Changes in Australia's withholding tax to benefit property industry
Changes in Australia's withholding tax to benefit property industry
Changes have been made to Australia's taxation system in an attempt to make the country more attractive to overseas
investors. The Australian periodical The Age explains the new system and what it means for the Australian
real-estate market.
In his first budget as Australian Prime Minister, Kevin Rudd announced that the government is to slash taxes charged
to foreign investors. By doing so, it is thought that Rudd particularly hopes to bring more overseas money to
Australia's property trusts. The changes
affect the Australian withholding tax, which is charged on payments to overseas investors and, due to its impact
on rent and capital gains, the paper states, was considered to be to the detriment of the property industry. Rudd had previously
pledged to halve withholding tax, a promise which, The Age claims, he has "out-delivered" in his budget. Withholding
tax, which previously stood at 30 per cent, will now be subject to a progressive decline over the first four years
that an investment is held. Under the new system, the tax will still be charged at 30 per cent in the first year but
will be reduced by 7.5 per cent over the following three years, ending at a final rate of 7.5 per cent.
Bloomberg.com cites Australian treasurer Wayne Swann as speaking confidently of the new system: "These arrangements
will make Australia's withholding tax rate one of the most competitive in the world. The arrangements will ensure
Australian property trusts are well placed to attract foreign investment."
The new taxation rules are felt to be an improvement on those of old; The Age states that before the announcement
was made, the major players in Australia's funds management community considered that the withholding tax system
acted against the best interests of foreign investors. Furthermore, the paper reports, less than 3 per cent of money
invested with Australian funds managers currently originates from overseas.
The move by the Australian government forms part of a bid to "export" the country's AU$1.4 trillion funds management
industry and attract foreign money to Australian investments. Rudd's Labor government estimates that cutting
withholding tax will come at a cost of AU$620 million over four years.
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14 May 2008
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