The HomeBuilder Grant

Is the new HomeBuilder grant scheme enough?

IN THE AFTERMATH of COVID-19, things are changing all the time, including restrictions and the impact these are having on a range of industries, including property.
So far the property market seems to be holding up pretty well, with minimal falls in values. But it’s a different story for the construction industry (a huge source of employment for Australians), which faces a steep drop in home building after September this year.
In light of this the Federal Government recently announced a new $25,000 property grant called HomeBuilder, to be handed out to eligible people building or renovating a home, which is designed to boost construction activity and stimulate the industry.
This $688 million housing stimulus package aims to build 30,000 homes by Christmas and is predicted to generate over $15 million in national economic activity, lead to $10 million in building projects and support more than 1 million jobs.
Details of HomeBuilder are still evolving, and there may be other assistance on offer in the months to come (particularly from state and territory governments) to stimulate the housing market – we’ll have to watch this space.
In the meantime, however, here is what we know about what’s currently on offer.

What is HomeBuilder?

The scheme offers a $25,000 grant to owner-occupiers substantially renovating their home or building a new home between June 4 and December 31 this year.
It comes with restrictions though – for new builds the home cannot be priced at more than $750,000 and renovations must cost at least $150,000 and up to $750,000 for a home valued at $1.5 million or less, but the work excludes sheds, pools, tennis courts, granny flats or any other structure detached from the dwelling.
The grant is also means tested, with income caps of $125,000 for singles and $200,000 for couples.
Contracts must be signed within the next six months and construction must start within three months of the contact date.
The program is expected to be up and running within a few weeks, with applications able to be backdated to June 4 so contracts can be entered into right away.
It will be implemented via a National Partnership Agreement with the federal, state and territory governments.
At the time of writing applications for the grants were not yet open, but Australians could register interest in the scheme through the Government’s official website.
The $25,000 HomeBuilder grant is designed to complement state and territory housing assistance programs, including grants and stamp duty discounts, to encourage more people to undertake building work.
Since the Federal HomeBuilder announcement, some states have offered further stimulus, with Tasmania offering $20,000 for any owner-occupier to build a house, while Western Australia is offering owner-occupiers and investors a $20,000 grant.

What are the pros and cons of the HomeBuilder grant?

Some argue the money offered by HomeBuilder would be more effective in achieving its aims of stimulating construction if it was given for the provision of social housing instead.
While the HomeBuilder grant will encourage more people to undertake a building project – either through a renovation or new build – which will stimulate the construction sector, inevitably it will also be given to those who were already planning a project anyway, which is one of the program’s criticisms.
Other criticisms are that it’s too restrictive due to factors such as the large outlay required (particularly for renovations), property value caps, means testing and timeframes – particularly to get approvals and plans – which may lead to a low take up.
It could also inflate prices for houses or trades, as grants often do, but the short timeframe for the scheme is expected to counteract this.
Despite all these potential drawbacks it has been reported that there has been huge enquiry – numbering 8000 as at June 8- about the program in the days following the announcement. This indicates interest – and potential take up – is high, and the program could be the catalyst for people taking action after sitting on the sidelines due to Coronavirus.
In particular it could be a great incentive for first home buyers, who will also be able to take advantage of state and territory grants, but it’s also a good opportunity for existing homeowners to upgrade to a new homes or update their current home.

What to consider

You should do you own research and seek expert advice before rushing in to take advantage of this grant, despite time being of the essence.
Ensure you are making a prudent investment decision and either buying a new home that will increase in value or ensuring you are adding value through a renovation and not overcapitalising.
Chris Gray of YourEmpire.com.au says in the past property grants have often created a short-term bubble in the market, and quite often it can be a “false economy”.
Home buyers, he says, are often better off buying a mainstream existing house in a well-located suburb with no grant rather than buying a new one with a grant, as the underlying investment in the most important thing.
He warned homebuyers taking advantage of HomeBuilder to do their numbers, and determine if they would actually still do a renovation and spend the money if they didn’t have the grant.
“The grant should be the bonus rather than the reason for doing it,” he says, adding that having to spend the extra $25,000 on a higher-value renovation means overcapitalising is a real risk.
“You might spend money on things that actually devalue the property such as gold-plated taps or diamond encrusted something else. You can spend money upscaling to satisfy the requirements of the grant and it doesn’t suit the area or the type of property.
“Get a fresh pair of eyes to look over your property and determine what it is worth now and what it will be worth after so you make sure you add value and know how much to spend on a renovation.”

Do we need more property grants to stimulate the housing market post COVID-19?

At this present time, it doesn’t appear that the housing market needs propping up via other grants or handouts.
According to CoreLogic Head of Research Tim Lawless property values have been quite insulated from a downturn to date, with CoreLogic data to the end of May showing home values were down less than half a percent.
The HomeBuilder grant is more about jobs than housing, he says.
“(It) is more about shoring up jobs in the residential construction sector, so it is rightly targeted towards incentives to build or renovate, rather than stoke demand for established homes which could have an inflationary effect on prices.”
Mr Lawless explained that housing construction has been in a broad downturn over the past year and a half, and will likely slump further through the year.
“Nationally dwelling commencements peaked in the first quarter of 2018 and by the end of last year had declined by around one third to be 14 per cent below the decade average,” he says.
“Considering housing construction typically provides a strong multiplier effect on the economy via the scope of the supply chain and array of trades and industries involved, a stimulus package for the sector makes sense.”

Depreciation Schedules – The New Reality

The COVID-19 pandemic has forced many businesses to reflect on “industry norms” and the way they operate. We are no exception.

At Washington Brown we believe in researching each property and advising clients on the best way to approach achieving the maximum depreciation in the most cost-effective way.

Not EVERY property needs to be inspected in order for the maximum claim to be achieved.

This USED to be the case – but the tax legislation recently changed and property investors can no longer claim depreciation on items like ovens or dishwashers that are not brand new.

So NOW you can only claim depreciation on the structure of the building like concrete and bricks for 2nd hand properties.

If you BUY brand new items like carpet and blinds, you can still claim depreciation but it must be based upon the purchase price (not an estimate).

In the OLD days, we used to visit the property so we can value these items individually, the ATO put a stop to that.

Our Commitment to Property Investors Moving Forward

If we determine that an inspection is NOT required to ensure the maximum depreciation claim – this will reduce our fee AND you’ll receive the report sooner. Let Washington Brown work out the best depreciation plan for your property here.

Here are 5 reasons why SOME properties do not require an inspection:

  1. Extensive Database – In 40 years we have amassed an extensive database of construction costs for the majority of residential and commercial buildings around Australia.
  2. We have the costs – We are familiar with your building and as such, we already have the construction costs on file.
  3. Plant & Equipment no more – You have purchased a second-hand property so you cannot claim on the existing plant and equipment components.
  4. Online data – There is an abundance of detailed information and pictures of your specific property available online (both publicly and via subscription-based industry databases).
  5. You have the costs – Your property is a brand new build and you have access to the construction cost, plans and inclusions list.

Here are 5 reasons why SOME properties STILL NEED an inspection:

  1. Your property is unique – Your property is classed as High Spec/Luxury/Non-Standard and therefore not typical. An inspection will ensure the maximum deductions by ensuing all facets of your property are assessed and included.
  2. Non-residential – This means you can still claim the full benefits of depreciation including the Plant & Equipment (carpets, blinds, etc.)
  3. Renovated – Your property has been substantially renovated. There is insufficient information online and as such an inspection is necessary to maximise the depreciation.
  4. More information required  – We do not have access to sufficient information specific to your property. We, therefore, need to acquire this via an onsite assessment.
  5. Plant & Equipment – Your property qualifies to claim Plant & Equipment deductions, an inspection ensures no assets are missed, which means your deductions are maximised.

Let Washington Brown work out the best depreciation plan for your property by getting a quote here. Or work out much you can save by using our free Property Depreciation Calculator.

Real Estate During The Pandemic: Is It All Doom & Gloom?

Having caught up recently to co-present on a Depreciation-centric webinar in the lead up to the End of Financial year, Peter Foldes from Washington Brown was able to chat to leading property analytics researcher Terry Ryder (Owner and Creator of Hotspotting) regarding the effect of the COVID-19 Pandemic on Real Estate around Australia.

Terry, mainstream media seem to be touting that there will be a significant “hit to the Australian Property Market.” It paints a pretty gloomy picture; Do you think we’re going to see a “crash?”

The Australian real estate market is continuing to defy doomsday predictions of price drops as a result of the COVID-19 pandemic.

Prices are continuing to grow and the number of people searching for properties online is higher than it was at the same time last year, according to Terry Ryder, founder of Hotspotting.

All the data that is coming in actually defies the doomsday notions we’re seeing in news media,

Certain sections of the media in particular have been talking down real estate – and we’ve had dire predictions over the past two months about prices falling – but we just haven’t seen it in terms of the actual price data.

Figures from the nation’s largest property sales platform, realestate.com.au, are showing increases of up to 40% (compared to the same time last year) in the number of searches of properties for sale. People are certainly out there looking, at a time when the number of properties listed for sale has fallen significantly, and that might explain why the data on prices for March and for April was so strong, with six of the eight capital cities recording some price increase in April, as well as six of the seven regional market jurisdictions.

We often hear commentary on the “Australian Property Market,” implying that it behaves as a single commodity. Do you feel that some areas may actually continue to see growth throughout the pandemic period?

The nature of the local economy was pivotal in terms of which markets will continue to do well, which ones will stagnate and which ones might experience price drops.

Those markets which have and may continue to experience price drops are ones where the economy is heavily reliant on tourism, particularly international tourism.

My expectation is that the Gold Coast market will be one of the ones to drop, certainly in the short term

In contrast, strong regional cities with more diverse economies such as Ballarat, Bendigo, Orange, Albury-Wodonga, Mackay and the Sunshine Coast should continue to perform well. These are all cities where the local economy and employment are strong in industry sectors that are doing well despite the virus-impacted climate.

For example, the biggest sectors in Albury-Wodonga in terms of Number of Jobs are supermarkets & food stores, hospitals & medical services, the military and aged care.

Another example is the Sunshine Coast: One of the major factors which appealed to investors are the numerous large-scale infrastructure projects – and work on these has not stopped during the COVID-19 shutdown. Current infrastructure projects on the Sunshine Coast total more than $20 billion.

The ticks are in the ‘pro’ column of why you would be looking at a region like that for investment!

In your opinion, is now a good time to be considering a property purchase?

It is important for investors thinking of entering the market at this time to not get swept up in the doom and gloom expressed by “news media” and to keep a balanced view of what was happening. There are opportunities to be found in the current market.

I think it is a very good time to be looking because there will be opportunities to buy well.

Generally speaking, real estate is holding up quite well but there will be exceptions.

If you are out there as a buyer right now you are not going to be competing with as many investors as you might have done in normal times. You can perhaps negotiate from a position of increased strength.

I think it is a very good time to buy, as long as you select a location that has the underlying fundamentals to provide good growth.

Stamp Duty or Land Tax?

Should stamp duty be abolished?

THE POTENTIAL abolition of stamp duty in Australia has been proposed and discussed for at least a decade, but recently there have been fresh calls from many corners to do away with the property tax.

Economists in particular – starting with Ken Henry way back when he authored and delivered his Henry Tax Review in 2009 – have been pushing for stamp duty to be abolished, arguing that now is an opportune time to make major structural tax reforms to support the economic recovery post COVID-19.

If abolished, the most common suggestion is that stamp duty would likely be replaced by a broad-based land tax on real estate owners to be paid annually and/or an increase in the GST, although the Federal Government has indicated it is opposed to the latter.

Why should stamp duty be abolished?

Inefficient, bad, lazy, archaic… these are just some of the words used to describe stamp duty. Dr Henry has called it a ‘diabolical tax’ and labelled it one of the worst taxes in Australia.

The fact is that stamp duty was established in the early 19th century, when documents for the transfer of a home needed to be officially stamped to make them legally binding, and governments took the opportunity to ensure people paid taxes at the time.

But while this worked in the olden days, it’s not relevant now with our systems far more sophisticated.

There has also been no indexing over time, despite prices rising significantly over recent decades, which has resulted in huge stamp duty hikes and of course government revenue.

How much does stamp duty raise?

Domain figures show stamp duty on a median-priced home in New South Wales grew by 102% between 2004 and 2019 to reach $42,269, 183% in Melbourne to hit $44,164, and 189% in Brisbane to reach $11,013.

Governments like stamp duty because it can provide strong revenue to state and territory budgets, but the downside is that this revenue can be volatile, reliant on a strong property market and consistent transaction levels. Stamp Duty

If transaction levels fall due to an economic downturn or a dive in confidence, so too does stamp duty revenue for governments, which can leave big holes in budgets from year to year.

For example, stamp duty revenue in NSW was $9.7 billion in 2016-17, but fell 24% in 2018-19 to $7.4 billion.

Could a broad-based land tax be an option?

In contrast, taxing land through a broad-based land tax, charged annually by sending a bill to everyone who owns land (a proportion if an apartment), would provide a much more consistent source of revenue over time.

Property Investment Professionals of Australia Chairman Peter Koulizos says an annual land tax would be better for state and territory governments by providing more regular income.

“The problem for state government is when the property market is booming so are their coffers – and generally revenue from property is the second highest income-earner after payroll tax – but in situations like COVID-19 revenues dive,

Getting a regular land tax from all property owners is going to be much better for them to budget.”

Peter Koulizos Chairman, Property Investment Professionals of Australia

The other major issue with stamp duty is that because it’s a massive impost on a single transaction – it could be $40,000 or $50,000 on top of a property purchase, particularly in Sydney, for example – it impacts economic decision making, often in a detrimental way, with people less inclined to buy or transact.

In particular, it can act as a barrier or deterrent to home buyers, particularly first homebuyers, who have to save both a deposit and then more for stamp duty, or add it to their mortgage, which will cost them more over time.

But it also leads to an inefficient use of housing as people become more reluctant or are unable to move – including to upsize or downsize – as they have to pay the huge cost of stamp duty each time, which makes it too expensive.

Land Tax Stamp Duty

This results in people living far from work opportunities or their children’s schools, or people living in homes far too big for them as they shy away from downsizing, which also prevents that larger housing being freed up for families that need it.

“Abolishing stamp duty might encourage more home ownership, which is a good thing,

When you have to come up with a 5% deposit plus 5% stamp duty, in theory it takes twice as long to come up with, so it’s a barrier to home ownership.

For prospective home owners it’s going to be a benefit because it’s less initial money that they have to come up with.”

Peter Koulizos Chairman, Property Investment Professionals of Australia

How would the abolition of stamp duty work?

New South Wales and Victoria are currently talking about doing away with stamp duty, while the Australian Capital Territory has been the only state or territory in Australia to actually do so, starting the process back in 2012.

The ACT is phasing stamp duty out under a 20-year plan, gradually reducing stamp duty rates and replacing it with higher annual rates or a land tax-style property rate.

While this can lead to a situation where people are paying both stamp duty on a purchase and an annual property tax over time (ie. being double taxed), thereby also ensuring the government’s revenue remains fairly stable, it’s not the only way to do it.

The other way is to abolish stamp duty straight away, and apply a land tax to purchases from a certain date, exempting people who already own a house and have paid stamp duty. This, however, could leave a hole in state or territory budgets for some time.

What are the potential disadvantages of abolishing stamp duty?

This issue of how stamp duty would be abolished and what is would be replaced with is the major potential downside, with the devil in the detail of how the plan would work.

One concern is that these annual land tax bills would have to be very sizeable to replace stamp duty, with one Deloitte Access Economics model estimating the average property would have to pay $2400 per year, but of course many properties valued at higher rates could pay up to five times as much.

And who would stop governments from upping these rates regularly, so that people end up paying much more over time?

According to the Property Council, the ACT’s approach was supposed to be revenue neutral for the government but in actual fact the revenues from property taxes are now higher.

A HIA report from the start of 2018 found the switch from stamp duty to land tax in the ACT has resulted in additional property taxes of $196.5 million, an increase of 38% over four years.

Koulizos hasn’t made up his mind about whether abolishing stamp duty is the right way to go, but isn’t a big fan of another annual financial impost on home buyers or owners, on top of council rates, insurances and water bills.

“I’m particularly concerned for people on fixed incomes or pensioners – once you get to 65 or 70 it’s another impost you have to keep paying until the day you die.”

Peter Koulizos Chairman, Property Investment Professionals of Australia

There are suggestions land tax bills for older people could be paid upon the sale of the property upon their death, but the bill of course still has to be paid.

So, will it happen?

While there is a lot of talk about the abolishment of stamp duty, whether or not it will actually happen remains to be seen.

Governments are very dependent on the huge revenue generated from stamp duty, so moving away from that will prove to be difficult.

Personally, I feel we should try our utmost to move away from this lazy tax that limits a workforce from moving to where the jobs are.

But it’s going to be very tricky politically to convince voters that replacing stamp duty with an annual charge on land is a good idea.

Let’s watch this space!

Landlords Duty of Care

Could landlords potentially be at risk if they allow inspections of their property during the current pandemic?

I believe so. Which is why Our Plan to Help Property Investors utilises decades of data Washington Brown has collected from properties around Australia to continue preparing depreciation schedules.

It is aimed to protect our inspectors, your tenants and carries no risk to YOU – the investor.

Guidance from State governments in regards to inspections specifically refers to real estate agents being able to make private appointments.

However, Quantity Surveyors and other inspection industries do not fall under the same umbrella.

Landlords have a duty of care to their tenants and the potential for litigation further down the line is an unknown risk.

Landlords have a duty of care to Tenants

Landlords have a duty of care to Tenants

John Denes of & Legal agrees

“Where there is a physical inspection of premises by a quantity surveyor which results in a person (the tenant or the inspector) contracting the COVID-19 virus, there may be a breach of duty of care because of the failure to take reasonable steps to avoid infection.

Due to the global pandemic status of COVID-19, the potential for infection is arguably a foreseeable risk and legal action may be taken against the landlord/owner of the premises and/or the quantity surveyor’s firm as a consequence of the breach.

It is at this stage uncertain how the Courts will deal with the liability issue and it may take years before the extent of the relevant duty of care as a result of COVID-19 can be fully defined.”

At this stage, all states have strict protocols for private viewing so real estate transactions can, hopefully, continue.

Property sales tend to take place over a limited time period and a personalised viewing is necessary in most cases.

As of the 31st of March there has been strong guidance from the Federal Government to stay home, unless you are shopping for essentials, medical reasons, exercise or you can’t work remotely.

Firms like ours and many others, have started working remotely. We have existing data on a huge range of buildings and have access to a variety of means to carry out a report.

Furthermore, the Australian Institute of Quantity Surveyors has stated that reports can be amended post coronavirus.

Inspections could put both the tenant and landlord at risk.

There are two main reasons we have decided NOT to carry out inspections of occupied properties at the moment.

Coron Virus cleaning

  1. Reason number 1 – after decades of collecting data from properties around the country, Washington Brown has sufficient information to continue to prepare most depreciation schedules.
  2. Reason number 2 – other than the obvious health risks to both the tenant and our inspectors, we don’t want to put landlords at risk.

Get a depreciation schedule the smart way – Order a Quote Here.

According to NSW Health some people with COVID-19 have been infectious before any symptoms have developed.

It is also not certain how long the virus survives on surfaces.

So here is the main concern. Let’s say, you as the landlord, organise for a depreciation inspector to enter your investment property for the purpose of carrying out a depreciation report.

Then, heaven forbid, that inspector unwillingly passes the virus onto your tenant and he/she becomes ill – or worse.

The tenant could then sue you the landlord, and include within that claim the property manager and the Quantity Surveying firm.

The landlord has the contractual arrangement with the tenant (Lease agreement) and from my experience that’s where the legal case would start.

We plan to be part of the solution, not the problem.

If you have clients who may benefit from this information, we encourage you to share this article with them.

7 things to do around your home while in isolation

IF THERE is one thing the majority of us have at the moment, it’s time. And since we can’t go anywhere many are putting it to good use by getting things done around home – things we have been putting off for a long time because we’re usually too busy. Surely you’ve all seen the queues at Bunnings lately… home improvement has never been more popular!

So what are the top things you should be doing to your home while you’re in isolation that could improve it for your use and even add value, without spending a fortune? We asked three experts – Craig Hogg of The Edge Property Buyers, Good Deeds Property Buyers principal Veronica Morgan and buyers agent and CEO of Propertybuyer Rich Harvey – to give us their top tips.

The first thing you can consider doing is cleaning the outside of your home to improve the aesthetics, according to Hogg. Admit it, this is something that often goes by the wayside due to our usually-busy lives, doesn’t it? Now is a good time to clean all the front windows, screens, doors and gutters, and give dirty surfaces a high-pressure wash. While you’re there you can get some precious Vitamin D while you’re under lock-down, adds Hogg. It will make a huge difference to the appeal of your home, and if you have any plans to sell anytime soon it will add value as first impressions count.

Follow up the external clean with a good declutter and spring clean internally, including under the house and the garage, to open up some extra space, says Hogg.

“Cleaning doesn’t cost a cent and will immediately improve the presentation of your property and more than likely improve your mental well-being as well.”

Landscaping and garden maintenance always takes time, so why not use your time in isolation to get some exercise and tidy up the garden, top soil the lawns or plant out a brand new garden bed or veggie patch, says Harvey.

“First impressions count to buyers if you are considering selling,” he adds.

“I just moved house in February, and hadn’t yet planted a herb garden, so that has been one of the first things I’ve done in isolation,” says Morgan.

It may not add value to your home per se, she says, but it will add to the comfort and amenity, particularly if you are forced to work and play indoors for extended periods of time.

“I think getting out in my garden, even if it’s just a few pots, does help my mental health, as does feeling like I’m actually in control of something – that is. I can grow something that we can then eat – even if it’s a small thing.”

There’s always somewhere in the house that needs a refresh through painting, according to Harvey.

“Why not use the break to get some painting done and turn it around in two or three days and then get the house back to normal?” he suggests.

Painting is an affordable way to improve the appearance of your property, if you have the funds available, adds Hogg.

“Stick to neutral colours and try to lighten the look and feel of the property,” he says.

“Tile paints are popular at the moment, and combined with new cabinet handles, will help transform tired old bathrooms and kitchens into something special for only a few hundred dollars.”

This is messy, but fresh looking floors are a great way to create a tidy and stunning look, says Harvey.

Flooring can have one of the biggest impacts in a home, and will be a satisfying task to complete.

You can do-it-yourself too, in just a day or so. Jump online or head into Bunnings (it’s still open) to get some instructions and the equipment you need, including a sander, polish and a brush, and set to work!

We could be working and schooling from home for some time, so this will likely come in handy in the coming months, as well as in the long term.

“I completely underestimated the need before schooling and work moved into the home,” says Morgan.

Getting additional data points installed will, again, add to the amenity and comfort of your home, says Morgan, particularly if you’re stuck there for many more months, rather than strictly adding value.

Our Plan To Help Property Investors Save Money – Maximum Deductions Still Guaranteed

These are extraordinary times for us all. The COVID 19 pandemic is impacting the health of our loved ones, the way we live our lives and the businesses we rely on daily. And here at Washington Brown we are determined to do our bit to help.

Commitment to our clients

Supporting Australia’s property investors is the backbone of what we do. That’s why we’ve launched Washington Brown’s 50/50 Plan to help increase your cash flow when you need it most – NOW.

Put simply – we will be offering all clients the opportunity to pay only 50% of the report now and 50% in 6 months time.

You see, claiming depreciation on your property’s wear and tear from last year, could put money in your pocket this year. But you’ll still need a property depreciation schedule to do so.

We are STILL preparing reports, order yours now

Inspecting your tenanted investment property may not be possible under the current climate. We will be assessing each property on a case by case basis and advising you on the best approach to achieve the maximum depreciation.

This may result in an inspection not being needed because, after decades of collecting data from properties around the country, Washington Brown has sufficient information to continue to prepare most depreciation schedules. 

For a limited time, this is an acceptable practice according to the Australian Institute of Quantity Surveyors (AIQS), due to the unprecedented circumstances we all find ourselves in.

Supporting both our clients and employees

Washington Brown has been in business for 40 years. We are committed to supporting both our clients and employees during this difficult time.

If you are an existing client, rest assured you will continue to be able to access all previous reports via your own protected online portal WBme.

Get a Quote

Our aim at Washington Brown has always been to make property investment more affordable. We hope to do this now more than ever.

Stimulus Package nothing to sneeze at

The Morrison Government has today announced a $17.6 billion economic plan to keep Australians in jobs, and to keep businesses in business in light of the Coronavirus pandemic.

The Government has outlined an increase of $700M to the instant asset write off threshold from $30,000 to $150,000, and has also expanded eligibility to businesses with a turnover of less than $500M (up from $50M).

Put simply, if you were to buy carpet for your office that costs $40k, previously you would have had to depreciate it – now you can simply write it off.

Washington Brown recently refurbished our office for a cost of $202,000 and were able to claim $35,000 in depreciation in the first year. If we’d carried out the same fit-out today, our first-year depreciation would’ve been a much higher $152,000.  That’s a HUGE difference.

The remaining $50,000 relates to capital works items, like painting and plumbing, and will still need to be claimed at 2.5% per annum over a 40 year period.

Quantity Surveyors are experts in breaking down the overall construction cost into individual items and now has never been a more appropriate time to do this.

There are five main points to consider:

  1. Businesses should ensure they have a detailed report of any fit-out costs to be carried out.
  2. When acquiring any new asset, businesses should try to keep the costs below $150,000.
  3. This generous bonus has an expiry date of June 30, 2020.
  4. Assets costing over $150,000 can still be depreciated but not claimed as an outright deduction. Businesses with a turnover of less than $500 million will be able to deduct an additional 50 per cent of the asset cost in the year of purchase.
  5. This accelerated depreciation (point 4) will expire on the 30th of June 2021.

Some examples of what may qualify for an immediate tax deduction include carpet, desks, blinds, work stations and a lighting upgrade.

Whilst we are currently in uncertain times, this incentive aims to assist both your business and the broader economy as well. 

Negative Gearing Policy Changes Survey Results Report

With the proposed changes to Negative Gearing being such a “Hot Topic,” we asked our database to let us know their opinions. I was blown away by the number of respondents!

Below is an interesting summary of the survey results.

For a more detailed look at the proposed policy changes and my thoughts on the broader effect, click here

Question 1

Do you think that changes to Australia’s Negative Gearing Policy are necessary?

 

 

Observation: Of the nearly 3000 people surveyed, less than 20% thought that changes to Australia’s Negative Gearing Policy were needed.

With such a significant number of people responding, it’s pretty clear that the overwhelming majority feel that now is not the time to make wholesale changes to Negative Gearing. It would have been interesting to see what this survey would have looked like if it was carried out in the peak of the Sydney and Melbourne Market when Negative Gearing was being blamed for causing the Housing Affordability Crisis

 

Question 2

Did you know that if the Australian Labor Party abolish Negative Gearing, property investors may not be able to claim expenses such as Strata Fees, Property Management Fees as well as Repairs and Maintenance?

 

 

Observation: The results indicate that the majority of respondents were aware of the implications of the proposed policy changes in relation to investment property-related expenses.

This surprised me! Whilst most of the survey respondents knew about this, over a third of property investors surveyed didn’t realise that expenses such as these we included in the negative gearing deduction allowances.

 

 

Question 3

Did you know that the proposed Negative Gearing legislation changes will mean that income losses from newly acquired, second-hand rental properties will no longer be able to be offset against employment income?

 

 

Observation: From these results, it is evident that the vast majority of respondents understand the potential impact of the proposed policy on an investor’s ability to claim property-related deductions if purchasing a second-hand property.

In regards to differentiating between the impact of this policy on second-hand vs new properties, it seems Labor’s message has been clearly delivered!

 

Question 4

Would you still purchase a second-hand property if you could no longer claim Negative Gearing benefits?

 

 

Observation: One intention in implementing the proposed Negative Gearing policy changes is to encourage property investors to purchase a brand newly built property. The results suggest these changes would discourage investors from purchasing a second-hand property.

With the clear majority of respondents having second thoughts about purchasing a second-hand property if this proposed policy is implemented, any government should be considering the wider implications for both the property markets around Australia and the effect on the broader economy. Click here for a more in-depth look at this potential impact

 

Question 5

Will the Negative Gearing policy of either party influence your vote in the next Federal Election?

 

 

Observation: Whilst the responses here do not indicate which way the respondents will vote, they certainly suggest this policy will factor into voters’ decision making.

This is a hot and somewhat sensitive topic! It’s clear from these results that Negative Gearing will definitely be an influencing factor at the ballot box.

 

Question 6

Did you know that the proposed limitations to Negative Gearing Policy will not apply to property Investors who purchase brand new property?

 

Observation: Nearly a quarter of the respondents were not aware that the proposed policy changes and associated restrictions will not apply to investors who purchase brand new property.

Labor is clearly getting their message across regarding this policy and who it will affect. However, in my opinion, allowing Negative Gearing to continue on new property only, has far greater ramifications than those that the Labor party seem to have fully thought through. For more of my thoughts on this matter, click here

Should Negative Gearing Change?

Tyron with his book

Labor’s Negative Gearing Policy

I get it.

I get why a large proportion of Australians are against the tax deductions available to ‘negatively geared’ property investors.

And I agree (in some ways) – that the current policy of allowing property investors to deduct their property losses against their wages could be improved (some/most of you would be surprised to hear me say that – considering I own a business where all my clients are property investors and a large proportion of those are negatively geared).

You see, I don’t think negative gearing on property was ever designed to enable someone to own 50 properties, claim all the losses and reduce their taxable income down to zero dollars and pay no tax.

Further, I don’t think negative gearing should enable someone to buy a $20m house in Vaucluse and get rent of $3000 whilst claiming the massive losses on the $20m house as a tax deduction.

That was never part of the plan – but both are achievable under the current tax regime.

So I do get it.

BUT – the proposed Labor policy to limit negative gearing to brand new properties only could be improved in my opinion

Next month – I will outline one solution that could address the problems highlighted above and would also allow the Labor Party to “save face”, should they win the upcoming Federal Election.

First, a quick recap of Labor’s Negative Gearing & CGT policy…

  1. From a yet to be determined date – negative gearing will only be allowed on brand new properties moving forward.
  2. Existing negatively geared properties will be grandfathered and thus not affected.
  3. Moving forward you will no longer be able to deduct these losses against your personal income , you will be able to deduct them against other investment income (say share dividends or other positively geared property) or you can carry the losses forward to offset the final capital gain.
  4. Labor will reduce the capital gains tax discount for assets that are held longer than 12 months from the current 50 per cent to 25 per cent.

So that’s what’s currently on the table.

Given these proposed changes, there’s no better time than now to make sure you’re claiming every depreciation deduction you’re currently entitled to.

Click here to get a free quote on a depreciation schedule for your investment property.

Here are 7 factors that you, I and the Labor Party need to think about when it comes to abolishing negative gearing as we know it and halving the CGT discount:

1. Labor’s policy will open a can of spruiker worms

The current proposal by Labor will abolish negative gearing on future purchases of 2nd hand residential property but will still allow negative gearing for brand new property.

I get the reasoning behind this line of thinking. No one wants to stop new development and construction – because construction has a massive flow-on effect through the broader economy.

However, it also opens a door already ajar for property spruikers to further push overpriced property off the plan to potential investors.

Next thing you know investors are flying off to the Gold Coast and being shown the red carpet!

Of all the material I have read when researching this article – I haven’t seen many written by people who understand how the New Property selling market works – only by economists who look at numbers.

2. Creation of a two-tiered property market

By creating a property market where you allow far greater deductions on brand new property in comparison to a similar 2nd hand property, it makes it very hard to sell almost new property.

Why would you buy a property that is, say, one year old when you can buy the one that is brand new next door and get significantly better tax benefits?

Having one rule for new properties and another for 2nd hand property was already implemented by the Turnbull Govt in May 2017

As you probably know by now – you can only claim depreciation on the plant and equipment in brand new buildings or if it was purchased brand new for a second hand property.

So I crunched the numbers, using the new depreciation laws and the current negative gearing regime.

Property depreciation comparison with legislation changes
Brand New Property Property Age 1987 – 2019 Property Built Before 1987
Rent Received @ $700 Per Week $36,400 $36,400 $36,400
Interest @ 5.5% of 80% Borrowing $33,000 $33,000 $33,000
Other Expenses @ 1.5% (Rates levies) $11,250 $11,250 $11,250
Cash Outlay Before Depreciation -$7,850 -$7,850 -$7,850
Year 1 Depreciation Deduction – Building -$4,000 -$4,000 $0
Year 1 Depreciation Deduction – Plant & Equip -$11,000 $0 $0
Total Taxation loss -$22,850 -$11,850 -$7,850
Tax Refund @ 37% $8,455 $4,385 $2,905
Annual Cost (Net Outlay + Tax Refund) $605 -$3,466 -$4,946
Cash Outlay Per Week (If Positive the Property Pays you) $11 -$66 -$95

In the above table, I have compared the purchase of a brand new property, a property built between 1987-2019 and a property built before 1987 if purchased after the May 2017 legislation changes.

If a property is built before 1987, you cannot claim the building allowance or structure of the building (this is why I have chosen this date).

I have assumed that rent, interest and other costs are the same across the board for illustrative purposes.

As you can see – there is already a significant benefit in buying a brand new property in comparison to buying a second hand property.

Labor’s policy will just increase this bias towards new property.

3. Labor’s policy may actually favour the wealthy

I’m going to declare something here – I actually grew up in a strong Labor household. Gough Whitlam even came to my house back in the day, as my father ran for Labor in the seat of Lowe in 1975 against Billy McMahon.

Why do I tell you this? Well, two reasons, a. so readers don’t think I’m a Liberal Party stooge and b. because I’m not sure the following scenario reflects the Labor values from yesteryear

Consider the following two examples assuming the proposed changes are implemented:

Scenario 1. Jill Jones has 8 positively geared properties and a range of shares all owned in her own name.

Jill buys a negatively geared property – Jill can now use the benefit of the tax losses from her negative gearing and claim those losses against her investment income.

Jill can utilise her property tax losses now.

Scenario 2. Jill’s sister – Mary – has no properties or shares. Mary buys a negatively geared, two-year old property.

Mary, because she doesn’t have any other assets, may only be able to use the losses, if she sells the property and it makes a profit.

Mary cannot utilise her property losses now and possibly ever.

4. The cost benefit analysis

In researching this article, I couldn’t find much information relating to the impact on revenue lost by the implementation of abolishing negative gearing on second-hand properties.

Recently, however, PIPA has released a statement that the proposed changes will cost the Labor Party between $10bn to $32bn over a 10-year period.

Now some of you might say that PIPA is a property organisation with an agenda to push – but what if they are even half right?

One thing I certainly agree with from their media release is I have no doubt that limiting negative gearing and reducing capital gains tax concessions by the Federal Labor Party will discourage property investors from buying property Mr Koulizos said.

So what impact will less transactions have:

  1. It will mean less Stamp Duty collection for the states.
  2. It will mean less sales commission paid to real estate agents and less mortgage commissions, buyers agents fees etc. which could have a knock-on effect throughout the economy.
  3. It could mean people with existing investment properties that are grandfathered will hold onto them – thus reducing the CGT collection.
  4. It could mean less Land Tax collection – because lower property prices will in turn reduce the overall land values of property, and the land value is used to determine the amount of land tax payable.
  5. Oh and the big one – It will mean less work for Quantity Surveyors and I will have to play more golf. Well in that case – knock your socks off Labor and go for it. (I’m allowed one joke if you have read this far – right!?)

5. Negative Gearing as a concept is misunderstood

Most people probably understand that property is negatively geared when the money you pay out to own the property is higher than your rent.

BUT if I asked the average person on the street if they realised that by abolishing negative gearing on newly acquired, second-hand properties – you would no longer necessarily be able to immediately claim property management fees, strata levies and even Land tax – would they think that’s fair?

Interestingly, of the 2,202 people surveyed in our own poll, when asked this, almost 38% said they were not aware of this.

So let’s imagine this scenario – you rent out your newly acquired second-hand property for $500 per week and you pay interest costs of $500 per week, which is fairly reasonable.

Here’s a list of “losses” that you will no longer be able to deduct immediately if Labor’s policy becomes law:

And finally, one that makes me really laugh, you might not even be able to claim LAND TAX as a deduction.

These losses may be carried forward and utilised in the event you sell your property for a profit or you can offset these losses against investment income from other positively geared property or your vast array of shares that you own!

6. It is the wrong time to tinker with Negative Gearing

Labor’s policy on negative gearing was launched at a time when property in Sydney and Melbourne were, quite simply, inflated. As we all know, things have changed.

Labor was looking for an alternate policy to the status quo and something that would help the housing affordability crisis.

A Treasury document released under the Freedom of Information Act acknowledged that the ALP policies could introduce some downward pressure on property prices in the short term particularly if the commencement of the policy coincides with a weaker housing market.

7. I’m actually ok with the CGT changes

That may shock some of you, but provided the halving of the CGT discount applies to both shares and property I don’t think it will have a big impact on whether property investors buy or not. And of course it will generate significant revenue for the government.

You see, from my experience, most investors (rightly or wrongly) focus on the cashflow requirements of the property investment in the early years to ensure they can afford the property.

And there’s also one great way to avoid paying CGT on property – don’t sell it!

The solution

Well if the polls and betting agencies are correct – it looks like the Labor Party will win the next election.

So we are going to need a solution that will enable the Labor Party to keep its election promise in a way that will not disrupt the property market and will still increase the Government’s revenue.

No easy task! Stay tuned… Next month I’ll be publishing a possible alternative solution that could potentially achieve the above!

Also, if you’re interested in claiming the maximum deductions on your own investment property, click here to get a free quote on a depreciation schedule today.

Please leave your thoughts in the comment section below.