Australia: Budget 2017: affordable housing, infrastructure and tax

As widely anticipated, Scott Morrison's second budget included a number of specific measures to address housing affordability but resisted structural changes to the taxation system.

Much less anticipated was a new tax (or rather a levy) imposed on the big five Australian banks. Last night's budget followed a recent trend we've seen in announcing a number of measures designed to protect the revenue base. There was a particular focus in this regard on foreign residents. The measures are also designed to encourage investment in particular sectors of the Australian economy. A number of taxation issues that were to be addressed – such as a Petroleum Rent Resource Tax and the use of stapled structures to re-characterise trading income – have been deferred.

So where do we see the biggest impacts on business and investment?


The Government held its position of resisting changes to negative gearing. Instead, it has continued its focus on affordability by introducing 'supply-side' measures. This drive will be aided by some concessional tax provisions to assist first-home purchasers. These measures are a mixture of old and new: funding arrangements to accelerate new development opportunities will combine with changes to tax concessions to encourage housing investment.

  1. Changes to managed investment trust (MIT) and CGT rules in relation to affordable housing

For income years starting on or after 1 July 2017, the MIT regime will be amended to allow for the acquisition, construction or redevelopment of property for affordable housing. Residential property will be considered affordable housing if leased at below-market rent to low-to-moderate income earners. As the Australian Taxation Office generally takes the view that investment in residential housing is an active, rather than a passive investment (on the basis the investment has a primary purpose of deriving capital gains) such activities are not usually eligible for the concessional MIT rate and are usually taxed at 30 per cent. Under the new rules, investors will be taxed in a manner broadly consistent with the existing MIT rule, subject to some minor variations:

  • Non-resident investors from countries with which Australia has a recognised exchange of information arrangement, will generally be subject to a concessional 15 per cent final withholding tax rate on investment returns, including income from capital gains. However, a tax rate of 30 per cent rate will apply to capital gains from the disposal of property held for less than 10 years and to MIT income in a given income year where less than 80% of all income is from affordable housing; and
  • Resident investors in affordable housing MITs will continue to be taxed on investment returns at their marginal tax rates. However, income from capital gains will be eligible for an increased CGT discount of 60 per cent for individuals where the property sold is managed by a registered community housing provider (RCHP) and has been held by the MIT for at least three years.

Consistent with the measures above, Australian resident individuals who invest directly in affordable housing managed by an RCHP on or after 1 January 2018 will be eligible for a 60 per cent CGT discount on capital gains from affordable housing held for at least three years.

  1. National Housing Infrastructure Fund (NHIFC) and related funding

The Government will provide an initial $9.6 million in 2017-18 to establish the NHFIC, which will commence operations from 1 July 2018. The NHFIC will also administer the National Housing Infrastructure Fund, a five-year $1 billion facility that will provide local governments with concessional loans, grants and equity to finance critical infrastructure required to deliver more housing supply sooner.

Separate to the NHIFC, the Government will incentivise local and state government in NSW to accelerate housing supply in Western Sydney.

  1. First home owner savings scheme

From 1 July 2017, individuals can make voluntary contributions of up to $15,000 per year and $30,000 in total, to their superannuation account to purchase a first home. These contributions, which are taxed at 15 per cent along with deemed earnings, can be withdrawn for a deposit. Withdrawals will be taxed at marginal tax rates less a 30 per cent offset and allowed from 1 July 2018.

While the measures are designed to help individuals save for a home, it may also have the unintended consequences of encouraging younger taxpayers to be more engaged with their superannuation fund. Hopefully we'll see focus on the investment return and fees charged, instead of the usual approach of ignoring superannuation because the benefits are many decades away.

Also the change to superannuation to allow access to funds to buy housing will see changes to the sole purpose test and preservation rules in the Superannuation Law. Close attention should be paid to how these changes are implemented.

  1. Superannuation concession for downsizers

From 1 July 2018, people aged 65 and over will be able to make a non-concessional (post-tax) contribution into their superannuation of up to $300,000 from the proceeds of selling their home. This measure will apply to a principal place of residence held for a minimum of 10 years. Both members of a couple will be able to take advantage of this measure for the same home, meaning $600,000 per couple can be contributed to superannuation through the downsizing cap. These new contributions will be in addition to any other voluntary contributions that people are able to make under the existing contribution rules and concessional and non-concessional caps.

  1. Foreign investment regime changes

The Budget includes measures that appear to be intent on increasing the supply of new residential housing available to Australian residents by:

  • placing a 50 per cent cap on foreign ownership in new developments (applied through conditions imposed on New Dwelling Exemption Certificates); and
  • charging foreign resident owners of residential properties an annual charge if the property is not occupied or available to rent for at least six months each year.

The latter change has the benefit of either deriving revenue from the annual charge or revenue from income tax on forced rental of Australian investment properties. A win-win for the revenue.


An unanticipated feature of the budget was the announcement of a new bank tax (called a levy) on authorised deposit-taking institutions with licensed entity liabilities of at least $100 billion from 1 July 2017. The levy will be an annualised rate of 0.06 per cent (or 6 basis points) of licensed entity liabilities and is expected to raise at least $1.6 billion per year. The details of how the levy will operate (for example, whether it will be deductible or whether it will generate franking credits for the affected banks) are not yet known.

The Government also announced measures to close down hybrid tax abuse by multinational banks and insurance companies by ensuring they cannot exploit tax advantages arising through the issue of regulatory capital under schemes involving foreign branches.


The budget includes a number of measures that are specifically targeted at foreign residents that invest in Australian real property. The measures include:

  • removing the CGT main residence exemption for non-residents that own Australian real estate;
  • increasing the foreign resident withholding tax rate from 10 per cent to 12.5 per cent and lowering the threshold of transaction value to which withholding potential applies from $2 million to $750,000; and
  • amending CGT rules to allow interests of foreign residents in Australian real property that is indirectly held to be aggregated with interest held by associates for the purpose of determining liability to CGT.


The Budget includes specific integrity measures addressing areas of particular concern. They include:

  • amending the multinational anti-avoidance law (MAAL) to ensure that partnerships with minority Australian partners are nonetheless foreign entities and thereby subject to the measure. The MAAL was introduced from 1 January 2016 to close down schemes involving foreign residents that avoided Australian income tax by ensuring that goods and services were not supplied through a permanent establishment in Australia. The amendment will be enacted with retrospective effect, applying from 1 January 2016.
  • amending the GST law such that purchasers of newly constructed residential dwellings are required to remit the GST component of the purchase price directly to the ATO. It is understood the measure is intended to address potential non-compliance by developer entities with GST on housing sales. While details are yet to be released, it is possible that the administration may be intended to be administered in a similar manner to foreign resident capital gains withholding tax.
  • measures to prevent abuse of the tax system in relation to precious metals and small business concessions; and
  • superannuation measures in relation to non-arm's length income and expenses and limited recourse borrowing in relation to transfer amounts.

The Government has also announced its intention to disallow deductions for travel for real estate investors and limit depreciation deductions for investors to amounts actually incurred.


From 1 July 2019, the Medicare surcharge will increase from 2 to 2.5%, accompanied by various low-income threshholds for the Medicare levy being increased. Small business depreciation concessions introduced in the 2015-16 budget will be extended to 30 June 2018.


Continuing its innovation agenda, the Government has also announced that it will introduce measures to assist Australia's financial innovation sector by:

  • reducing barriers for new banks entering the Australian market;
  • removing the double taxation of digital currency under the GST rules
  • extending crowd-sourced equity funding to eligible proprietary companies and thereby extending a new source of funding for small businesses
  • making it easier for startups and innovative small businesses to raise capital
  • introducing a world-leading legislative financial services regulatory sandbox to enable new and innovative FinTech products and services to be tested in Australia.

Of particular interest is the new crowd-sourced equity funding rules and the regulatory sandbox.

Crowd-sourced funding (CSF) is an emerging form of funding that allows entrepreneurs to raise funds from a large number of investors. Legislation to create a CSF framework for public companies will commence on 29 September 2017. The proposal is to extend the new rules to proprietary companies with additional obligations. The obligations for CSF proprietary companies include: a minimum of two directors; financial reporting in accordance with accounting standards, audit requirements, restrictions on related party transactions and minimum shareholder rights to participate in exit events.

The regulatory sandbox allows more businesses to test a wider range of new financial products and services without a licence. These services might include providing financial advice, issuing consumer credit, offering short term deposit or payment products. The testing timeframe of 24 months allows businesses to evaluate the commercial viability of new concepts and promoting competition.


There are significant opportunities for the community housing sector. The extension of the new tax concessions to Managed Investment Trusts will see new activity in the property funds sector and managed funds more generally. The infrastructure announcements will see the establishment of new non-government public companies and new infrastructure projects. The start-up space will see changes to the fundraising rules to simplify capital raising.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Chambers Asia Pacific Awards 2016 Winner – Australia
Client Service Award
Employer of Choice for Gender Equality (WGEA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Australia
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Australia
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions