18/05/2004 - 22:00

Easy pickings in real estate

18/05/2004 - 22:00


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THE Federal Budget contained some interesting news for those readers, and there are a lot of you, who own investment properties – and my call is to watch out.

THE Federal Budget contained some interesting news for those readers, and there are a lot of you, who own investment properties – and my call is to watch out.

For the past year or more the issue of investors in the property market has been highlighted time and time again.

Basically, for political consumption, investors are the baddies forcing up property prices, which keeps first home buyers out of the market and stops the battlers from upgrading to bigger (or smaller) residences as their family needs change.

Investors in property have also been blamed for unbalancing the economy, soaking up perfectly good capital and forcing the Reserve Bank to raise interest rates when other sectors could have done without that sort of fiscal dampening.

It’s been a subtle softening up, and not entirely unwarranted, mainly because the area of negative gearing is an electoral taboo in Australia.

So what has this got to do with the budget, you might ask?

In the budget papers there was a bit of news of additional funding for the Australian Taxation Office to pursue, among other things, several revenue collection concerns relating to investment property.

In particular, there were two targets noted by accountants with whom I discussed the matter.

One item of interest is properties held within self-managed superannuation funds, with the ATO being especially interested at looking at the arm’s-length nature of any transactions.

A suggestion was that the ATO would also be looking into things like the location, because there were plenty of holiday properties still held through self-managed super.

The other area of interest is the effort by general property investors to reduce capital gains tax when selling their real estate.

Apparently, the advice is that the ATO will be analysing the deductions, such as depreciation, people have been claiming to reduce their taxable profit.

A large number of Australians have investment properties – the suggestion is about one third – which leaves the door open for the Federal Government to claw back some lost tax from those making hay while the sun shone in property markets, possibly fudging the rules as they went.

This could even extend to those who have bought and sold numerous investment properties in recent times. They may face ATO determinations that their profits are income rather than from capital gains, which would end the opportunity to take advantage of the capital gains tax relief introduced in recent years for those holding investments for more than 12 months.

In my view these issues are, in themselves, not such big issues if investors have played by the rules.

The big issue to my mind is the signals it sends out. Firstly, it is clear that investment property owners, apart from affecting the economy, are diverting revenue away from Canberra.

Treasury has clearly been unable to ignore the amounts it believes are involved.

There is a possibility that this campaign might actually unearth some major rorting, which would mean more than prosecutions.

It provides ammunition for those seeking to dampen investment in property as a tax break, by casting investors as tax dodgers. Even if this doesn’t happen, it is clear that investment property owners are not all that popular on either side of the political divide.

Western Australia’s Treasurer, Eric Ripper, has failed to introduce measures that would seriously clout top-end property owners but, over in NSW, Bob Carr’s Government has got straight to the point and successfully implemented a surcharge on investment property sales.

This has the industry there up in arms. While there hasn’t been a whiff of such a thing in WA in this election year, I am sure Mr Ripper and his mates will be eyeing the NSW experiment with great interest.

If the Liberals at Federal level can get away with a few subtle slices of the investment property pie, there is no reason why a State Government – with less flexibility in where it can raise taxes and without the rich streams of oil revenues that flow east – might not think this form of real estate is easy pickings.

Something to talk about

COMMUNITY consultation is a hot topic these days, as companies and governments try to understand what people want before making serious blunders.

It is also understandable that some people view this process with cynicism, as those seeking results use consultation to find the best ways to massage their proposals into acceptable forms.

By the way, cynicism works both ways. These days no development comes without protests, sometimes by local communities but often linked to a noisy rent-a-crowd.

I am all in favour of controls to prevent wholesale destruction of our heritage but I also think people should be wary of trying to keep WA as a place where time stood still.


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