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The current global economic predictions appear dire for 2009. Most Australian industries seem to be affected with job losses and lower profits, and the construction industry will not escape unharmed. The federal government, and in some cases, state governments, are trying to boost the economy with a number of incentives aimed to improve the economic outlook and avoid a recession.
Incentives in the last few months include:
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In October 2008, the federal government offered the First Home Owner’s Boost (FHOB) – an increase to the First Home Owner's Grant (FHOG). The grant was increased from $7,000 to $14,000 (for homes purchased) and $21,000 (for new homes built). The FHOB applies to contracts entered into on or after 14 October 2008 and on or before 30 June 2009;
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In December 2008 the federal government announced a 10% temporary investment allowance in the form of additional tax deductions on depreciable plant and equipment. The deduction is available for businesses that start to hold or start to construct an asset between December 13, 2008 and June 30, 2009. The Rudd government estimates that this measure will cost the Commonwealth $1.6 billion and is expected to encourage Australian businesses to invest more heavily in plant and equipment assets.
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In December 2008, in an attempt to stimulate construction, improve housing affordability and boost employment, the NSW state government have announced significant reductions to state and local development levies and water utility charges. Points of interest in this incentive include:
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State infrastructure charges have been cut in the south west and north west growth centres from $23,000 to around $11,000 per lot until June 2011. From July 2011 charges are expected to be approximately $17,000 per lot.
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NSW government has abolished infrastructure levies payable to Sydney Water Corporation and Hunter Water, saving up to $15,000 per lot.
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Infrastructure contributions payable to local councils have been capped at $20,000 per lot. However, councils can apply to the planning minister if they wish to impose a higher contribution on the developer.
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Levies will no longer be charged up front, but when the lot is sold, greatly improving cashflow on these types of projects.
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Includes new residential and commercial developments.
According to NSW Premier Nathan Rees, "last financial year there was a 4.6% drop in development applications across NSW and only 16,000 new houses were constructed – compared to 31,000 in Victoria and 30,000 in Queensland."
When comparing development levies between states, Ray Williams MP Member for Hawkesbury stated in NSW parliament (3.12.08) that infrastructure levies imposed on some blocks in NSW could be up to $150,000, where as developing blocks of land in Queensland and Victoria only costs approximately $50,000, and $60,000 for Tasmania. This incentive by the state government should bring NSW closer in line with other states.
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In January 2009, the federal government announced a $4 billion 'Australia Business Investment Partnership' providing liquidity support to major commercial property projects with the aim to stabilise that market. The Property Council of Australia reported that 15,000 construction jobs were lost between August and November last year, and without any action on behalf of the government, the federal treasury anticipated that up to 50,000 people could lose their jobs in the commercial property sector. The government’s media statement also mentioned that there could be some fallout for small and medium size businesses which service the commercial property sector. They too could be devastated by weak demand and tight credit conditions in the sector.
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In early February 2009, the federal government announced a $42 billion "Nation Building and Jobs Plan". Much of that funding will go towards the construction/housing industry, including:
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A $14.7 billion long term investment to improve the quality of educational facilities (including upgrading every one of the 9,450 schools in Australia and building 500 new science laboratories or language centres in high schools)
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The government will construct 20,000 new social housing dwellings ($6 billion), 802 new houses for Australian Defence Force personnel ($252 million), and upgrade around 2,500 vacant social houses ($400 million).
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The government will spend $2.7 billion on installing insulation in Australian homes for owner-occupiers, $612 million additional funding for the rental property insulation scheme, and $507 million additional funding for the solar hot water rebate.
These incentives coupled with lower interest rates, construction costs showing signs of reducing for the first time in over a decade, and cheaper fuel should provide much needed stimulus for development and boost construction. But the question remains, ‘How effective will these measures be?' Unfortunately, only time will tell. As always BMT & ASSOC monitor construction costs and market conditions to ensure you receive accurate estimating services. Please contact Tom, Brad or Brendan if you have any questions about our services.
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Improve Your Cash Flow in 2009
Want even more money this financial year?
If you or your clients have an investment property and haven’t obtained a Tax Depreciation Report, thousands of dollars in tax depreciation deductions may remain unclaimed. Depreciation deductions essentially reduce the investment property owner’s taxable income – they pay less tax!
As part of our continuous improvement plan, BMT Tax Depreciation has also recently introduced an improved tax depreciation report. The new report aims to improve the ease of use for accountants and investors. Contact one of our consultants on 1300 728 726 for an example of the new report.
Tax Depreciation Estimates
BMT Tax Depreciation can also provide free depreciation estimates for any new development you have underway – these estimates enable the potential investor to see the tax deductions available to them if they purchase the property. This often results in the property scenario becoming more viable to the investor, leading to more sales.
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