Draft legislation from the federal government addressing the tax leakage of foreign investment into residential and rural property will not affect the operations of fractional property investment firm DomaCom.
The “Removing tax loopholes” exposure draft tightens the rules on stapled structures that have been used by foreigners to reduce the tax paid on the income they earn from their Australian investments.
Staples can present an unintended tax loophole available only to foreign investors and are usually used to invest in property.
The new law will allow foreign investors access to the concessional managed investment trust (MIT) rate if they invest in affordable housing.
DomaCom chief executive Arthur Naoumidis noted previous draft legislation had proposed MITs be prohibited from investing in residential properties if they were not considered for affordable housing purposes.
As the DomaCom Fund is structured as an MIT, this caused significant concern over the past 10 months about the viability of the firm’s business model.
“We are pleased that the revised legislation has removed this prohibition and instead has addressed the potential tax leakage by foreign investment into residential properties by adjusting the withholding tax regime and ensuring that foreign investors pay their fair share of tax,” Naoumidis said.
“We can now proceed with our business model of allowing investors to fractionally invest in residential properties across Australia.
“DomaCom believes that the proposed legislation is a robust solution that ensures the appropriate tax is paid by foreign investors whilst still allowing MITs to be rightfully utilised for the investment into residential rental stock, whether that be affordable or non-affordable housing.
“DomaCom has a leading, well-structured and regulated MIT and with the removal of this significant loophole can now be utilised to the maximum benefit of its investor base.”
He said the revision will help address the well-documented shortage of affordable residential rental properties by increasing the supply of rental properties.
The proposed legislation has entered a two-week exposure period, during which DomaCom is working with its tax advisers to ensure all aspects of the detailed draft law are reviewed and analysed, and any submissions, if necessary, are made to Treasury.