The Review of Business Taxation changes handed down by the Treasurer in September will have a significant impact on the property and construction industry according to KPMG taxation experts Carlo Franchina and Craig Yaxley.
The Review of Business Taxation changes handed down by the Treasurer in September will have a significant impact on the property and construction industry according to KPMG taxation experts Carlo Franchina and Craig Yaxley.
They told a Property Council 4 O’clock Forum this month that the major changes announced by the Treasurer were only proposals and had not been legislated.
Messrs Franchina and Yaxley said that it was possible the government’s recommendations would be modified before they were passed as legislation.
They commented that it is expected that the property and construction industries would be most affected by changes in the calculation of capital gains, taxation of buildings, taxation of trusts, loss of accelerated depreciation and company tax rate.
Individuals will only include half of nominal net capital gains, while superannuation funds will include two-thirds of nominal capital gains in assessable income.
The indexation of the cost base of assets was frozen as at 30 September 1999 and the averaging of capital gains was abolished on 21 September 1999.
It is expected that the CGT concession available to individuals and superannuation funds will create a general preference for individuals and superannuation funds to hold CGT assets directly or in syndicates rather than via companies/trusts.
It is also proposed that the current building capital allowance regime will be replaced by tax depreciation based on the effective life of buildings, with effect from 1 July 2001.
The changes may also mean that depreciable assets disposed of after 21 September 1999 will no longer be subject to the CGT provisions but rather will be treated as ordinary income.
While the review recommended that existing buildings would continue to be subject to CGT treatment, it is not clear from the government’s announcement whether this will be the case.
There appears to be some risk that buildings will be removed from the CGT system, with a flow-on effect that investors in buildings through collective investment vehicles may not be able to access the reduced CGT rates upon the disposal of such assets.
It should be noted that any increment in the value of land will continue to be subject to the CGT provisions.
Accordingly, it may become necessary to obtain a formal valuation of the land and building component of each property transaction. A number of practical issues arise as a result in terms of the allocation of consideration.
The government has also proposed an unified entity regime from 1 July 2001, under which trusts will be taxed on the same basis as companies.
However, a CIV would be excluded from entity taxation such that distributions of taxable income would be taxed in the hands of the unitholders, with the income retaining its character and
distributions of tax preferred income will not be taxed when received by unitholders.
A trust will qualify as a CIV, provided it meets the test of being ‘widely held’.
That is, it must have at least 300 unitholders and twenty or fewer individuals who do not hold 75 per cent or more of the units in the trust.
There are other tests for wholesale trusts owned by CIVs, super funds and life insurance companies.
There will also be a requirement that the trust makes an irrevocable election to be excluded from entity tax regime and taxed as a CIV.
For more information contact Carlo Franchina on (08) 9263 7239 or e-mail: cfranchina@kpmg.com.au
They told a Property Council 4 O’clock Forum this month that the major changes announced by the Treasurer were only proposals and had not been legislated.
Messrs Franchina and Yaxley said that it was possible the government’s recommendations would be modified before they were passed as legislation.
They commented that it is expected that the property and construction industries would be most affected by changes in the calculation of capital gains, taxation of buildings, taxation of trusts, loss of accelerated depreciation and company tax rate.
Individuals will only include half of nominal net capital gains, while superannuation funds will include two-thirds of nominal capital gains in assessable income.
The indexation of the cost base of assets was frozen as at 30 September 1999 and the averaging of capital gains was abolished on 21 September 1999.
It is expected that the CGT concession available to individuals and superannuation funds will create a general preference for individuals and superannuation funds to hold CGT assets directly or in syndicates rather than via companies/trusts.
It is also proposed that the current building capital allowance regime will be replaced by tax depreciation based on the effective life of buildings, with effect from 1 July 2001.
The changes may also mean that depreciable assets disposed of after 21 September 1999 will no longer be subject to the CGT provisions but rather will be treated as ordinary income.
While the review recommended that existing buildings would continue to be subject to CGT treatment, it is not clear from the government’s announcement whether this will be the case.
There appears to be some risk that buildings will be removed from the CGT system, with a flow-on effect that investors in buildings through collective investment vehicles may not be able to access the reduced CGT rates upon the disposal of such assets.
It should be noted that any increment in the value of land will continue to be subject to the CGT provisions.
Accordingly, it may become necessary to obtain a formal valuation of the land and building component of each property transaction. A number of practical issues arise as a result in terms of the allocation of consideration.
The government has also proposed an unified entity regime from 1 July 2001, under which trusts will be taxed on the same basis as companies.
However, a CIV would be excluded from entity taxation such that distributions of taxable income would be taxed in the hands of the unitholders, with the income retaining its character and
distributions of tax preferred income will not be taxed when received by unitholders.
A trust will qualify as a CIV, provided it meets the test of being ‘widely held’.
That is, it must have at least 300 unitholders and twenty or fewer individuals who do not hold 75 per cent or more of the units in the trust.
There are other tests for wholesale trusts owned by CIVs, super funds and life insurance companies.
There will also be a requirement that the trust makes an irrevocable election to be excluded from entity tax regime and taxed as a CIV.
For more information contact Carlo Franchina on (08) 9263 7239 or e-mail: cfranchina@kpmg.com.au
