The Australian Government has chosen to simultaneously introduce three significant tax changes that directly affect the Australian Construction Industry. See what those big tax changes are and how they will affect you.

According to the Australian Bureau of Statistics the construction industry is the fourth largest contributor to Australia’s GDP accounting for around 7% of Australia’s total economy and over 9% of Australia’s employment. Construction has been a backbone of the Australian economy and the Australian way of life. Notwithstanding, the Australian government has chosen to simultaneously introduce three very significant tax changes that directly affect the Australian construction industry.

As of July 1, 2012, the construction industry will be hit with the implications of:

• Carbon Tax
• Mining Tax
• Compulsory reporting of subcontracting arrangements

This is a time when the government has already withdrawn support from those in the building and construction industry through:

Eliminating the free home insulation scheme.

Not continuing or increasing the School Building and Renovations program.

Being extremely inconsistent on when and if they are going to subsidise solar.

Taking longer than expected to roll out the National Broadband Network (a major infrastructure project consuming huge construction industry resources)

It has also come at a time when the Federal and State Governments are applying increasing requirements for builders to build green home and green renovations such as Victoria’s recent upgrade to a minimum 6 star rating for new homes at the same time that consumers are trying to build bigger homes with smaller budgets.

The Carbon Tax and the Construction Industry

Service Central has already published a review of how the Carbon Tax will affect the Construction Industry here, however let’s go over the key points once again.

Manufacturing the materials used in construction of new homes and renovations is extremely carbon intensive. As a result the carbon tax will add thousands of dollars of new costs to a new home. The HIA estimates that with the introduction of carbon tax the price of a new home will increase by between 0.8% and 1.7%.The Allen Consulting Group have released a carbon price mechanism report that estimates that the carbon tax will add around $3,821 to its model two storey detached brick veneer 200m2 house.

The Allen Consulting Group report found that in building a two storey home in NSW you would see increases in a broad variety of building costs, including:

• Direct Energy: 6.8%
• Aluminium: 4.1%
• Bricks: 4%
• Concrete: 3.2%
• Steel: 3%
• Carpet: 2.6%
• Paint: 1.5%
• Timber: 1.5%
• Glass: 1.1%
• Plasterboard: 1%

The Mining Tax and the Construction Industry

Whilst the Mining Tax is not directly related to the Construction Industry, the Government’s Mining Tax will increase the costs to an industry that supplies materials to Australia’s Construction Industry.

The mining tax that is set to commence from July 1 2012, imposes on select sectors of the Australia’s Mining Industry a 30% tax on extraordinary profits, specifically in the coal and iron ore sectors.

Similar to the Carbon Tax, this Mining Tax could have a flow-on effect to the Construction Industry that causes price increases in building materials and construction costs. An increased cost of production in the coal industry could lead to even further increases in the cost of Direct Energy as a significant proportion of Australia’s electricity is produced using coal. Building products that use a lot of energy in their production such as aluminium, steel and glass could be hit hard.

Targeting the iron ore sector also could have a direct flow-on to the cost of steel, a major component in the manufacture of Australian homes.

Tax Office targets Construction Industry in Sub-Contractor Crackdown

The third prong in the Government’s three-prong attack on Australia’s Construction industry is a significant crack-down on payments to subcontractors by builders with the introduction of mandatory reporting to the ATO of all payments made to subcontractors.

The new tax regime starts on July 1, 2012, and requires builders to report to the tax office all of the following:

The details of sub-contractors used by the builder.

The ABN of each subcontractor.

The exact amounts paid to each subcontractor.

It is proposed that the ATO will be using this information to data-match against the tax returns of each subcontractor. It is possible that discrepancies in the amounts reported by the builder and the subcontractors could lead to further scrutiny of their accounts by the Australian Tax Office.

The ATO has also indicated that it may share this information with various State and Territory authorities that could, for example match with payroll tax and workers compensation payment records.  Should this information also find its way into the hands of construction industry run superannuation and insurance schemes, significant additional costs could be imposed on small businesses.

Accountants have said that this extra reporting requirement will cost builders on average of $300-$500 per year extra in compliance costs. There are also risks that builders will be hit with extra costs as a result of increased audits from the ATO of their businesses and the businesses of their subcontractors. Furthermore, subcontractors may seek to increase their rates to builders as a result of the extra risk of the builders reporting their payments directly to the tax office.

The guidance from the ATO as to what needs to be reported and what doesn’t has been confusing to say the least. For example, the ATO has said that domestic building projects will be exempt from the program, however if the domestic building projects involve the use of subcontractors then they will need to be reported. Given that nearly every building project (of any size) involves the collaboration between various contractors (plumbers, electricians, painters, tilers, etc) it would seem that this “exclusion” actually might still capture the vast majority of projects.

This change comes into operation on July 1, 2012, so we would highly recommend that everyone in the building industry (builders as well as subcontractors) speak to their accountant about how this is going to affect them. If you’re accountant is not experienced in these matters then it is important that you post a job request for an accountant and get some quality advice for your business.

Resources:

Carbon Tax

http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/1350.0Feature+Article1Oct+2010

http://hia.com.au/media/Industry-policy/~/media/Files/documents/Carbon%20Tax%20documents/carbon_tax_price_adjustment.ashx

http://www.allenconsult.com.au/resources/acgcarbonprice2011.pdf

Subcontracting

http://www.smartcompany.com.au/construction-and-engineering/048605-the-building-industry-gets-ready-for-changes-to-tax-reporting.html

According to the Australian Bureau of Statistics the construction industry is the fourth largest contributor to Australia’s GDP accounting for around 7% of Australia’s total economy and over 9% of Australia’s employment. Construction has been a backbone of the Australian economy and the Australian way of life. Notwithstanding, the Australian government has chosen to simultaneously introduce three very significant tax changes that directly affect the Australian construction industry.

Story source: http://www.servicecentral.com.au

Federal Treasurer Wayne Swan says banks could not justify raising rates above the official cash rate if the Reserve Bank of Australia increases its rates when it meets on Tuesday.

On September 21, the RBA kept its benchmark cash rate on hold at 4.5 per cent since the most recent increase in May.

The last rise capped off a series of six that began in October last year when cash was at a multi-decade low of 3.0 per cent.

But economists are predicting a rise when the bank meets at 1430 AEDT on Tuesday.

Mr Swan said there were issues on the long-term funding profile of banks but it still didn’t justify hitting customers with higher interest rates than those of the RBA.

"I don’t think there is any justification whatsoever for any bank to move above the official cash rate decision of the Reserve Bank," Mr Swan told ABC Radio.

"Banks are making healthy profits at the moment, their net interest margins are back above what they were before the global financial crisis."

HSBC’s chief economist Paul Bloxham expects the RBA 25 basis points this year, putting the brakes on an economy fuelled by China’s insatiable demand for resources.

Mr Bloxham says that if the central bank does not raise official interest rates at its meeting on Tuesday, it is likely to do so before the end of the year.

Story from ninemsn.com.au

As a cloud of uncertainty hangs over Canberra, real estate agents will be wringing their hands together hoping that we have a stable government formed as soon as possible.

There’s nothing like a federal election to slow the wheels of the housing market, many agents say. So when Julia Gillard decided to take Australians to the polls before spring arrived, property insiders were quietly saying their thanks that the whole show would be done and dusted before the biggest sales season of the year arrived.

Within a few weeks, they said, everyone would get back to their day-to-day activities, including the all-important decision of where to live. It’s interesting to note, though, that even though many sellers weren’t keen on going under the hammer on election day, there were some buyers about. Perhaps driven by the low stock levels, auction clearance rates hit 75 per cent in Melbourne and 66 per cent in Sydney on Saturday, although were much lower in Brisbane and Adelaide, at 26 per cent and 30 per cent.

When it comes to the effect of the election, it’s not so much that either major party offered up any overly exciting housing policies, it’s more that buyers and sellers prefer certainty at all levels when they are making such an important decision.

“People see uncertainly as a reason to sit on their hands and do nothing,” says Craig James, the chief economist with CommSec.

“What it means is you may see vendors holding back listing their property for another fortnight or so, which certainly wouldn’t be a positive outcome for the property market, real estate agents in particular.”

However, James questions whether this is necessary. “I suppose what a lot of people have got to ask themselves is, ‘is anything going to change dramatically, if you have a Liberal minority government or a Labor minority government?’”

James says for both sides in the election, property wasn’t a major consideration. “There’s nothing in terms of the major policies that are likely to change things ,” he says. “So I would’ve have thought that vendors and budding buyers should be getting on with business but that may not be the case.”

As we head into spring you would normally expect to see plenty of hot properties come flooding onto the market, which may be delayed now. But David Airey, Real Estate Institute of Australia president, says the industry was already forecasting a quieter than normal spring as the six recent interest rates continue to bite, the market stabilises after some pretty substantial increases earlier in the year, and a cloud from the global economic uncertainty hangs over Australia. “People aren’t confident enough to go delving into the market with any great expectations at this stage,” he says.

Airey doesn’t think the uncertainty will have much impact on people buying and selling places to live in themselves, but he does expect investors will hold off making a decision until the situation is clearer.

One thing that Airey has on his radar is the possibility the major lenders could use a once-in-a-lifetime opportunity to improve their margins while the government is in caretaker mode. He’s not expecting to see the Reserve Bank move on the rates for the rest of the year, but he thinks an opening exists for the banks to make some quiet adjustments.

“There’ll be the least resistance from government to those rises and even if there was resistance or reaction it would be meaningless in a limbo situation,” Airey says. “Effectively we have no national government or a weakened national government, which will allow the banks to have a look at interest rate rises on the break basically. They’ll be taking the opportunity to say ‘gee, now would be a time to tweak up our rates with very little resistance or reaction from the market’, and that worries me a lot.”

When the situation will be resolved is difficult to tell, although that changes minute by minute. There is talk from independent MP Rob Oakeshott about the possibility of heading back to the polls if a solution can’t be found that installs a minority government. Real estate agents around the country have their toes crossed hoping that doesn’t eventuate. From Airey’s point of view a second election would be disastrous and would leave the entire country into a state of limbo.

Carolyn Boyd is a property journalist and keen follower of Australia’s housing market.

Australia’s political deadlock is set to hurt financial markets with the uncertainty expected to send share prices and the local currency lower, analysts said Sunday.

In elections Saturday, neither the ruling Labor Party nor opposition Liberal/National alliance won enough seats to govern alone.

“Markets traditionally don’t like uncertainty and clearly markets would have been anticipating a (clear) result,” UBS economist Scott Haslem told AFP.

“So the market will have to deal with some uncertainty when it opens up on Monday.”

In advance of the election, Sydney’s main share index lost 1.07 percent, or 48.1 points, to 4,430.9 on Friday in line with regional falls.

Haslem said the Australian dollar would likely fall amid the stalemate, which has seen Labor Prime Minister Julia Gillard and her conservative opponent Tony Abbott battling to win the support of five minority MPs.

“What is more likely is that you end up with more volatility than you end up with a fundamental move in the currency, because fundamentally nothing has changed (to the economy),” he said.

The hung parliament leaves the future of the government’s plans for a tax on the nation’s profitable mining sector and a national high-speed broadband network hanging in the balance.

Commsec chief economist Craig James said any political uncertainty was “a major negative for financial markets”.

“In the short term the Aussie (dollar) has the potential to lose ground,” he told AFP, saying the currency could lose as much as one US cent after closing Friday at 89.05 cents.

Australian households are directly responsible for about a fifth of Australia’s carbon pollution, and the Federal Government is offering a range of incentives to help people reduce carbon pollution in their homes.

For example, the Renewable Energy Bonus Scheme offers eligible Australian households a $1000 rebate for a solar hot water system, or a $600 rebate for a heat pump system.
The Scheme replaces the home insulation program and the solar hot water rebate, which were discontinued in February this year.

The Green Loans Program also aims to help households ‘go green’ by providing home sustainability assessments that will help Australians to improve the energy and water efficiency of their homes, and reduce greenhouse gas emissions.

Rebates of up to $500 are available to households for the purchase and installation of a new rainwater tank that is connected for internal reuse of the water for toilet and/or laundry use, or for the purchase and installation of a permanent grey water treatment system.
For more information on the incentives, visit www.environment.gov.au/

Read the article from the Age Newspaper

Revelations that foreign property buyers bought $14.9 billion worth of houses and land in Australia last year, including $2.49 billion worth of existing homes, is resulting in more calls from curbs on overseas investors.

The Federal Government refused to release these figures recently when asked to by journalists but they were in quietly posted on the Foreign Investment Review Board (FIRB) website last week.

They show that the Government issued 4827 real estate approvals to foreign investors last year for commercial and residential properties. About half the approvals were for temporary residents wanting to buy a house as their principal residence.

A further 988 approvals were granted to investors to buy vacant land for residential subdivision or to build a houses. The report also shows Victoria is the most sought after state by foreign investors wanting residential real estate, followed by Queensland and New South Wales.

But the figures are incomplete because the Government changed the rules in April last year so foreigners no longer had to notify the FIRB if the property was to be their principal place of residence.

Under foreign investment laws, non Australian residents can buy a dwelling for their principal place of residence but the Government has been criticised for relaxing foreign investment laws and they are being blamed for driving up house prices.

The Australian Government has now announced it will adopt a more stringent approval process so that fewer foreigners will be able to buy and acknowledging that they had pushed up residential real estate prices.

Foreign buyers will have to sell when they leave the country and those who ignore the new rules face heft penalties.

Critics say the new rules do not go far enough. Opposition politians are calling for a comprehensive study of foreign real estate investment.

‘In one sense, little has changed. Foreign residents can still purchase Australian properties and, in particular, people in Australia on temporary residence visas can still purchase existing dwellings,’ explained Immigration-law specialist David Stratton.

Foreign owned companies are also allowed to buy properties to house their Australian based staff and a developer can sell an unlimited number of dwellings, either off the plan or newly constructed, to foreigners, provided the properties are advertised locally.

In 2007/08, the main foreign buyers were from the US, Britain and the United Arab Emirates. The following year, Singapore investors topped the list, followed by the US and Britain.

Source: PropertyWire

Property industry groups have slammed the New South Wales Government’s decision to introduce a new tax on property transactions, but what impact will it really have on the market?

In the shadow of the Federal Budget last week, the NSW Government announced it was introducing a new transaction charge of 0.2 per cent for properties valued at $500,000 and above, or 0.25 per cent above $1 million.

The decision to introduce what’s become known as the ‘ad valorem’ levy (ad valorem is Latin for ‘according to value’) brought a furious response from the property industry.

The acting executive director of the Property Council in NSW, Glenn Byres, says the new tax will “hurt homebuyers and hurt the NSW economy” and deliver “a significant hit” to “homebuyers, the residential development market and (the) commercial property market”.

“NSW is barely creeping back from 50-year lows in residential construction levels,” Byres says. ”We can’t afford to strangle progress with a new stealth tax.” Sal Carrero, chief executive of property accountants Chan & Naylor, says the move will worsen affordability and hurt many prospective homebuyers in one of the most active market segments in the state.

“There are few family homes under the $500,000 threshold, particularly in Sydney, which will penalise families hoping to enter the market. This tax hits first homebuyers square in the eyes,” Carrero says.

“It’s also an added burden to property investors, who are likely to pass on the increased cost to renters. Increasing the cost of property to investors may seem like a populist approach but it will hurt the vulnerable as well.”

Urban Taskforce Australia chief executive Aaron Gadiel says the tax is merely a disguised increase in the rate of stamp duty.

“It again sends the message that anyone who invests in NSW will be subject to unpredictable and ever-changing imposts.”

NSW Opposition leader Barry O’Farrell has also chipped in, saying the “unfair” tax would make it even tougher for families looking to buy a home, and potentially impact on jobs if businesses took their investments interstate.

So just how big is this tax slug that’s going to hit homebuyers “square in the eyes” and “strangle progress”?

Well, as it turns out, it would total $170 on the sale of a $585,000 house, which RP Data puts as the current median price in Sydney.

That sounds more like a small pain in the behind rather than a true punch right between the eyes, but perhaps Aaron Gadiel gives a better picture of how the new tax will affect the marketplace.

He points out the levy would be a $23,500 impost on the purchase of a $10 million development site and a $123,500 impost on a $50 million development site.

That seems less like chump change.

Or perhaps the hyperbole over the new property tax is less a case of how much it will cost, and more about, as Wakelin Property Advisory director Monique Wakelin puts it, just how dysfunctional property taxes have become.

“Federal and state governments alike are growing increasingly dependent on taxes raised from property owners and this over-dependence comes at a high cost,” Wakelin writes for the Eureka Report this week.

“Rapidly decreasing housing affordability, a growing shortage of housing for buyers and renters and significant financial penalties for residential property investors are among the chief symptoms of a chronic problem requiring urgent reform.”

By Mathew Liddy Australian Property Investor

The Minister for Lands, Tony Kelly, confirmed today the new tax would begin on July 1 and had been formulated as a NSW budget measure.

The tax will be levied on the buyer.

Tens of thousands of NSW home buyers a year are set to be hit with a new tax that will cash in on the improving property market and boost state government coffers by an estimated $90 million annually.

Quietly released by the Minister for Lands, Tony Kelly, amid the wash-up of the federal budget, the new land transfer charge will be imposed on the sale of residential and commercial property worth more than $500,000.

The announcement has outraged property groups, which branded it ”just another stamp duty increase”, while the opposition has criticised the timing of its release as ”sneaky”.

Under the proposal, the portion of the sale amount between $500,000 and $1 million will attract a tax rate of 0.2 per cent, before the charge rises to 0.25 per cent for the portion of the sale above $1 million.

The median Sydney house price is about $600,000, which would attract a charge of $200, while the tax on a property sold for $1.2 million would be $1500.

According to figures provided by the Department of Lands, almost 30,000 residential and commercial property sales of between $500,000 and $1 million were settled in the past 12 months. More than 10,000 properties sold for more than $1 million in the same period.

Aaron Gadiel, the chief executive of the developer lobby group Urban Taskforce, said the new charge amounted to a 4.5 per cent increase in stamp duty for the top end of the property market.

He estimated that a developer looking to acquire a $10 million development site for new housing would be hit with an extra cost of $23,000.

Mr Gadiel said that it ”flies in the face” of the recommendations of the recently released Henry tax review, which criticised transfer duties.

”The Henry review said they were unfair; they hit some members of the community harder than others and they could cause economic distortions and reduce business activity,” he said.

The acting NSW executive director of the Property Council of Australia, Glen Byers, said that the tax was introduced ”without consultation, without explanation at a time when the investment climate in NSW is fragile”.

It is understood that legislation for the new tax will not be introduced before the next session of Parliament, which begins next month.

The government is not indicating when the tax might begin, but a spokesman for the Treasurer, Eric Roozendaal, said the revenue forecast to be generated by the tax would be included in the state budget on June 8.

The announcement was labelled ”sneaky” by the Opposition Leader, Barry O’Farrell, because it was buried in a press release which focused on new security measures for land transfer documents.

Mr Kelly’s release suggested part of the tax would be used to fund the security measures.

A spokesman for Mr Kelly said revenue from the charge would flow to the Department of Lands, not the Office of State Revenue, as was the case with stamp duty.

However Mr O’Farrell said: ”This is another attempt under the cover of a federal budget to get some bad news out from the state budget, well away from polling day in Penrith.”

Figures provided by Mr Kelly’s office suggest that the proposed NSW charge is at the lower end when compared with similar charges imposed by other states.

Based on a sale worth $750,000, the spokesman said only Western Australia charged a lower ”registration charge” of $260, compared with $500 proposed in NSW. In Victoria, the figure is $1350, in Queensland it is $1623 and in South Australia it is $4759.

Story by Sean Nicholls www.domain.com.au