New taxes target foreign investment

New taxes target foreign investmentLatest figures reveal that foreign investment is accelerating new housing supply and creating jobs in construction, but new taxes and fees jeopardise this growth.The Victorian and Federal governments both announced punitive new taxes and fees on foreign investment in newly constructed housing over the weekend.The Property Council of Australia said the moves set a dangerous precedent and risked Australia’s current record levels of housing construction. The Australian Government has confirmed it will proceed with the imposition of new fees of at least $5,000 per purchase levied on foreign buyers, along with tough new penalties. Foreign buyers of commercial property will be charged $25,000 despite the low compliance threat posed with these transactions. Developers will need to pay $25,000 up front for off-the-plan scheme approvals and then carry out six monthly reconciliations of dwellings sold to foreign buyers.Pleasingly the government accepted Property Council advice that the proposed fee changes could add over a million dollars of additional costs to development projects where the Australian development company was deemed to be a foreign entity by dint of their ownership holdings. Purchases of land for development will now be subject to a flat $25,000 fee, or a flat $100,000 fee for purchases over $1 billion.Under legislation to be introduced this year, penalties would rise to $127,0 or three years’ jail for individuals, and $637,0 for companies that unlawfully purchase Australian properties. The Property Council of Australia welcomed the toughened compliance measures for those breaching foreign investment rules, but argued the new fees were excessively high and would raise revenue well in excess of what was needed to strengthen compliance.Of even more concern, in Victoria the Andrews Government has announced two new taxes on foreign investors as part of its first budget, which the Property Council described as a “king hit” to the Victorian real estate industry – one that will deter international investment and stifle residential construction.From 1 July, foreign investors will be taxed three per cent of the purchase price and foreign owners of property who do not occupy it will be charged an extra land tax of 0.5 per cent. The taxes are expected to raise around $330 million over four years.Victorian Treasurer Tim Pallas has said that the new taxes were “reasonable” and “part-and-parcel in making sure that the cost of providing infrastructure is shared fairly and appropriately.”On a median house price of $645,000, foreigners would pay an extra $19,3 in stamp duty to the Victorian Government and a further $5,000 on top of that to the Federal Government as part of the FIRB approvals process.”This cost will be passed on to home buyers because of its scale and lack of implementation time for business to prepare,” says the Property Council’s Victorian executive director Jennifer Cunich.”It will also act as a disincentive to foreign investment in Victoria, which is crucial to prosperity and job creation.”The definition of what constitutes a ‘foreign owner’ will be vital to ensure these taxes do not have a far broader reach than is intended. The Property Council has been in discussions with the Victorian Government on this issue since Saturday.