John Howards’ Liberal Government celebrated the passage of the GST Legislation through the Senate on the 28th June 1999.
This ends a long and difficult process to see GST introduced which has seen the Howard Government forced to compromise on some key elements of the GST.
The main change centres around the exemption of basic food from GST. This is meant to help low income earners in affording the new regime, however it will mainly see more confusion in the definitions of exempt food against what would otherwise be taxable.
We are still waiting to see the exact definitions come through but the general frame work will be that fresh goods and basic foodstuffs shall be exempt, whilst cooked goods and most processed food shall be taxable.
The Democrats also successfully brought about some other changes in taxes on diesel fuel, books and other social and environmental areas.
These shall not impact on foreign property investors.
The brunt of the reduction in GST collections due to the exemption of food shall be bourne by high income earners who have seen some of the original tax rate reductions adjusted.
The new rates still offer a significant reduction on the current situation and are at least a step in the right direction to rectify the Australian Taxation System.
Apart from basic food becoming exempt and the adjustment of Tax Rate reductions, the GST is in essence how the government originally proposed.
In fact the effect of GST shall be predominantly as detailed in our SMATS Gazette of November 1998 and should have minor impact on the current ownership of Australian Property.
GST will still be introduced on the 1st July 2000 as was the governments original intention.
In March the government announced significant changes to the method in which GST will operate for property developers.
Originally developers land stocks were to be subject to the 10% GST on the full selling price, pushing the price of land up. This has now been reduced to the levy of GST on the net increase in the value of the land between the sale and purchase price.
This should see only a minor increment on the price of developers land stocks for at least the first year in which GST is introduced.
GST is still expected to add approximately 5-7% to the cost of construction. However to compensate for this a First Home Buyers grant of $7,000 shall be given to Australian residents acquiring their first home in which they shall live in.
This should provide a great stimulus for the House industry as new buyers come into the market with reasonable deposits. The grant can be used on the construction of new homes or to assist in the purchase of established houses.
We still strongly recommend that you acquire and complete any property purchase before the 30th June 2000 to ensure that no GST is levied.
There is already a building boom being experienced due to people seeking to complete their homes prior to the imposition of GST. This has already seen prices rise as the demand has been strong and this is expected to continue through to the introduction of GST on the 1st July 2000.
The specific concessions that the government has given the property industry shall provide a much needed softening of the impact of GST in this critical sector of the economy and ensure the boom flows steadily into the next century rather than coming to a sudden halt.
The current Special Building Write Off wherein you can claim the entire cost of construction of your property against your taxes, is to remain.
For residential investment properties you will not be required to charge GST to your tenant or when you sell, whist commercial properties will be subject to GST on both rent and sale proceeds.
To recap from last newsletter we have included the following table detailing which expenses will have GST or not.
GST
Mortgage Repayments no
Council rates no
Water Rates no
Property Agent Fees yes
Insurance yes
Maintenance Costs yes
Body Corporate Fees yes
Advertising yes
Selling Fees & Commissions yes
The additional cost of GST may not necessarily be 10% on the above items due to the abolishing of many existing hidden taxes, however for safety you should work on a 10% rise.
The bank charges that are currently charged on deposits and withdrawals and normally noted as State Govt taxes on your bank statements are still to be abolished, however this will now be done in two years time.
The certainty of the introduction of the new Goods & Services Tax shall now bring a period of some stability as consumers and business can now prepare themselves for a significant change in the Australian Tax system.
The months of speculation have been rewarded by passage of the legislation, albeit in its preliminary form. The coming months shall see the government tidy up the legal issues affecting the GST legislation and implement the final definitions for key exemptions.
The benefit of GST in reducing the current Sales Tax rates will start to be affected almost immediately with many goods having the 32% tax rate being reduced to 22% in readiness for the full reduction to 10% GST on 1st July 2000.
How the markets now fully accept this new tax regime will be keenly observed, however we are predicting a overall positive effect on the economy.
