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Grant Thornton: Tax burden heavy on Australian property developers

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The property sector, as with many others, is one that is heavily regulated by a set of legislative frameworks - such as those involving tax. While such measures ensure the integrity of the industry, many organisations and professionals can understandably feel overwhelmed by what they see as unnecessary red tape.

Australia's property development scene is no different. The exceptional form shown by the sector in recent months doesn't mask the fact that it is still governed by a slew of taxes, rates, levies and other financial roadblocks.

In fact, such is the focus on this issue that advisory firm Grant Thornton recently conducted a study on the impact of property taxes on the industry in Australia. The results are published in the latest 'Real Estate & Construction Industry Insights' report.

Top tax frustrations revealed

In producing the report, Grant Thornton surveyed executives from a range of property sector firms - including commercial and residential developers, builders, civil contractors and consultants - on the biggest issues the industry is struggling with today.

Tax was revealed to be the main pain point - nine out of 10 respondents said a "comprehensive tax reform" is in order. According to Grant Thornton's Global Head of Real Estate & Construction, Sian Sinclair, stamp duty is a source of particular frustration.

"From our interviews, we're seeing the majority want stamp duty abolished. Of those opting to abolish stamp duty, the most popular response for a replacement revenue stream to government was to increase or broaden the GST," she explained.

"While abolition of stamp duty is often on the wish list and historically has been linked to GST, the upcoming review of the federation model means now is the time for the industry to speak up."

In addition, respondents revealed there is confusion around what can be classed as a property tax, due to varying definitions across the states. With governments deciding for themselves how they interpret terms such as levies, duty, charges and contributions, the report found little consistency nationwide.

Impact on property investment 

According to the report, property investors are among those in the industry most affected by taxes. The vast majority (91.8 per cent) of respondents noted that property taxes need to be taken into account when making investment or project decisions.

Additionally, more than 80 per cent of survey participants agreed that such taxes, especially stamp duty, heavily influence how transactions are structured.

Grant Thornton points out that there are numerous ways in which taxes can negatively impact property investors. For example, the higher the value of a transaction, the greater the impact these taxes can have on the feasibility of the development, the firm said.

Other challenges

Compounding the problems brought by property tax are a number of other major challenges facing the industry. The strict regulatory framework was revealed to be the top obstacle for respondents, with 42 per cent citing this issue.

Land supply (40 per cent) was another worry keeping property professionals up at night, in addition to affordability (35 per cent) and financing (33 per cent).

Given the increasingly complex and demanding nature of the sector, it is no wonder the property industry in Australia is calling for major tax reform. 

What can be done? 

Respondents to the survey gave their opinions on what steps the government can take to ease their concerns. Nine out of 10 wanted a comprehensive tax review, while more than three-quarters (77 per cent) were in support of a 'no exceptions' basis of reform.

As expected, completely removing stamp duty was revealed to be the most popular course of action among respondents. Other solutions, however, were also suggested - such as providing 'opt-in' scenarios for land tax instead of paying stamp duty upfront, offering discounts if the property is a primary place of residence and implementing a threshold below which stamp duty does not apply.

As with any reform, governmental review of property tax could take some time to come into effect - if it does at all. In the meantime, however, the industry can make use of the latest property valuation and development software to navigate the complex financial frameworks it operates in.

Date Published: 23 Nov 2014
Category: General News

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