Here’s how the 2017 budget has changed the rules in the housing game

Fed. Treasurer Scott Morrison has taken a multi-pronged approach to housing affordability

By Chris Pash    Business Spectator   9 May 2017

The 2017 budget has changed the playing field around the housing game, making it easier to save for a home deposit, encouraging older Australians to move to smaller places and taking out some of the perks which make negative gearing such a lucrative way to invest.

Affordability has become a headline issue in Australia, especially in Sydney and Melbourne where a hot property market has pushed those who would have been first home buyers out of the game. [NOTE: But a brilliant deal for first home buyers in Perth, where house prices are close to the bottom of the cycle]

As treasurer Scott Morrison says: “If a family or an individual has a roof over their head that they can rely on, then all of life’s other challenges become more manageable.”

In his 2017 budget, he acknowledges there’s no silver bullet cure. So, he’s taken a multi-pronged approach.

First, something direct for those who’ve founded themselves priced out of the market.

These will be able to save by building a deposit inside tax effective superannuation with voluntary contributions, over and above normal super, of up to $15,000 per year and $30,000 in total.

The First Home Super Savers Scheme will have the advantages of superannuation with tax at 15%. Withdrawals will be taxed at their marginal rate, less 30 percentage points.

Savers will not have to set up another account. They can just use their existing super account and decide how much of their income they want to put aside.

The second measure is allowing older Australians, those aged 65 or more, to put part of the proceeds of downsizing into superannuation.

From July next year, they will be able to make non-concessional contributions of up to $300,000 using proceeds from the sale of a principal residence held for at least 10 years into their superannuation. These downsizing contributions will not be subject to the existing contribution caps.

And some of the perks of negative gearing – where the difference between the income from a property and the cost of interest payments is claimed as a tax deduction — are disappearing.

Tax deductions for travel to a negatively geared property are being eliminated. There’s been a strong suspicion that a lot of these claims are more a personal benefit than for investment purposes.

And deductions for plant and equipment forming part of residential property investments will be limited to expenses investors have directly incurred themselves rather than to spending by previous owners.

A new foreign investment levy of at least $5,000 a year will be imposed on all future foreign investors who fail to either occupy or lease their property for at least six months each year.

And the government is restoring the requirement that prevents developers from selling more than 50% of new developments to foreign investors.

The federal government will also providing additional funding of $375 million over three years from 2018-19 as part of the new National Housing and Homelessness Agreement to fund services to address homelessness.

A National Housing Finance and Investment Corporation will be set up to operate an affordable housing bond aggregator to provide cheaper and longer-term finance for the community housing sector.

“We will work with the States and Territories and local Governments to get more homes built, because prices are higher where demand is greater than supply,” says Morrison.

The federal government will replace the National Affordable Housing Agreement that provides $1.3 billion every year to the states and territories, with a new set of agreements, with the same funding, requiring the states to deliver on housing supply targets and reform planning systems.

And a $1 billion National Housing Infrastructure Facility, based on a UK model, will be established to fund micro city deals that remove infrastructure impediments to developing new homes.

An online Commonwealth land registry will be established detailing sites that can be made available for residential development.

In Melbourne, land for a new suburb that could cater for 6,000 new homes will be unlocked just 10km from the CBD, by releasing surplus Defence land at Maribyrnong.

Other measures to address housing supply include allowing Managed Investment Trusts to be used to develop and own affordable housing, providing investors in affordable housing with greater income certainty by enabling direct deduction of welfare payments from tenants, and increasing the capital gains tax discount to 60% for investments in affordable housing.

From January 2018, there will be an additional 10% CGT discount to resident individuals investing in qualifying affordable housing. This means investors in qualifying affordable housing will be entitled to a 60% discount on capital gains tax.

Original article here

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