The 2019 Australian Federal Budget has just been released last week, and it has left Australian property investors with a range of items to be smiling about. With a Federal election, just around the corner in May, there is no guarantee that the Coalition will remain in power to deliver on the Budget promises, but nonetheless it’s important to consider how the policies of both parties could impact property investment in Australia.
In this week’s article, our team at Loansuite explores some of the key items outlined in the Budget, including those proposals put forward by the Opposition and their potential impact. There are many key factors to consider when it comes to successful property investment, but when it comes to the Budget, the main areas that we’re analysing include any infrastructure spending, items that could contribute to new jobs and growth in employment, tax incentives and overall growth in our country’s population.
Let’s start with the Infrastructure spending
A centrepiece of the Coalition’s Budget is the $100 billion spend on infrastructure, with a large focus on roads and rail to ease the congestion in our nations’ capitals. This includes building commuter carparks to allow for greater use of public transport, increasing the ‘urban congestion fund’ from $3bn to $4bn, rail funding for projects including the Western Sydney Rail North South Rail Link and the Geelong to Melbourne fast rail line. The $100 billion commitment would be broken down to include road and rail transport upgrades in each of the key states as follows:
- NSW: $7.3bn
- QLD: $4.0bn
- VIC: $6.2bn
- WA: $1.6bn
- SA: $2.6bn
- NT: $622mn
- ACT: $50mn
This level of infrastructure spending would likely have a positive impact for both property developers and investors in both creating new jobs across the country as well as easing traffic congestion.
Let’s explore the proposed Tax changes
In some cases, no news can be good news, and in others it can lead to fear and uncertainty, and this Budget has delivered a touch of both when it comes to tax policy.
Firstly, a key item that many Australian expat property investors were looking out for was some clarity with regard to the proposed removal of the Main Residence Exemption for expats. You can read more about the proposed changes here. Given that the proposed deadline for the changes to come into effect is 1 July 2019, we were hopeful for some clarity in either scrapping the proposal altogether, or at the very least pushing it back for discussion and review at a later date, however there has been no mention of it at all.
The second key area of focus has been any proposed changes to negative gearing. The Budget has outlined that there would be no changes proposed to negative gearing, nor would there be any incentive to encourage investment in Australian property directly, in which case no news is good news for investors. The Opposition however, have reiterated their stance on the topic highlighting that negative gearing would be abolished on most purchases, with the key exceptions being those that are newly built and those currently being negatively geared. You can read more about Labor’s proposed changes here.
An additional change that the Opposition has put forward is to reduce the Capital Gains Tax (CGT) discount from 50% to 25% for those investment assets held by Australian tax residents for 12 months or greater. The Budget has announced no change to this tax, as has been reiterated by the Coalition. Neither of these proposed changes is particularly attractive for property investors, and it’s important that investors do their homework and ensure that their financial strategies factor in these potential changes.
With regard to tax rebates and other incentives delivered to PAYG employees, there were a number of reasons for the low to middle income earners to smile with the promise of approximately $19.5 billion in tax cuts. The middle income earners are set to be the biggest beneficiaries, and this would be a slight positive for the Australian property market.
Finally, it’s important to consider what impact the Opposition’s policy to remove the refunding of excess franking credits could have on the Australian property market. The proposed change may create greater incentive for those considering their retirement plans to consider having more taxable income in retirement, which would typically be in the form of property investment. Be sure to seek professional advice here, as this proposed change could have a significant impact on your retirement plans.
What about new Jobs & Employment
The 2019 Federal Budget has announced a number of key measures to boost jobs and employment opportunities in Australia, in addition to the strong focus on infrastructure spending, which would undoubtedly create new jobs across the country. Among these measures includes funding an additional 80,000 new apprenticeships across a wide range of areas where there are currently skills shortages, training hubs to be set up in areas of high youth unemployment and boosted apprenticeship incentive payments to $8,000.
The Budget has also proposed a number of helpful measures for small business owners including; lowering the tax rate from 27.5% to 25% over the next 3 years, allowing for multiple-asset instant write-offs to $30,000 and extending these allowances to business with annual turnover of up to $50mn instead of the current $10mn.
Overall, we believe the 2019 Australian Budget is relatively position for Australian property investors, despite providing little clarity on tax implications for Australian expats.
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