‘Flawed’ new laws threaten 1m homes, property developers warn

About 1m homes could be under threat because of new laws cracking down on tax deductions, developers have warned.

Planned federal laws to prevent tax evasion ignore the needs of Australia’s property industry, a senate inquiry has heard.Picture: NCA NewsWire/Max Mason-Hubers.

New laws cracking down on excessive tax deductions could threaten the government’s target to build one million new homes by 2029, property developers have warned.

Under changes, debt deductions will be limited in a bid to stop multinational companies from overly reducing tax by charging high interest rates on loans they make to Australian subsidiaries.

The changes seek to bring Australia in line with the OECD’s best practice guidance on the problem of tax base erosion and profit shifting.

According to the Property Council of Australia, the tightening of the rules puts major urban developments, including the federal government’s plans for 150,000 build-to-rent homes, at major risk.

“Even considering the government’s amendments, genuine, vanilla, third-party debt that is heavily reliant on by the property industry as a necessary means of doing business, remains captured by this bill,” chief executive Mike Zorbas said.

The federal government agreed to a target of 1.2 million new homes by 2029 in August last year. Picture: Brenton Edwards/NCA NewsWire.

“Australian businesses investing in Australia with only Australian assets and debt remain caught in a profit-shifting prevention bill where there is no offshore jurisdiction to shift profit to.

“If passed in its current form the bill would hurt project feasibility such that the investment returns to many large-scale projects ... will be too low to proceed.”

During a probe into the bill on Wednesday, senators were left “surprised” after it was heard that the government did not commission modelling to analyse the potential impact of the changes to tax legislation on future housing supply.

Treasury official Marty Robinson argued that the government had resolved property developers concerns after extensive consultation with the sector.

“Given the importance of housing to this nation, how difficult it is for young Australians to get into a house .. why wouldn’t you and the governmentcommissionmodelling look at the impacts of this bill?” Liberal senator Andrew Bragg queried.

“Well senator, I think that goes to the difficulty in actually undertaking sort of detailed sector analysis in terms of modelling those sorts of effects”,Treasury official Marty Robinson responded.

Mr Robinson argued the government was ‘unapologetic’ in its tightening of tax rules. Picture: Supplied.

“Well, I’m surprised,” Senator Bragg later exclaimed.

Mr Robinson said the government was considering the “broader economic impact” of the changes and said it was possible that the laws would raise the tax burden in certain circumstances.

“The tax is only one of the factors that go into investment decisions by investors and developers, there are a range of other factors that weigh into development decisions,” he said.

“We don’t see that there’s likely to be a material impact on flowing through to prices.”

Originally published as ‘Flawed’ new laws threaten 1m homes, property developers warn