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Both the Housing Industry Association (HIA) and Master Builders Australia (MBA) used their opening statements to the Senate Economics Legislation Committee to raise concerns about the proposed changes, arguing they could increase costs for builders and restrict the types of development recognised as new housing.
The bill forms the third tranche of the government’s federal budget tax reforms, which overhaul a range of tax settings, including restricting negative gearing to new builds and replacing the blanket 50 per cent capital gains tax discount with an indexation model.
The legislation introduces a 30 per cent minimum tax on discretionary trusts from 1 July 2028, makes further changes to negative gearing and capital gains tax settings – including defining what qualifies as a new residential dwelling – and provides transitional relief for employers under the Payday Super reforms.
Discretionary trust concerns
Speaking at the Senate Committee hearing, MBA national director of policy and legal Melissa Byrne said the imposition of a minimum 30 per cent tax on discretionary trusts could be “characterised as one of the most significant changes to Australia’s taxation arrangements since the introduction of the GST.”
Unlike the adoption of GST, she argued, the new reforms have not been accompanied by education, transitional support or government assistance.
“It is disappointing that in contrast the government appears to assume that businesses can rapidly alter long-standing ownership structures with minimal disruption to ongoing operations.”
MBA estimated that a small family-owned construction business with taxable income of $400,000 could face tax increases of up to 70 per cent, annual ongoing compliance costs of between approximately $21,000 and $67,500, and one-off restructuring costs ranging from $82,000 to $175,000.
“It is unrealistic to expect small businesses to absorb costs of this magnitude without significant consequences,” she said.
“The bottom line is that these reforms will increase the cost of building and construction work. Whether through restructuring expenses, additional compliance and administrative costs, or reduced business returns, builders will have little choice but to pass these costs on to clients and homeowners.”
HIA managing director Jocelyn Martin said around three in five residential building businesses operate through trust structures.
“If these reforms go ahead businesses will be forced to spend thousands of dollars on advice and restructuring simply to understand and comply with these changes.
“Our industry is growing increasingly frustrated by a constant stream of reforms that add complexity and cost while doing nothing to increase housing supply, improve productivity or boost investment.
“This policy would only compound the pressures on small businesses further and would deliver the wrong policy at the wrong time.”
New-build definition “misses the mark”
HIA also targeted the government’s proposed definition of a “new residential dwelling” for the purposes of the negative gearing and capital gains tax changes, saying it was “too narrow and too subjective.”
Under the proposed legislation, a new residential dwelling is defined as a property built on land without an existing home, one that increases the number of dwellings on a site, a non-residential building converted into housing, or a dwelling acquired within 24 months of its first certificate of occupancy.
"Granny flats, multi-generational housing, substantial renovations and knock-down rebuilds all increase housing capacity and make better use of existing land and infrastructure yet they are excluded from the definition,” said Martin.
"If investment incentives are going to be tied to a definition of new housing, that definition must recognise the full range of housing solutions being delivered across Australia."
HIA called for the dwelling definition to be redrafted in consultation with industry and aligned with existing new housing definitions used within the GST tax system.
“Equally the Senate should use this Inquiry to reverse the own-goal ban on SMSFs investing in new rental housing that has already seen a drop in new homes sales,” Martin said.
MBA also argued that the proposed definition of new builds “misses the mark”.
Byrne said: “Master Builders continues to oppose the government's investment tax changes as a whole, however with them proceeding, it must have a holistic definition.
“The proposed definition fails to recognise the value of knockdown-rebuild projects, where an old home is replaced with one that better meets the needs of modern families, while also discouraging urban renewal and infill development.”
Broader concerns
These latest concerns form part of a larger industry backlash against the government’s tax changes.
In September, HIA’s chief economist warned that rate hikes and tax changes had left Australia’s new home market in a precarious position, with sales declining for the fourth consecutive month.
Additionally, a HIA survey of Australia’s largest home builders found that the SMSF changes alone could reduce detached-home commencements by between 3.5 per cent and 5 per cent annually.
Brokers speaking to Broker Daily have also raised concern over the ban’s impact on housing supply.
One broker took his criticism a step further, branding the changes to CGT as an “ambition tax” and taking to the tennis court to play a charity match against Prime Minister Anthony Albanese while voicing his grievances.
The Finance Brokers Association of Australia also urged the government to ‘swallow pride’ on the budget, following data showing national rents climbed to a record high in the June quarter.
[Related: Younger buyers go big on deposits despite affordability pressures]
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