The Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 was introduced with the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Vacancy Fees) Bill 2017, both of which passed the Lower House and then moved to the Senate on 19 October 2017. The Bills were enacted on 30 November 2017 (see related Tax Month article).
The Housing Tax Integrity Bill
Travel expenses to inspect rented residential premises not deductible
The Housing Tax Integrity Bill amends the: Income Tax Assessment Act 1997 to: provide that travel expenditure incurred in gaining or producing assessable income from residential premises is not deductible, and not recognised in the cost base of the property for capital gains tax purposes; and limit deductions for related plant and equipment and not deductible over 5 years as ‘black hole’ expenditure.
1.2 The amendments improve the integrity of the tax system by addressing concerns that some taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private purposes.
1.3 The amendments are not intended to affect deductions for institutional investors in residential premises, as the same integrity concerns do not arise for such investors. The amendments also do not affect deductions for travel expenditure incurred in carrying on a business, including where an entity carries on a business of providing property management services.
Exempt entities – institutional investors
The entities excluded from this deduction prohibition are:
- a ‘corporate tax entity’ (within the meaning of the ITAA 1997);
- a ‘superannuation plan’ that is not a ‘self managed superannuation fund’ (within the meaning of the ITAA 1997);
- a public unit trust (within the meaning of section 102P of the Income Tax Assessment Act 1936 (ITAA 1936));
- a managed investment trust; or
- a partnership or unit trust if all of the members of the partnership or trust are entities included on this list (including this item).
Exempt activity – carrying on business
Exempt, also, from this prohibition on deducting travel expenses will be those who carry on the business of property investing or a business of providing retirement living, aged care, student accommodation or property management services.
Effective date
The amendments apply to any loss or outgoing incurred on or after 1 July 2017
Limits on depreciation of plant used in renting residential premises
These are the amendments announced in the 2017-18 Budget as preventing landlords getting deductions on plant bought from a previous landlord.
This reduction does not apply to a deduction that arises in the course of carrying on a business or for a corporate tax entity, superannuation plan (that is not a self managed superannuation funds), a public unit trust, a managed investment trust, or a unit trust or a partnership, all of the members of which are entities of a type listed here.
To the extent that an entity’s deductions for an asset are reduced because of these amendments, the amount of any balancing adjustment is reduced and the proportion of the decline in value of the asset is recognised as a capital loss (or in certain circumstances a capital gain) when the entity ceases to use the asset.
This Bill commences on the first day of the next quarter following the day of Royal Assent.
The Vacancy Fees Bill
The Vacancy Fees Bill will amend the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 to implement an annual vacancy fee on foreign owners of residential real estate where residential property is not occupied or genuinely available on the rental market for at least six months in a 12-month period. It also amends the Taxation Administration Act 1953 to make consequential amendments.
[APH website: Bills Digest & Bill – Housing Integrity; Bills Digest & Bill; Explanatory Memorandum (both); FJM; LTN 200, 19/10/17; TM Oct 2017]