INVESTORS will be allowed to improve properties in their self-managed superannuation funds, following a tax office move to abolish a ruling that banned the practice when money had been borrowed to buy the property.

Investors have always been allowed to maintain their properties, but they were banned from changing them because it would negate the concept of the "single acquirable asset" that the Australian Taxation Office had come up with to more clearly identify assets in SMSFs.

Ken Reiss, a director at accounting firm Chan & Naylor, said the new ruling was a "huge win" and would turn around a situation where investors had lost the desire to use their SMSF to use debt to buy property.

He said the previous rules meant, for instance, that "if an SMSF had used debt to buy a property in Queensland that was destroyed in the recent floods, the insurance proceeds could only be used to pay down debt rather than rebuild".

"In that case, the investor would be left with a block of land that they had no option but to sell" because any reconstruction, even an identical one, would be classed as a new asset.

The new ruling still insists that the improvements be paid for by cash resources in the SMSF rather than by borrowing.

The draft ruling will not, however, allow SMSF investors to buy and bulldoze houses and put up units using borrowings, for example. Allowable changes include pools, extensions and bigger kitchens, but they must not "fundamentally change" the property.

It also gives owners more room to move when buying a rundown property that needs more than maintenance, although, again, the new work cannot be financed by borrowing.

The decision caps a succession of policies that used to allow borrowing to buy property in super funds until June 1999, which was then banned except for existing arrangements until September 2007. The ATO brought in the no-improvements rule last year.

Story by Andrew Main, source: www.theaustralian.com.au

REINSW members will recall that on 1 July 2010 the former NSW Labor Government introduced the Torrens Assurance Levy, which is an ad valorem tax payable on the registration of a transfer of NSW property where the purchase price is more than $500,000. The greater the purchase price, the higher the levy payable. By way of example, the tax amounts to $204 on a property with a price of $600,000, and increases to $1,004 for a property at $1,000,000 and $6,004 for a property at $3 million.

REINSW immediately sought, and received, an undertaking from the then Opposition Leader Barry O’Farrell that he would repeal the ad valorem tax should the NSW Liberals & Nationals be elected to government at the 2011 NSW election.

REINSW is pleased to report that the Real Property Amendment (Torrens Assurance Levy Repeal) Bill 2011 was introduced into the NSW Parliament yesterday on 9 May 2011.

While the Bill is not yet law, we are pleased to see the new Government taking steps to honour its undertaking to REINSW. We will monitor the progress of the Bill as it makes its way through Parliament and will keep members informed of further developments.

The Bill is proposed to come into effect on 1 July 2011. Under transitional provisions, the tax will continue to apply to registrations of transfers that are executed to give effect to Contracts for Sale of Land entered into on or after 1 July 2010 and before 1 July 2011. Only registrations of transfers made to give effect to Contracts for Sale where the contract for sale is entered into on or after 1 July 2011 will benefit from the abolition of the tax.

Accordingly, REINSW members may notice and reasonably expect some resistance to exchange of contracts by purchasers between now and 1 July 2011, as by delaying exchange to 1 July 2011 they can avoid paying the levy. The resistance may be more pronounced with respect to purchasers of premium properties who would be liable for much higher levies.

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

Next week’s Federal Government Budget should address the recommendations of the Henry tax review to improve housing affordability and assist low-income private renters, according to the Australian Council of Social Service (ACOSS).

"Rising housing costs are putting increasing pressures on low-income Australians who are struggling to make ends meet in a tight rental market," says ACOSS chief executive officer Clare Martin.

"The Henry Review identified what low-income renters have known for years – rent assistance is too low for many people to secure adequate housing."

"ACOSS is urging government to take up the Henry Review proposal to increase rent assistance and link maximum rates to market rents."

"We have asked for a 30 per cent increase in rent assistance for low-income households which is about $15 per week."

Martin says rent assistance levels have fallen behind market rates – the Henry Review noted that over the past three years annual rents have risen at an annual rate of 10 per cent, while rent assistance has increased by only 2.7 per cent.

"The Henry Review notes that a single unemployed person spends about half of their payments on rent, leaving them with little left for other living expenses," she says.

Story from API Magazine