new tax from your tenant. Your tenant shall not be adversely affect as commercial tenants will be able to claim a credit from the Government for any GST paid on their rental.
Some transition rules apply to commercial leases and it is recommended that you seek professional assistance to determine if and when GST should be charged on the commercial rent.
In some cases GST may apply on the sale of the Commercial property and a valuation as at the 30th June 2000 may be required to reduce the amount of GST payable at the time of sale. Commercial property investors should contact us to establish what action is required if any.
Obtaining an ABN is relatively simple exercise and can either be done by ATS or on the web at the Australian Taxation Offices’ Business Entry Point at www.business.gov.au.
Failure to have an ABN may result in some of your rent being with held by the government albeit refundable against your next tax return.
Again we must reiterate that an ABN is NOT required if your rent comes form Residential Property including Serviced Apartments and individual Hotel Suites.
The New Tax System has been eagerly awaited and the confusion of the initial draft legislation and rulings is starting to clear as the final interpretations take effect.
Property remains as a substantial winner of the reforms and the opportunity still exists for investors to acquire property in the near future without the full impact of GST being applied.
Under the transition rules the 10% GST shall not be charged on the value of the property at the 30th June 2000.
This may prove a windfall for the astute buyer who acts quickly.
This saving will apply to land estates and houses, units or apartments completed or near completion at the 30th June 2000.
A saving of up to 10% of the purchase price can be achieved. The longer the period between the sale and the 30th June and the subsequent rise in price, the less the saving.
We expect Australian property to be one of the major winners from the changes to the taxation system.
The reduction in Income Tax Rates shall create much higher disposable incomes for all Australians and it is envisaged that property could share in a reasonable portion of this increase as people upgrade their lifestyles through property acquisition or moving to better quality rental accommodation.
In addition, the $7,000 First Home Owners Scheme should provide grass roots stimulus to the property markets helping all investors as the activity in the market increases.
The icing on the cake comes form the reduction in Capital Gains Tax which was effectively halved by the Howard Government.
This should create great interest in property investment throughout Australia from both the local and overseas investor.
The recent volatility of world stock markets and technology stocks in particular, should also encourage the investor to seek the sanctuary and safety of property.
All this goes well for Australian property which is still extremely well priced by world standards.
From feedback of clients of SMATS it seems clear that we can expect a higher level of activity from foreign investors over the next two years which should see an increased level of support for quality, well priced developments Australia wide.
There is no doubt that the improvements in our economic system as a result of the introduction of the Goods and Services Tax, Capital Gains Tax Reductions and Business Tax Reforms shall boost activity with property investment likely to reap the biggest rewards.
