Foreign buyers remain unfazed by hefty property taxes
Australian property — both commercial and residential —remains attractive to foreign investors despite major tax bar...
The Liberal government gives property investors the assurance that they can continue to invest using the same strategies, while opening up new opportunities to consider.
Blogger: Rick Nieuwenhoven, CEO and director, Nieuvision
The Coalition winning the federal election is good news for property investors.
It gives property investors the assurance that they can continue to invest using the same strategies, taking confidence that some of the key fundamentals of property investment rules will remain unchanged, while opening up new opportunities to consider.
Some of the policies campaigned for during the election, which will impact property investors, include negative gearing, corporate tax cuts, changes to SMSF tax rates and reducing the deficit.
Below are some tips to help property investors navigate the federal election outcome and gain a better understanding of where they stand, now that more than eight weeks of campaigning has come to an end.
Traditionally, Australian property investors have been able to use negative gearing, which occurs when an investor’s expense outweighs their income, to reduce overall income in their annual tax return.
It is a method that makes property attractive to many investors while creating a supply of rental accommodation across Australia.
In the lead-up to the federal election, the Liberal/Coalition government maintained that there would be no changes to negative gearing rules and that new and old properties would be considered on a level playing field.
This is in contrast to Labor, which had proposed restricting negative gearing to new properties only.
Any proposed policy change will always create uncertainty in the investor market.
Labor’s policy shift had led CoreLogic to forecast a potential decrease in existing house price values – good for investors looking to enter the property market but not for owner-occupiers or current investors.
It’s important for property investors to remember that negative gearing, using deprecation as a driver, is already skewed to the benefits of new properties.
Existing property investors can now take comfort knowing that they can continue to use negative gearing to grow and expand their portfolio.
Corporate tax cuts
Forecasted corporate tax cuts, down from 30 per cent to 25 per cent, could make the use of a company ownership structure a more viable pathway into property investment and development.
This is 7 per cent less than the individual tax rate, which balloons to 32 per cent for incomes of more than $37,000.
Property investors should seek expert advice on which ownership structure is best suited to their property portfolio, as there are a number of key differences between the two.
For example, capital gains tax exemptions are not available if a property is owned by a company.
Increase to SMSF tax rates
The tax rate on superannuation is increasing for higher income earners, from 15 per cent to 30 per cent.
There’s two sides to this story. While the tax burden for higher income earners will increase, the negative gearing aspect of property investment in superannuation becomes more effective.
Property investment through superannuation is a burgeoning pathway for investors, as Australia’s lust for owning property continues.
The cynicism in the stock market, uncertainty around events such as Brexit and questions of foreign economies have not helped investor confidence and can be attributed to boosting property appeal.
Property investment can also be an alluring opportunity to leverage different assets into a self-managed super portfolio. Investors should be aware that compliance costs are higher for this type of transaction and advice from a superannuation expert should be sought to help ensure an effective investment experience.
Impact of reducing the deficit
Given the tough economic climate, investors should consider the Coalition’s fiscal policy to reduce the deficit, and how this may affect investors through factors such as wage growth prospects.
As a country, we need to hit a budget surplus. The only way for the government to do this is to find new income sources and reduce expenditure.
A steady approach has been indicated, so investors can anticipate that the economy may not improve as quickly as they would like. This makes it all the more important to have a strategic investment strategy in place.
Property investors should look for properties in locations with strong employment prospects, as this will be a key indicator to population growth and housing demand. This will help assist in rental yields staying strong on your investment and potential capital growth in your property too.