The Australian Government delivered its Budget for the 2017/2018 year on 9 May 2017. The Budget did not propose any significant reform to the Australian taxation system but, to the extent that changes have been proposed, a number of measures will impact directly on foreign investment into Australia. Taxand Australia explains the implications.
The proposed measures affecting foreign residents include:
Changes to the managed investment trust (MIT) rules to allow a concessional 15% final withholding tax on income from eligible development of affordable housing to foreign resident investors from countries with whom Australia has an exchange of information agreement
Removing the principal place of residence exemption from capital gain tax on the sale of residential dwellings for foreign residents
A vacancy levy on foreign residents who hold property that is not occupied, or offered for occupancy, for at least six months each year
Amendments to the foreign resident capital gains tax withholding rules to increase the withholding rate from 10% to 12.5% of sales proceeds payable to foreign resident vendors and reducing the de minimis transaction value threshold from A$2 million to A$750,000
Introducing an aggregation rule that will ensure capital gain tax can be levied on the sale interests of less than 10% in certain land-holding entities where the vendor, together with its associates, holds a combined interest of 10% or more
Amendments to ensure the multinational anti-avoidance law – a measure designed to ensure certain foreign residents are taxed in Australia notwithstanding arrangements designed to avoid having a local permanent establishment – applies to partnerships with both Australia and foreign resident partners
While not strictly taxation measures, the following budget measures are also likely to impact foreign residents considering investing into Australia:
A 50% limit on the proportion of new housing developments that can be sold to foreign residents
New measures to reduce barriers for foreign banks to enter the Australian market and to encourage new sources of capital raising for Australian businesses
The Australian budget has sidestepped the difficult issues of taxation reform and instead opted for a voter-friendly approach based on new spending and addressing concerns about housing affordability.
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Taxand's Take
A number of more complex tax reform proposals – such as amendments to the petroleum rent resource tax and amendments to MIT regime to address tax avoidance concerns – have been deferred. The new measures in the Budget concerning foreign ownership of residential housing are relatively moderate and unlikely to make a significant impact upon foreign investor demand. As a post script, a Senate Committee considering the enactment of proposed laws relating to the imposition of Australian goods and services tax on all imports has recommended the bill be passed, but that this measure should be deferred for a further 12 months to allow businesses to implement the necessary systems to deal with any new law.
