The main recommendations of the housing affordability survey released on Friday fail to recognize that comprehensive tax reform will be needed to make them work, according to major accounting bodies.

Revisiting construction for rent and using superannuation as collateral for home loans were two of the central recommendations of the inquiry report, titled The Australian Dream.

CPA Australia and CA ANZ have recognized the importance of the issue of housing affordability and longstanding attempts to address it.

But CA ANZ said the build-to-let recommendation would collapse due to the intractable problem of GST reform, while CPA Australia said the use of super ‘to address unrelated policy issues’ was contrary to the principles of retirement savings and could even encourage speculation.

CPA Australia’s Dr Jane Rennie said Recommendation 7 had taken previous housing arrangements involving supers – such as the First Home Super Saver Scheme – “to a whole new level, which concerns us”.

“Essentially, it seeks to use super as a honeypot to solve unrelated political issues,” Dr. Rennie said. “We question whether addressing non-retirement issues is an appropriate use of the retirement savings system.”

“Using super to borrow more doesn’t solve the housing affordability problem. While some could probably turn it to their advantage, for others (especially the uninformed) it could be financially disastrous.

CPA Australia said a home secured by collateral within a member’s super fund could potentially allow a homeowner to inappropriately arbitrate between tax environments.

“It can even create opportunities for money laundering,” Dr. Rennie said. “It would also impose an external financial risk on the assets of the fund, which would be unprecedented. This risk could not be managed by the trustees in the same way as other financial risks.

“This raises questions about how auditors working with pension funds could provide assurance on contingent liabilities in the event of a mortgage default.”

However, CPA Australia doubted the proposal could even get off the ground.

“I wonder if this recommendation is actually feasible. The use of superannuation assets as a remedy against non-superannuation borrowing is contrary to the single purpose test.

“Furthermore, it is inconsistent with the current policy parameters for superannuation borrowing, which currently must be undertaken both with limited recourse and at arm’s length.”

Another key proposal, Recommendation 12, suggests reviewing tax and regulatory parameters around built-to-let housing, as this could “provide consumers with more choice and has the potential to increase security of tenure”.

But CA ANZ also doubted the viability of the idea, as it would fail on the political challenges of GST reform.

CA ANZ Indirect Tax Committee Chairman Kevin O’Rourke said: “Social housing and build-to-let has been an issue that has been floating around for some time.”

He said companies or private equity funds seeking to invest in an apartment complex or similar project would avoid build-to-let proposals because they could not recoup the GST paid on inputs.

For example, he said a large project might involve $400 million spent on construction, legal and accounting services and a subsequent GST credit of $40 million. But not in the case of a build-to-let program.

“Because rent is not subject to GST, anything purchased by the developer of a property will not qualify for a GST credit.”

“In the development stage, that’s when all the money is poured in. So an initial blockage or credit unavailability involving millions of dollars is enough to prevent many of these projects from moving forward.”

He said looking into building for rental was worth it, but there was no simple answer.

“The whole question is whether or not to make these proposals economical and attractive to investors, whether or not the government will allow these credits on any basis.”

“But the GST revenue goes to the states. So if the solution becomes to allow appropriations, then less goes to the states.

Since all the states had to agree to changes to the GST law, “unless you can get all the states on board, who ultimately get the revenue, then it becomes very difficult to get a proposal like this”.

“It’s quite a political challenge to align all states in circumstances where they could lose revenue as a result of the ruling.”

Mr O’Rourke said the situation was further complicated by the presence of charities in the provision of social housing. The different tax treatment of charities and the provision of below-market rents would give their projects a competitive advantage over a commercial proposal.

Tax hurdles too high for housing proposals, according to accounting bodies

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Last update: March 18, 2022

Posted: March 18, 2022