AFIA calls for redesign of investor tax overhaul

The association also said that there was no published modelling of how the changes would impact investor serviceability, collateral values, or securitisation markets.

“The bill’s impact on credit markets has not been assessed,” it said.

“There has been no formal consultation with the finance industry on the credit market implications of these reforms prior to the Bill’s introduction.”

‘Legislatively incomplete’ and impossible to operationalise, AFIA says

AFIA’s submission said that the bill pushed too many important details into future ministerial instruments, leaving lenders unable to rewrite products and policies in time.

“The definition of ‘new residential dwelling’ – the concept on which the entire new build exemption and CGT election turn – does not exist in the legislation,” the submission said.

“Five of the reform’s most commercially significant design elements are delegated to future ministerial instruments with no committed timeline.”

The association said that uncertainty complicated numerous practical tasks, including drafting loan terms and setting risk appetites.

“AFIA members cannot update investor loan product terms to reflect which properties attract the quarantine and which do not,” AFIA said.

AFIA said that members were currently unable to “advise mortgage brokers and borrowers with confidence about the tax treatment of proposed purchases” or to “design construction lending products specifically for the exempt new build category; or set appropriate LVR policies for new build versus established property investor loans”.

How will lenders know what qualifies?

AFIA also raised a major systems problem: even once “new residential dwelling” is defined, it said there was no established way for lenders to identify which properties were eligible for negative gearing at origination.

AFIA said responsibility for classification should sit with the taxpayer and their advisers, but added that this only worked if the Australian Taxation Office (ATO) provided guidance on what documentation would be needed.

Missing trust tax and risks for SME borrowers

AFIA’s submission also took aim at the government’s staged approach to legislating its investor tax package and pointed to the absence of the 30 per cent minimum tax to be imposed on trusts from the current bill.

“The trust minimum tax, a matter of direct commercial significance for the trust-structured borrowers that make up a significant number of SME borrowers – is entirely absent from this bill,” it said.

“The Senate is being asked to pass the first tranche of a reform package without seeing the second, with broad sweeping powers to be made via ministerial direction.”

AFIA said this made it impossible to properly assess the combined impact on SMEs that use trust structures for asset protection or succession planning and created a risk that borrowers would be forced into costly restructures once the second bill was unveiled.

AFIA’s recommendations: Pause, define, and spell it out

To address its concerns, AFIA laid out a detailed set of recommendations and firstly called for a dedicated analysis of lending and market effects before anything is passed.

“We recommend the Senate not pass this bill until a comprehensive credit market impact assessment has been completed and published by Treasury, covering investor loan serviceability, collateral value effects, business exit repayment assumptions and margin lending economics,” it said.

It also wants the definition underpinning the housing measures written directly into the legislation rather than left to regulations that may be settled after the bill becomes law.

“This definition is the operative concept on which the entire new build exemption and CGT election turn, and the finance industry cannot update its credit policies, product terms, or broker guidance without it,” AFIA said.

The association also wants regulators to spell out how responsible lending obligations apply to borrowers caught between the old and new regimes.

“APRA and ASIC should be directed to issue guidance on the responsible lending obligations of lenders in respect of: borrowers who contracted to purchase established investment properties after budget night on serviceability assessments that incorporated negative gearing deductions and borrowers who drew down on pre-approved facilities or lines of credit documented before Budget night to fund post-Budget-night established property purchases,” it said.

For trust‑structured SME borrowers, AFIA said that the reforms should not trap businesses in unsuitable structures or penalise them for updating their arrangements.

“The government should develop, in consultation with the states and territories, a concessional restructuring pathway for SME borrowers compelled to change corporate structure as a result of the trust reforms,” the submission said.

AFIA further slammed the heavy reliance on future ministerial instruments.

Its eighth recommendation is that “all five matters currently delegated to Ministerial legislative instruments – be included in the primary legislation before this Bill proceeds to a Senate vote”.

[Related: MFAA warns investor tax shake-up could sideline FHBs]