News and Updates

Recent Changes

• The new 39% trustee tax rate is now effective from 1 April 2024. Here is a high-level summary relating to this change:

  • A de minimis threshold is introduced where trustee income up to $10,000 after expenses is taxed at 33%. This is on an all or nothing basis. If the threshold is exceeded, all trustee income is taxed at 39%. It’s thus very important (as always) to consider allocation of beneficiary and trustee income each year.

  • The de minimis trust rules above don’t apply for income under the minor beneficiary and corporate beneficiary rules (i.e. the 39% trustee tax rate will apply under these rules as if there is no de minimis rule available).

  • Targeted rules and exclusions apply for the below types of trusts to mitigate over-taxation, so that trustee income of these trusts continue to be taxed at 33%:

o   Deceased estates (within four years).

o   Disabled beneficiary trusts.

o   Energy consumer trusts.

o   Legacy superannuation funds.

• Removing depreciation deductions for buildings from the 2024-25 income year:

Depreciation deductions for commercial and industrial buildings will be removed starting from the 2024–25 income year onwards, as announced in the new Government’s December 2023 Mini Budget. This proposal aims to revert to the pre-2020 settings, where buildings had a 0% depreciation rate, ensuring that buildings remain depreciable property, with deductions recoverable when the building is sold. The 0% rate would apply to buildings with an estimated useful life of 50 years or more, determined on a whole-of-life basis. Special depreciation rates for long-lived buildings would no longer be available, and the transitional provision for commercial fit-out would be reintroduced for buildings acquired in or before the 2010–11 income year. This provision allows owners to separate the cost of fit-out from the building's value and depreciate it separately at a straight-line rate of 1.5%. Deductions taken for fit-out would be included in depreciation recovery income calculations for buildings sold from the 2024–25 income year onwards. Grand parented structures and special excluded depreciable property rules would also be reintroduced with retrospective effect from 1 April 2020 to ensure fair and consistent taxation. Taxpayers who have commercial and industrial buildings that are affected by this change need to carefully consider the impact of it and factor this into their provisional tax estimates. Any deferred tax obligations relating to buildings will inevitably need to be reviewed. It should be noted that this change applies on an income year basis. Therefore, the application date may vary depending on your balance date. For example, if you have a 31 December balance date, the application date will be from 1 January 2024, but if you have a 30 June balance date, the start date for this change is from 1 July 2024.   

• Returning the bright-line test to two years with effect from 1 July 2024:

The bright-line test for property sales will be reverted to 2 years starting from 1 July 2024 from the current 5 or 10 years. As such, with effect from this date, sales of residential land within 2 years of buying may no longer be taxable under the bright-line rules. Complex apportionment rules for the main home exclusion will also be removed, and the previous predominant test will be restored to determine if this exclusion applies. Additionally, the main home exclusion will ignore periods when a dwelling is being constructed on the land. The rollover relief rules will be extended to cover transfers between associated persons who have been associated for at least two years. Overall, these are welcome changes, and many have predicted they will bring positive effect to the resident property market. A reminder that apart from the bright-line test, we still have a wider set of land-taxing rules, which will need to be considered for certain property transactions. 

• Restoring Interest Deductibility with effect from 1 April 2024:

The legislation change proposes to gradually allow restore interest deductions for residential investment properties. From 1 April 2024 to March 2025, 80% of interest deductions are allowed, increasing to 100% from 1 April 2025 onwards. This applies to all taxpayers, regardless of when they acquired their properties (i.e. regardless of if the grandparenting rules apply or not). The rules regarding which properties are covered remain unchanged. Additionally, previously disallowed interest remains, but if a property subject to these rules is sold and gains are taxed, previously disallowed interest can be deducted, subject to certain conditions. Note that changes only apply to the interest limitation rules. Rental property investors still need to be mindful of the residential rental losses ring-fencing rules that have been effective since 1 April 2019. 

Disclaimer

All information and material provided on this website are for informational purposes only and are based on the law and regulation at the time of writing. None of the information or material is intended to provide, and should not be relied on, for tax and/or legal advice.