All posts by GM Tax

Restricting Finance Cost for Individuals

The changes will restrict relief for finance costs on residential properties to the basic rate of Income Tax. These changes will be introduced gradually from 6 April 2017.

Finance costs includes mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

Individuals will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Individuals will be able to obtain relief as follows:

  • in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
  • in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
  • in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
  • from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction

Please contact us at GM Tax should you wish to discuss how this changes may impact on you.

Witholding tax on disposals made by non residents

New rules for foreign resident capital gains withholding (FRCGW) apply to vendors disposing of certain taxable property under contracts entered into from 1 July 2017. The changes will apply to real property disposals where the contract price is $750,000 and above (previously $2 million) and the FRCGW withholding tax rate will be 12.5% (previously 10%) unless a clearance certificate is obtained from the ATO. The existing threshold and rate will apply for any contracts that are entered into from 1 July 2016 and before 1 July 2017, even if they are not due to settle until after 1 July 2017.

Where a withholding obligation exists, the purchaser must withhold the relevant amount at settlement and pay it to the ATO without delay as a general interest charge may apply to late payments. The purchaser is required to complete an online Purchaser Payment Notification form at which time the purchaser will receive a payment reference number, and a payment slip allowing payment to be made.

The penalty for failing to withhold is equal to the amount that was required to be withheld. An administrative penalty may also be imposed.