<section data-scroll-anchor="false" data-testid="conversation-turn-5" data-turn="user" data-turn-id="e65dbe94-e3b6-47f7-b62a-9cbb30c9bf79" data-turn-id-container="e65dbe94-e3b6-47f7-b62a-9cbb30c9bf79" dir="auto">Time &amp; Place’s plans to transform the former David Jones factory building in Surry Hills into a mixed-use residential precinct have gone on exhibition through the NSW Government’s In-fill Affordable Housing pathway.</section>

<section data-scroll-anchor="false" data-testid="conversation-turn-6" data-turn="assistant" data-turn-id="request-WEB:f4d533b7-64a5-413d-86fd-5c99649c2b73-2" data-turn-id-container="request-WEB:f4d533b7-64a5-413d-86fd-5c99649c2b73-2" dir="auto">
The Marlborough House proposal, lodged for the <a href="https://www.apartments.com.au/new-apartments/marlborough-house-47-97-marlborough-street-surry-hills-nsw-2010">47-97 Marlborough Street</a> site, would see the adaptive reuse of the heritage-listed warehouse building alongside the construction of new residential additions and a separate apartment building on the northern portion of the site.

The proposal seeks approval for 172 apartments across three buildings, including 15 per cent affordable housing managed by a community housing provider for at least 15 years from occupation.

<img alt="Marlborough" data-entity-type="file" data-entity-uuid="5d1d3c2a-bf13-47d6-a335-7c01102cdee1" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.29.36%E2%80%AFAM.png?VersionId=cjMYrbR.BLUlWH4dar0RVDDo0bG.u2YT" />

Interior view from the Northern Building Penthouse overlooking the park

&nbsp;

The redevelopment is planned for the prominent 3,413 sqm site bounded by Marlborough Street, Goodlet Street and Lansdowne Street, directly opposite Eddie Ward Park and around 200 metres from the Surry Hills light rail stop.

Time &amp; Place acquired the former David Jones building in 2024, marking the first time the property had changed hands in around 50 years.

Designed by Wardle, the proposal centres around the adaptive reuse of the former David Jones factory, originally constructed between 1913 and 1935 in the Inter-War Chicagoesque architectural style.

Wardle noted in its Architectural Design Report that the building “occupies a significant place in the industrial and cultural history of Surry Hills” and at its peak was “the largest department store manufacturing facility in Australia, employing over 800 people and fuelling the growth of Sydney’s fashion and retail industries.”

The practice said the project positions itself “not as an isolated intervention, but as a contributor to the civic, social, and architectural grain of the precinct.”

The proposal would deliver 75 apartments within the retained southern heritage building, 59 apartments within the central addition, and a further 38 apartments within the new northern building fronting Lansdowne Street.

Planning documents show the scheme would comprise a mix of heritage apartments, new-build apartments, townhouses and penthouses.

<img alt="Marlborough" data-entity-type="file" data-entity-uuid="57758518-40a3-4b83-958c-d06e96a2cffa" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.29.42%E2%80%AFAM.png?VersionId=VerlX9ST5xgBi8.1_YRsqdWTJeT6ygjs" />Interior View of the Heritage Building Apartment

The development would also include a ground-floor retail tenancy on the corner of Marlborough and Lansdowne streets, rooftop communal open space, a landscaped pedestrian link along the western edge of the site, and basement parking accessed from Lansdowne Street via a car stacker system.

&nbsp;

The scheme emerged from a competitive design process run by Urbis, with Wardle ultimately selected as the winning architect ahead of FJC Studio, TZG, Architectus and Wilkinson Eyre.

The Design Integrity Panel later described several aspects of the Wardle scheme as fundamental to the project, including “the stepped character of the new addition to the north of the site”, the landscaped western pedestrian link, and the “garden arrival” experience separating the original Marlborough House from the heritage addition.

Wardle’s design heavily references the site’s industrial and heritage history, while also responding to the surrounding Surry Hills streetscape.

The Architectural Design Report describes Surry Hills as “a finely grained neighbourhood with beautiful and expressive brickworks throughout the suburb,” with the proposal introducing a material palette intended to sit comfortably alongside the existing warehouse fabric and neighbouring terraces.

The report also outlines the project’s relationship with Eddie Ward Park and the broader landscape context of the area.

“Marlborough House occupies a site of deep cultural memory and the neighbouring Eddie Ward Park is of local ecological significance, where natural systems, topography, and stories have long shaped human experience,” Wardle noted in the report.

The architects said the proposal sought to “rebind built form to Country” through landscape, materiality and the adaptive reuse of the heritage structure.

<img alt="Marlborough House" data-entity-type="file" data-entity-uuid="9ae3f2f9-c85f-477a-a6f8-b43f6cb97c41" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.29.53%E2%80%AFAM.png?VersionId=B.qUCLqRvJOR.n9CvYcTpaknIX9LuqKZ" />

The project is also being progressed under the NSW Government’s in-fill affordable housing provisions, allowing developments that include affordable housing to access additional height and floor space incentives.

Under the plans, 2,593 sqm of the project’s floor space would be dedicated to affordable housing, slightly exceeding the required 15 per cent threshold.

In its Design Excellence Strategy, Urbis said the project aimed to “sensitively adapt and enhance the heritage-listed building on site through alterations and additions that preserve its historical significance” while delivering “high-quality market and infill affordable housing development in Surry Hills.”

Time &amp; Place has been one of the most active developers nationally in the last 12 to 24 months. Late last year they completed&nbsp;The Queensbridge in&nbsp;<a href="https://www.apartments.com.au/developments/southbank-vic-3006">Southbank</a>, a mixed-use tower with 353 apartments and a hotel. They are currently selling Park Modern, 246 apartments near the famous Botanic Gardens in&nbsp;<a href="https://www.apartments.com.au/developments/south-melbourne-vic-3205">South Melbourne</a>, and have future projects, <a href="https://www.apartments.com.au/new-apartments/the-wilmot-173-burke-road-28-hope-street-glen-iris-vic-3146">The Wilmot</a>&nbsp;in&nbsp;<a href="https://www.apartments.com.au/new-apartments/glen-iris-vic-3146">Glen Iris</a>, the redevelopment of the Northcote Plaza, and another tower in South Melbourne.

The developer broke into Sydney just a few years ago with Two Tides in Manly. They have another project nearby, which is at the ultra-luxury end of the market on&nbsp;<a href="https://www.apartments.com.au/buildings/shoreline-manly-beach-89-90-north-steyne-manly">North Steyne</a>, fronting the beach.

It is also continuing to work through the <a href="https://www.apartments.com.au/news/nsw/first-look-time-place-settles-on-design-for-the-chimes-potts-point-redevelopment">redevelopment of The Chimes building</a> on Macleay Street in&nbsp;<a href="https://www.apartments.com.au/developments/potts-point-nsw-2011">Potts Point</a>, as well as a project on <a href="https://www.apartments.com.au/news/nsw/time-place-to-take-on-mosman-apartment-market">Mosman's Redan Street</a>.
</section>

Joel Robinson

First look: Time & Place unveils Marlborough House redevelopment designs for former David Jones warehouse in Surry Hills

The residential transformation of St Kilda Road is set to continue into with more new apartment plans for the sought-after boulevard.

Wing Tai Asia has lodged plans for a major residential tower at 464-466 St Kilda Road, replacing the former VACC House with an 18-storey mixed-use development designed around a retained heritage podium and a sculpted contemporary tower.

The proposal, prepared under Victoria’s Significant Residential Development with Affordable Housing pathway, would deliver 325 apartments and ground-floor retail across the prominent 4,653 sqm boulevard site in Melbourne’s St Kilda Road North Precinct.

The project centres on the adaptive reuse of the site’s heritage-listed VACC Building, an eight-storey office designed by Bernard Evans that has occupied the address for decades. Planning documents state the development would involve “carefully dismantling and conserving off-site the original metal fabric of the podium visible from St Kilda Road,” before reinstating it as the defining frontage of the new scheme.

Above the restored podium, Wing Tai is proposing a curvilinear residential tower. The scheme includes 172 one-bedroom apartments, 63 two-bedroom apartments, 66 three-bedroom apartments, and 24 four-bedroom apartments, alongside two ground-floor food and beverage tenancies fronting St Kilda Road.

The tower has been designed with substantial articulation and variable setbacks to minimise perceived bulk and maintain view corridors along the boulevard. Urbis, which prepared the planning report, said the design “has been significantly articulated through a curvilinear design” with “an interplay with materials, façade expression and depth” to create visual separation and visual interest.

The proposal also includes 254 basement car spaces, landscaped pedestrian links connecting St Kilda Road and Queens Lane, and a biophilic landscape strategy featuring canopy trees, raised planters, cascading greenery and a glass oculus pool overlooking the eastern frontage.

Planning documents confirm the $270.1 million development will contribute 3 per cent of project costs to the Social Housing Growth Fund as part of the application process.

Wing Tai acquired the St Kilda Road property in 2018 alongside Abacus Property Group for $95.38 million, before later consolidating ownership of the site. The property previously served as the Victorian Automobile Chamber of Commerce headquarters for around 60 years.

The transformation of the St Kilda Rd boulevard is already beginning to materialise, with a number of high-profile projects recently completed, launched, or approaching launch as developers continue to back the long-term appeal of the precinct.

Among the most notable recent completions is Louise by Samuel Property Group, just off the strip on Queens Lane, the same pocket Hirsch &amp; Faigen recently launched The Queensbury. Mirvac is too on the same street with The Albertine, which is approaching completion.

Dexus recently secured approval for its slice of St Kilda Road, while Gurner also has approved plans for the precinct.

Wing Tai unveils 325-apartment St Kilda Road tower on former VACC House site

Malaysian developer <a href="https://www.apartments.com.au/developers/s-p-setia">SP Setia</a> is the latest to jump into St Leonards booming Transport Oriented Development precinct.

The developer, which has previously delivered Sapphire by the Gardens apartment development in Melbourne, identified the Atchison Street site in 2023. It filed a Scoping Report around 12 months ago, and now has revealed the designs for the new&nbsp;40-storey mixed-use tower.

The State Significant Development Application covers <a href="https://next-portal.urban.com.au/projects/14650/summary">20-22 Atchison Street</a>, a 1,374 sqm site positioned between St Leonards Station and the new Crows Nest Metro station.

Designed by <a href="https://www.apartments.com.au/architects/cox-architecture">COX Architecture</a>, the project would deliver 181 apartments, above a four-storey commercial podium, five basement levels, and new public domain works along Mitchell Street. The apartment mix comprises 35 one-bedroom apartments, 39 one-bedroom-plus-study apartments, 85 two-bedroom apartments, and 22 three-bedroom residences.

The proposal has been lodged as a shop-top housing development under the NSW Government’s TOD planning pathway, which allows increased density around key transport infrastructure. The site sits within the recently rezoned Crows Nest Accelerated TOD Precinct.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b799673d-48e2-46b0-801a-0e33a9330100" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20site.png?VersionId=dPh0UfwfaHpbFL1R7H1cbZNbIW0CHbCC" />

SP Setia acquired the Atchison Street site as part of its continued expansion into the Australian apartment market. In comments made to City &amp; Country (The Edge Malaysia) in 2023, SP Setia President and CEO Datuk Choong Kai Wai described the acquisition as “a strategic move” aligned with the group’s post-pandemic market recovery strategy.

“Our target for this exceptional development is local and overseas buyers, including first-home buyers, downsizers and investors,” Choong said.

The tower has been designed as a slender vertical form rising from a mixed-use podium, with COX Architecture positioning the development as a response to the evolving St Leonards and Crows Nest skyline.

“The purpose of the project is to facilitate the delivery of high-quality housing at a strategically located site and deliver a built tower outcome that is consistent with the desired future character of St Leonards and aligns with the TOD controls,” the design report stated.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b1a85eee-76f7-436c-a6da-73ba827b9b13" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20entry.png?VersionId=dA9jHGPMcm.dDbwk4QfxqWiY5bfh3UVt" />

The podium would incorporate retail uses fronting Atchison Street, commercial tenancies, landscaped communal areas, and pedestrian improvements along Mitchell Street. Vehicle access and loading would be consolidated via Atchison Lane.

Residents would have access to more than 665 sqm of communal indoor and outdoor spaces, while the development proposes 96 parking spaces across five basement levels.

The proposal also includes a commitment for 10 per cent of residential floor space to be allocated toward affordable housing through a monetary contribution.

COX said the tower form responds directly to the emerging high-density character of the precinct while seeking to maximise solar access, cross ventilation, and outlook from apartments.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="2163f85c-f63b-4be3-aafa-f8763976cec5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Article%20Feature%20Image%20%28Grid%29_5.png?VersionId=WiAmtIKJ6.ZQ41EtYEQ1fol7AeorKBlL" />

“The building is orientated towards north,” the Apartment Design Guide compliance report noted, adding that the tower’s slim form was driven by the constrained inner-urban site dimensions.

The design also incorporates landscaped setbacks and communal open space at podium level, intended to soften the interface with surrounding streets and improve pedestrian amenity.

The project adds to a growing wave of redevelopment proposals reshaping St Leonards and Crows Nest following the opening of the Sydney Metro City line and the NSW Government’s push for higher-density housing around major transport nodes.

Last week Stockland filed plans just down the road. They want to build a <a href="https://www.apartments.com.au/new-apartments/601-pacific-highway-st-leonards-nsw-2065">52-storey tower on Pacific Highway</a>.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">First look: Stockland plans 52-storey, 538-apartment St Leonards tower&nbsp;</a>

First look: SP Setia targets St Leonards skyline with 40-storey TOD tower

<a href="https://www.apartments.com.au/developers/urban-property-group">Urban Property Group</a> has revealed plans for a new mixed-use tower at 10 Dangar Street, Wickham, advancing a proposal that would reshape the southern gateway to Newcastle’s city centre with one of the city’s tallest residential buildings.

The State Significant Development proposal, now on exhibition, seeks approval for a <a href="https://www.apartments.com.au/new-apartments/bowline-10-dangar-street-wickham-nsw-2293">43-storey tower</a> immediately adjacent to the Newcastle Interchange. The project would deliver around 200 apartments, including 42 affordable housing dwellings, alongside 99 co-living units, a 171-room hotel, retail space, and new public domain integrated through the site.

The scheme marks a significant escalation of plans previously approved for the site. Urban Property Group took over the prominent 2,904 sqm parcel, where excavation and demolition had already commenced under an earlier consent for a 14-storey mixed-use development.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="58a96dd9-407f-4d20-86b4-94e4bfeef74b" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20podium.png?VersionId=LGlf08pdFGAZDzvx_CXC4XakHNZRuEE0" />

Designed by <a href="https://www.apartments.com.au/architects/sjb-architects">SJB</a>, the tower has been conceived as a landmark transit-oriented development anchored to the Newcastle Interchange precinct. The proposal includes 245 build-to-sell apartments across a mix of one, two, and three-bedroom residences, as well as two penthouses. Fifteen apartments and one operational unit are earmarked for NDIS housing. The co-living component would add a further 99 units, while the podium would accommodate retail uses and hotel facilities.

SJB said the site presents “a valuable opportunity to anchor the precinct by setting the standard for design, active ground planes and character at the key southern gateway.”

The architecture responds directly to the site’s position beside major transport infrastructure and within one of Newcastle’s fastest-evolving urban renewal precincts. The tower form sits above a sculpted podium designed to frame new public spaces, including a through-site pedestrian link connecting Station Street to Hannell Street, landscaped plazas, and activated retail edges.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="a7bd6ff0-f7db-4ce8-a6dc-ea56e72c6149" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20lanne.png?VersionId=xzf39VADyhj7zBQY2I9fx9vI62u2tuSb" />

The design report describes the project as part of the broader transition of Wickham into “a vibrant, high-quality mixed-use urban precinct” that leverages proximity to the station, open space, and regional connectivity.

A detailed public art strategy has also been prepared for the development. The strategy positions the project as “a transit-oriented development of state significance at the gateway to Newcastle’s city centre” and outlines a series of integrated artworks responding to Newcastle’s industrial and transport heritage.

Creative Road’s curatorial framework for the project, titled Unveil, draws on “stratified surfaces, carved volumes, and light-filled apertures” while referencing Newcastle’s transformation from an industrial city into a contemporary education and technology hub.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="77a882bb-14b1-4d28-99ff-9438e39508c0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20site.png?VersionId=cevgo_vN0eKPK78P8YcEu3mKPLkpFqE7" />

The proposal is being advanced through the NSW Housing Delivery Authority pathway after being declared State Significant Development in June 2025. The accompanying scoping report states the development aims to “maximise the site’s proximity to the Newcastle Interchange by delivering transit-oriented development” while increasing housing supply and affordable housing provision within the Newcastle LGA.

Urban Property Group’s plans align with the long-term strategic vision established under the Wickham Master Plan, which identified the interchange precinct as suitable for substantial uplift in height and density. The current proposal would significantly intensify that vision, positioning the tower among the tallest developments proposed for Newcastle.

The site sits immediately north of the Newcastle Interchange, bounded by Dangar Street, Hannell Street, and Charles Street. It is surrounded by a rapidly growing cluster of residential towers and mixed-use projects that have emerged following the completion of the light rail and transport interchange.

First look: Urban Property Group unveils Newcastle’s latest tower at Wickham interchange

Bottega House has completed settlement of a landmark riverfront site in Macquarie Street, St Lucia, representing its first major Brisbane development.&nbsp;

Positioned on the banks of the Brisbane River, the <a href="https://www.apartments.com.au/new-apartments/180-macquarie-street-st-lucia-qld-4067">premium site at 180 Macquarie Street</a> features uninterrupted river frontage in one of Brisbane’s most tightly held residential precincts.&nbsp;

The proposed development, currently under assessment with Brisbane City Council, has been designed by <a href="https://www.apartments.com.au/architects/plus-studio">Plus Studio</a> with interiors by <a href="https://www.apartments.com.au/interior-designers/mim-design">Mim Design</a> and will deliver a boutique collection of premium residences positioned specifically for owner occupiers and downsizers.&nbsp;

The residences are set to redefine luxury apartment living in the area, with a focus on architectural quality, refined finishes, landscape integration and elevated amenities including curated wellness facilities, resort-style pools and recreation spaces rarely seen in the local market.&nbsp;

Exclusive sales for the project will be led by Keenan &amp; Byrne, ahead of an anticipated launch later this year.&nbsp;

Bottega House Managing Director Nick Malloch said the project reflects the group’s ambition to deliver a highly curated residential offering within one of Brisbane’s most tightly held precincts.&nbsp;

“This is an incredibly rare riverfront opportunity and one we have approached with a long-term perspective,” Malloch said.&nbsp;

“Our vision from the outset was to create a boutique collection of residences that feel more like private homes than traditional apartments, with generous proportions, refined finishes and exceptional amenity throughout."

Malloch says there is a&nbsp;lack of premium owner-occupier stock of this quality in the market, particularly for downsizers wanting space, privacy and a true lifestyle offering without compromise.&nbsp;

"Demand is expected to be strong given the scarcity of premium riverfront opportunities of this nature within Brisbane’s inner-west."&nbsp;

Bottega House secures landmark riverfront site in St Lucia 

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GUEST OBSERVER
The current international tax regime was developed in the last century when the internet was not yet invented.
At that time, a foreign company would typically require a substantial physical presence in Australia before it could be in a position to earn significant amount of income from Australian customers. This is what’s known in the tax world as permanent establishment.
The concept of permanent establishment is embedded in most domestic tax laws as well as virtually all the 3,000 plus tax treaties in the world. It dictates that in general, business profits of a foreign company will be subject to tax in Australia only if the company has a permanent establishment in Australia. In other words, the ATO cannot tax a foreign company’s profits if it has no permanent establishment in Australia.
The recent hearings of the Senate inquiry into corporate tax avoidance made it clear the tax structures of Uber, Airbnb, like their older peers Google and Microsoft, are designed to ensure income from Australian customers is earned by a foreign company that does not have a permanent establishment here. The permanent establishment concept is not effective for today’s digital economy.
<h2>Uber’s business and tax structure</h2>
Take Uber, which though established in the US, has a wholly-owned subsidiary in the Netherlands, which in turn has a wholly-owned subsidiary in Australia.
The most important asset of Uber is its digital platform that supports the app linking individual drivers and their customers. It’s unlikely this app was developed in the Netherlands. Despite this, Uber-Netherlands has the right to book income generated from customers in Australia.
For example, if a customer pays $100 for a ride in Sydney booked through the Uber app, the money is in fact paid to Uber-Netherlands. Out of the $100, Uber pays the driver about $75. The gross profit of $25 is booked in the Netherlands. This is so even though the transaction happens largely in Australia, including the driver, the customer and the ride.
Uber-Australia receives a service fee from Uber-Netherlands for its marketing and support services performed in Australia. The fee is determined based on the operating costs of Uber-Australia, plus a mark-up of 8.5%. The mark-up is effectively the taxable profit of Uber in Australia under its tax structure.
<h2>Airbnb’s business and tax structure</h2>
Airbnb, another young business founded in the US, has a structure very similar to that of Uber. Airbnb’s parent company in the US has a wholly-owned subsidiary in Ireland, which in turn has a wholly owned subsidiary in Australia.
Airbnb charges fees to both hosts and guests for accommodation booking through its digital platform. Instead of Airbnb-Australia, Airbnb-Ireland books the fee income generated from accommodation bookings in Australia. This is so even if the host, the guest and the accommodation are all in Australia. For example, if a Sydneysider uses the Airbnb app to book accommodation in Melbourne, the payment is in fact paid to Airbnb-Ireland. The host of the accommodation is then paid by Airbnb-Ireland which charges a fee of 3%.
Airbnb-Australia is responsible for the marketing activities in Australia. It receives a service fee from Airbnb-Ireland for those activities, and the fee is again computed based on its operating costs plus a mark-up.
<h2>Déjà vu – Google and Microsoft</h2>
Comparing the tax structures of Uber and Airbnb with that of Google and Microsoft reveals striking similarities. It suggests that the appetite for tax planning is comparable between established and relatively “young” technology companies.
The common pattern: a parent company in the US establishes wholly owned subsidiaries in market jurisdictions (such as Australia) as well as in low-tax countries.
While the commercial reality is that all companies in a group are effectively one single enterprise, the tax law in general treats each company as a separate taxpayer.
On one hand, the Australian subsidiary typically is responsible for marketing and support services that have to be physically done in Australia, and earns a service fee on a cost plus basis. The amount of profits subject to tax in Australia is usually very small compared to the income generated from Australian customers.
On the other hand, intellectual properties – which are often the most important and valuable assets of technology companies – are located in low-tax jurisdictions such as Ireland, the Netherlands and Singapore. This structure allows those low-tax subsidiaries to book the income generated from customers in Australia, and effectively shields the income from the Australian tax net.
<h2>Policy responses</h2>
Action item 1 of the OECD’s base erosion and profit shifting (“BEPS”) project is “tax challenges of digital economy”.
The original intention of the OECD was to explore how the 20th century international tax regime should be reformed in response to the digital economy in the 21st century. It quickly realised it was extremely difficult, if not impossible, to achieve international consensus on the intended reform. The often conflicting and vested interests among countries present a formidable obstacle to international consensus on meaningful reform of the international tax regime.
Instead of relying on the BEPS project to resolve the issue, Australia has followed the lead of the UK and is in the process of introducing the Multinational Anti-Avoidance Law – commonly known as the Google tax– to address the issue. As the new law incorporates concepts that are new and untested, it is not clear whether it will be effective.
In any case, it’s important to remember that multinational corporations are very agile. They may replace their “avoided permanent establishment” structures to circumvent any Google tax or to incorporate new tax avoidance tools.
 
Antony Ting is associate professor, University of Sydney and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/antony-ting-117958" target="_blank">here</a>.
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jchancellor-FAypfDUnLy

How Airbnb are reducing their Australian tax bill

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The Federal Treasurer Scott Morrison is canvassing tax reforms that will persuade retirees to downsize into smaller homes in a move to boost the housing supply for younger families.
The bold plan - revealed in The Australian - would need state government support as it would include a one-off exemption from stamp duty on the purchase of the smaller home.
It speculates as an extra incentive, profits from the sale of the family home would be excluded from the Age Pension assets test provided they are channelled into an ­approved retirement product such as life annuities and aged-care bonds.
The Treasurer's tax white paper team are expected to have the reform proposal included in the draft to be released next year.
Mr Morrison will begin discussing stamp duty exemptions at his next meeting with state and territory treasury ministers in December.
The ACT introduced a discounted stamp duty for pensioners downsizing in 2008, and the commonwealth hopes other states follow.
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Downsizing stamp duty tax reform on Federal Treasurer's agenda 

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I was interviewed for a great story in one of the property magazines, the article was called Keep and Reap and it examines the pros and cons of holding onto property after you finish developing it.
One of the biggest things to consider before you start a development is entry and particularly exit costs - if you are developing to sell.
Around the same time I received a call I had from a guy called Dave.  He said ‘Hi Jo, can you help me with a dual occupancy project’.  To that I replied...’sure Dave, we’d love to. Tell me a bit about your strategy and what you are hoping to achieve from a property development’. 
'Well, my wife and I want to turn over a few developments, you know...complete one, sell and then use the profits to go again. Our aim is to use the proceeds to pay down the mortgage on our principal place of residence and keep investing’.
Dave certainly has a very good plan. As property development project managers, we are not qualified to give accounting or financial advice, but what I do like to check with anyone making this kind of enquiry is that they understand what selling or exit costs are involved.
Dave said he understood there’ll be agent’s selling commission and marketing costs to sell the new villas, we might have to pay some Capital Gains Tax and that’s it I think’. He said.   
My reply...’Are you sure Dave?’
If you take a look at the exit costs, then you may think twice about selling on completion, especially if it’s a small development like a dual occupancy.
In the Hunter Region of NSW where we manage developments for our clients, we can typically create around one hundred thousand dollars in equity on a dual occ project within twelve months. This sounds like a lot of equity to create and it is...if you are holding the properties you’ve built.
By holding on completion you'll not only get the benefits of depreciation and higher than average rental returns (everyone loves to rent a brand new property) but some clients choose to refinance and by doing this they can access some of the equity that’s been created through the development process.
But, if you are looking to sell on completion, then there is a whole list of costs you need to consider.
The big one is GST and as I explain this to Dave, I highly recommend he checks this out closely with his accountant.  GST is applicable when you sell new property, so Dave would need to ensure he pays 10% of his selling cost to the government. If he is not registered for GST, he can't claim back the GST he's paid over the life of the development so he's essentially losing 10% on his sales. However, if he holds the properties for five years, they are no longer deemed new and no GST is applicable.
Finance costs are another cost to consider. Dave needs to check with his lender what fees and charges may be applicable when he sells, these may include a prepayment fee, settlement fee, early exit fee or Government mortgage discharge fees.
There will be legal fees for your solicitor to prepare Sales Contracts and manage the conveyancing for you.
In some instances, Land Tax may also be payable on a property that is being sold.
Then of course, the sales agent's commission, marketing costs and perhaps auctioneer costs.
Also consider the holding costs. During the sales process you probably won't rent the villas and they'll be sitting empty on a fully drawn construction loan.
One of the advantages to holding and renting the properties on completion is that the interest you pay during the development process is tax deductible. However, if your intention is to sell on completion then you lose this important deduction during construction but also during the selling period.
I recommended Dave have a meeting with his accountant to make sure he understood the implications of selling.  A few weeks later, he called to tell me he's switched strategy and wanted to hold onto his properties. One of his reasons was to take advantage of the higher depreciation benefits and he wanted to build a property portfolio. His accountant showed him just how much income tax he could save himself as he was in a high tax bracket.
It wasn't long before we had found him a great site in Newcastle with a potential gross yield of 7%. This strong yield will make it easier for Dave to hold and continue on his property investment journey.
By going through the exercise of weighing up the pros and cons of holding, it helped Dave realise that if you are going to the trouble to develop property in the right location, you may as well hold to reap the immediate and future rewards. 
 
Jo Chivers is chief executive officer of property development project managers <a href="https://www.propertybloom.com.au/about" target="_blank">Property Bloom</a>.
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Is it really worth selling on completion? Jo Chivers

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Were Aussie consumers disappointed that rates weren’t cut? No. Were consumers worried about talk of a higher consumption tax? No. Consumers seem resigned to the fact that tax reform has to occur. 
And presumably Aussie consumers are aware that if the consumption tax goes up, then other taxes will be cut or reduced such as income tax rates. The reason why governments are talking about a higher consumption tax is because the population is ageing and thus changes to the tax system will be necessary. It is encouraging that Aussie consumers are taking a pragmatic, forward-looking view of future economic challenges.
Business conditions remain favourable with a smoothed measure of conditions (rolling annual average) near 5- year highs. Importantly, capacity use is near 4-year highs but inflation is still contained. There is the issue of ‘pass-through’ though – purchase costs are increasing at a faster rate than final retail prices. Businesses are likely to pass-through higher costs (higher import costs as a result of a lower Aussie dollar) at some point.
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Heat is quickly coming out of the investment housing market. The 8.5 % slump in investor loans was the biggest drop in seven years. Regulators will be satisfied that their measures are working to slow demand.
Aussie consumers are sensing that rates are near their lows with refinancing up the most in six months.
What do the figures show?
National Australia Bank Business Survey:
The NAB business conditions index was unchanged at +8.9 points in October. The rolling annual average eased from a 5-year high of +7.2 to +7.0. The business confidence index eased from +5.3 points to +2.1 points. The survey was conducted from October 26 to 30.
NAB noted: “The notable dispersion in business conditions across industries continued into October, with 3 of the 8 major industry groups (mining, manufacturing and wholesale) reporting negative conditions. Services industries continue to outperform, while the mining industry trails well behind. A majority of industries improved in the month, but recreation &amp; personal services and construction both saw sizable falls in their conditions index.”
“There was a notable deterioration in both conditions and confidence in Western Australia, consistent with ongoing drag from mining – confidence also fell considerably in South Australia. In contrast, Queensland recorded sizable improvements in the month (especially in business conditions). Looking through the monthly volatility, conditions were still strongest in NSW and Victoria (of the mainland states). Business confidence showed similar trends, although Queensland remains the highest of the mainland states (in trend terms).
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The index of trading conditions rose from +14.7 to +16.4; employment eased from +3.1 points to +2.8 points; profitability eased from +8.6 points to +7.6 points; forward orders fell from +2.8 points to minus 1.8 points.
Inflationary indicators were generally softer in October. The monthly reading of labour costs rose at a 0.3 % quarterly rate in October, down from +0.6 % in September. Purchase costs rose at a 0.9 % quarterly rate in October, after a 0.9 % rise in September. Final product prices were up 0.3 % in October (+0.3 % in September). And retail prices were up by 0.5 % in October after a 1.1 % rise in September.
Capacity utilisation rose from 81.3 to a near 4-year high (highest in 45 months) of 81.4 %. Capacity use is above the long-term average of 81.0 %.
The proportion of firms reporting that they did not require credit improved from a record high of 79 % to 65 % in October.
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Consumer sentiment
The weekly ANZ/Roy Morgan consumer confidence rating rose by 1.4 points (1.2 %) to 116.6 in the week to November 8. Confidence is up 1.6 % over the year and above the average of 111.4 since 2014.
Two of the five components of the index rose in the latest week:
The estimate of family finances compared with a year ago was unchanged at +11;
The estimate of family finances over the next year was down from +27 to +25;
Economic conditions over the next 12 months was up from +2 to +5;
Economic conditions over the next 5 years was up from +6 to +14;
The measure of whether it was a good time to buy a major household item was down from +30 points to +28 points.
Housing finance - number
The number of new owner-occupier housing loans (commitments) rose by 2.0 % in September. Excluding the refinancing of dwellings, the number of loans was up by 0.7 %.
Loans by owner-occupiers for the construction of homes rose by 1.8 % in September; loans to buy newly-erected dwellings rose by 5.4 % and loans for the purchase of established dwellings (excluding refinancing) was unchanged. The number of refinancing transactions rose by 4.7 %.
Housing finance - value
The value of new housing commitments (owner occupier and investment) fell by 1.6 % in September. Owner-occupier loans rose by 3.0 % while investment loans fell by 8.5 %.
The value of loans by owner-occupiers and investors to build new homes fell by 4.1 % in September after falling 6.8 % in August. The value of loans to build stood at $2.43 billion, the lowest level in 14 months.
Housing finance – other statistics
The proportion of first-time buyers in the home loan market eased from 15.8 % to 15.4 % in September. (However the figures take into account refinancing loans and as such the figures may be skewed). Fixed rate loans as a share of all loans were steady at a four-year low of 9.5 %. And the average home loan across Australia stood at $379,400 in September, up 15.4 % on a year ago and equalling the fastest pace of growth in 12 years.
Chinese inflation
Chinese consumer prices fell by 0.3% in October to be up 1.3% over the year – the lowest annual rate in five months. Food prices fell by 1.0% in the month to be up 1.9% over the year. Non-food prices rose by 0.1% to be up 1.0% over the year.
In September pork prices fell by 1.9% (15.8% over the year); eggs fell by 6.9% and vegetables fell by 5.6%. Transport &amp; communications prices were unchanged in the month; Clothing lifted 0.6%; Health Care rose 0.2%; Household equipment and maintenance services was unchanged; Tobacco and liquor rose by 0.1%; Entertainment &amp; Education fell by 0.3% with travel services down by 1.8%.
Chinese producer prices fell by 0.4% in October after falling 0.4% in September. Prices fell 5.9% in the year to October, the same as September and equalling the biggest fall in six years. Prices in petroleum processing, coking and the nuclear fuel processing industry fell by 22.5% over the year.
What is the importance of the economic data?
The monthly National Australia Bank business survey is valuable in providing a timely reading about the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.
The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.
China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 16th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.
What are the implications for interest rates and investors?
The latest data supports the Reserve Bank’s upbeat view on the economic state of play. CommSec expects interest rates to remain unchanged over the next year.
Owner-occupiers are still entering the home loan market – presumably some sense bargains now that heat is coming out of the market, supply has lifted and fewer investors are to be found. The Reserve Bank would be happy at the mix of lending in the housing market.
Reuters: “China is confident of achieving economic growth of around 7 % in 2015, Vice Finance Minister Zhu Guangyao told a press conference in Beijing on Tuesday.” 
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Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.
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Consumers upbeat; Investment loans slump: CommSec's Craig James

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 Malcolm Turnbull has been sworn in as the 29th Prime Minister of Australia and has said he will lead a “thoroughly Liberal Government”, alluding to the outgoing Prime Minister’s conservative approach.
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 Turnbull, with Julie Bishop as deputy, won an unexpected Liberal party leadership ballot against Tony Abbott yesterday which was instigated by Turnbull’s challenge.
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 While there is speculation that Joe Hockey will be replaced in the Treasury portfolio by Minister for Social Services, Scott Morrison, a cabinet reshuffle is not expected until after the parliamentary sitting week, which ends on Thursday.
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 The firmness of the vote (Turnbull won 54 votes to Abbott’s 44), Turnbull’s standing in opinion polls (Figure 1), and his perceived centrist policies provide him with a good base to meet business approval.
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 Turnbull has the opportunity to positively influence business and consumer confidence in the short term. There has been a general lack of optimism around government for some time (Figure 4). When the Coalition came to government, business confidence surged to a three year high, but has been unable to maintain that level, and is currently below average (Figure 2).
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 But to sustain any elevation in confidence, Turnbull’s leadership will need to triumph over populism and he will need to provide a credible strategy to lift the productive capacity and competiveness of the Australian economy.
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 Turnbull said he intends to improve the government’s communication of its economic agenda to voters. Last night he pointed to New Zealand Prime Minister, John Key as an example of a leader that has been able to implement significant economic reforms by bringing people with him.
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 Turnbull has clear space to reset the party’s policy priorities ahead of the next election, which will likely be sometime next year. Turnbull said he will do this in a collaborative manner in a ”thoroughly traditional cabinet government”.
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 There are two particularly important White Papers currently being drafted that could provide the basis for substantial and needed reform in the Australian economy, including one on tax and one on federation. How far Turnbull is willing to take these will in part determine his government’s ability to expand the economy’s potential. 
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<div class="column">But the current economic upswing remains lacklustre and levels of confidence in the Australian economy are currently well below where they were when the Abbott Government came into power in September 2013. At that point, expectations of success were at their highest (Figure 2).</div>
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 Turnbull is likely to face a hard task at this starting point. The ANZ-Roy Morgan confidence survey shows that consumers are fragile and worried about the outlook. The subindex on ‘economic conditions in the next five years’ fell 6.0% in today’s survey following a 5.2% fall in the previous week (Figure 3). This is the lowest level since the weekly survey began in October 2008. 
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 Turnbull’s past statements and his more liberal approach suggest he will have some policy differences to Abbott, although we do not expect a significant shift of policy in the short term. 
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 Turnbull is a strong advocate of marriage equality and allowing a conscious vote within the party on the issue, but he has stated that he will retain the government’s commitment to a plebiscite on the issue.
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 Turnbull, as the 29th Australian Prime Minister after four changes in just over five years, may suffer from the perception that Australian Prime Ministers do not enjoy longevity in office. A former journalist, lawyer and businessman, Turnbull was elected to the Commonwealth Parliament in 2004 in the inner metropolitan Sydney seat of Wentworth.
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 Turnbull is also a former Australian Republican Movement chairman. 
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Cherelle Murphy is co-head of Australian Economics, ANZ Research and can be contacted <a href="https://bluenotes.anz.com/authors/our-economists/" target="_blank">here</a>.
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Tax reform needed from Malcolm Turnbull's leadership: ANZ's Cherelle Murphy

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Research from Queensland University of Technology has discovered a little-known infrastructure tax that, when the cost is passed on by developers, can potentially add more than $130,00 to the price of a new home.
QUT property economics lecturer Dr Lyndall Bryant said house prices in Brisbane increased an average of $3.95 for every $1 of infrastructure charges levied to property developers.
He said in fast-growing areas governments don't have the funds to build all the infrastructure new housing estates need and existing communities refuse to pay for it by way of higher rates and taxes. The infrastructure charges are levied at the time of developmental approval. 
"Property developers claim it is uneconomical for them to pay these charges and pass them on to homebuyers, making new houses unaffordable for many," he said.
"In Queensland the maximum infrastructure charge for a new three or more bedroom house was set at $28,000 in 2011. My research found that the 'over-passing' ratio for new house prices is 469%, and 356% for existing houses.
"Applying the 2011 maximum infrastructure charge, this suggests the price of a new house increases by as much as $131,320 and the price of an existing house by $99,680. This means that this one government charge could add nearly $1,000 a month to the average 30 year mortgage."
The study covered infrastructure charges on 27,752 house and 13,739 lot prices in Brisbane from 2005 - 2011.
"This study suggests the current policy of infrastructure charges is an inefficient tax that adversely affects housing affordability, with homeowners ultimately paying many times the actual cost of the urban infrastructure, with the banks being the winners, benefitting from the increases to mortgage payments," he said.
"The rate of over-passing of the charges, which were effectively a tax, was far higher in Australia than had been observed in the United States."
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Little-known infrastructure tax sending Brisbane property prices soaring

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The ACT Government has recommitted to its long term plan to abolish conveyance duty paid on homes.
ACT Chief Minister Andrew Barr, in the submission to the House of Representatives Standing Committee on Economics Inquiry into Home Ownership, highlighted taxes as one of the key issues. 
"We consider that competition in demand for housing from investors is an area for further consideration. We note the benefits of investment in terms of increasing supply, which helps overall affordability. However it can also impact on opportunities for first homebuyers to enter the market.
"The ACT Government's role is outlined in the Affordable Housing Action Plan (AHAP), which commenced in 2007. The Plan, now in Phase III, includes 94 objectives aimed at making housing more affordable for all Canberrans. It has been a key contributor in responding to housing demand and providing a welcome economic boost to the Territory.
"Data from the 2011 Census shows that in the ACT, the rate of the home ownership is 60%, with 87,700 of the 145,500 homes either owned or in the process of being purchased. Of the remaining dwellings, there are around 30,250 private rentals and 9,500 public properties."
As shown in the table, the proportion of investment housing relative to owner-occupied housing is 26%.
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"The Government has a long term plan to abolish conveyance duty paid on homes. This will make homes more affordable to more Canberrans, by significantly reducing the upfront costs for homebuyers. 
"It will also encourage greater turnover of properties, which leads to a better allocation of housing stock."
 
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ACT Government calls for home conveyance duty to be scrapped

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Compass Housing Services, a community-housing group currently managing 3,500 properties housing 5,700 tenants in NSW, as well as another 850 properties in Queensland, stated in its submission to the House of Representatives Standing Committee on Economics Inquiry into Home Ownership in Australia, that home ownership will soon only be available for those in the top tax bracket. 
"In the case of Sydney, where already stretched prices have increased by 33% in the last three years alone and the median house prices is fast approaching the million dollar mark, it would be fair to say we are already there. 
"The percentage of Australians aged 25-34 who own their homes (either outright or with a mortgage) has dropped by 17% over the last 25 years. The 35-44 year age bracket has also seen a big fall with just 62% now counting themselves as home owners compared with more than 75% in the early 1980s."
Another change has been the amount of debt households are taking on in order to buy a property. 
"Between 1987 and 2013, Australia’s household debt per person has increased from under $20,000 per person to almost $80,000 per person with more than three quarters of that debt tied up in the domestic property market, an increase of 50% since 1990. 
"A lack of affordability for first home buyers can place additional strain on the rental market which in turn can increase demand on social housing or homelessness services. 
"To plug the affordability gap between social housing and the private rental market, most states offer alternative, less intensive forms of housing assistance. In most states, low-income households struggling to pull together the bond for a rental property can access interest free loans from the state government. 
"It is estimated around 20% of all households in Queensland’s rental market rely one of these loans in order to secure their tenancy."
Tax Policy Impact
"The Australian Council of Social Service has reported more than half of geared investors are in the top 10% of the income scale and 30% earn more than half a million dollars a year. 
"Similarly, the Australia Institute has reported that 55% of the benefits from capital gains tax (CGT) discounts and negative gearing flow to the top 10% of income earners while households in the lower half of the income range receive only about 20 per cent of negative gearing benefits and less than 8% of capital gains benefits.
"If this data is correct, it would seem that while advantageous to certain sections of the community, the current tax treatments have played a major role in concentrating home ownership in the hands of fewer Australians."
Compass Housing Services believes that the lack of affordability is partially a consequence of "well- intentioned tax concessions" and the current tax policies favour investors over first home buyers.
"Data from the Australian Bureau of Statistics indicates less than 10 per cent of home loans to investors are used to construct new housing with the overwhelming majority simply used to purchase established dwellings. 
"Compass urges that a due and proper independent assessment of the current tax system that enables access to benefits to more younger Australians, while boosting supply of new dwellings should be conducted and the government respond accordingly. 
"Compass recommends the reintroduction of a revamped National Rental Affordability Scheme with more stringent controls on eligibility to ensure the benefits flow to those for whom they’re intended. 
"Compass recommends the committee consider legislative options to encourage greater superannuation industry investment in new residential property or affordable housing schemes. 
Compass Housing Services named three key benefits of greater outsourcing of social housing provision.
Additional human services and tenant development opportunities 
"Would allow community housing providers like Compass to help the movement of some social housing tenants into the private rental sector and home ownership, thereby releasing old social housing stock for redevelopment or sale with monies raised reinvested in the provision of greater numbers of new and more appropriate dwellings."
Stock transfer 
"Secondly, following UK experience, we know that significant stock transfer creates the opportunity for organisations to become major agents in housing supply. As capacity and confidence develops, a wider range of human and support services emerge to support tenants. 
"Additionally, favourable borrowing conditions for social housing, not-for-profit organisations encourage entry into direct building of social housing as well as the supply of local infrastructure including schools and medical facilities." 
Innovative funding arrangements for community-housing providers 
"Finally, community-housing providers are able to enter innovative funding arrangements with private sector partners, often through the creation of special purpose vehicles (SPVs). 
"SPVs can bring important capital sources to the social housing market and involve major home building agents within a framework in which the community provider manages tenancies and provides human services and tenant support systems."
 
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Home ownership may be limited to the top tax bracket: Compass Housing Services

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GUEST OBSERVER
If you look at the efficiency of the GST – in other words, the amount of economic activity that is destroyed for every dollar you raise – the Government’s latest tax discussion paper says it is just as inefficient a tax as the income tax. It’s much less equitable though. The income tax is paid disproportionately by those further up the distribution and the GST hits those down the bottom. – Andrew Leigh, Shadow Assistant Treasurer, <a href="https://www.andrewleigh.com/the_gst_is_inefficient_and_inequitable_so_why_raise_it_rn_drive" target="_blank">interview</a> with Patricia Karvelas on RN Drive, July 20, 2015.
There are two parts to the Shadow Assistant Treasurer’s statement. In the first part, he simply cites a Treasury report that shows that the GST is as efficient – or inefficient – as the income tax. The second part states that the GST is less equitable as “the income tax is paid disproportionately by those further up the distribution and the GST hits those down the bottom.”
A spokesperson for Dr Leigh said:
In terms of data supporting the statement, I’d refer you to p.25, chart 2.9 of the government’s <a href="https://bettertax.gov.au/files/2015/03/TWP_combined-online.pdf" target="_blank">Re:think tax discussion paper</a>. This shows that the GST and flat rate labour income tax have an equivalent marginal excess burden, according to Treasury modelling.
What do economists mean by an efficient tax?
There are both direct and indirect costs associated with raising taxes. Direct costs include those that are incurred in the collection of the tax. While direct costs are not insignificant (the Australian Taxation Office employs over 20,000 people), economists consider the indirect costs of taxation to be more relevant. These relate to the distortions that a tax creates.
For example, a tax on apples raises the price of apples to consumers and importantly makes apples relatively more expensive than say oranges. This will lead to consumers buying fewer apples and perhaps more oranges. While the government raises revenue in this process, the tax distorts the behaviour of consumers with possible impacts on the production of oranges and apples.
The efficiency loss is the reduction in welfare, usually measured in dollars, from a consumer buying fewer apples than what she would like to because of the tax, and also any distortions in production.
Is the GST as efficient (or inefficient) as the income tax?
To apply this idea in the current context, an income tax will reduce the remuneration of a worker, relative for example to other non-remunerated activities such as leisure.
Thus, in theory, an income tax could impact on one’s decision of how much to work (or whether to work at all). The GST, however, raises all prices except for goods and services not subject to it.
There lies the conceptual reason for the GST to have a similar impact than an income tax; individuals care not about the dollar amount they receive as wages but rather about the goods and services that they can purchase from their wages over their lifetimes, including savings and bequests.
Let me illustrate this with an example. Here I assume that there is no borrowing or saving, a flat income tax of 10% and a broad-based GST of 11.11%. Consider an individual on a $50,000 income. After paying taxes, she has $45,000 left to spend on goods and services. In this case, $50,000 expenditure on goods and services would include GST of $5,000. That is, both taxes would allow the consumption of $45,000 of goods and services and, as a result, should lead to similar behavioural impact and distortions.
This theoretical argument is borne out by <a href="https://www.treasury.gov.au/~/media/Treasury/Publications%20and%20Media/Publications/2015/Working%20Paper%202015%2001/Documents/PDF/TWP2015-01.ashx" target="_blank">Treasury modelling</a>. Chart 33 from the report is reproduced below. It estimates the “marginal excess burden” (MEB) of different taxes.
The MEB is measure of efficiency loss that captures the decrease in the future ability to spend across the economy per dollar of revenue raised from a tax. These estimates are derived using a long-run economic (computable general equilibrium or CGE) model where households are captured by a representative economic unit.
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<a href="https://62e528761d0685343e1c-f3d1b99a743ffa4142d9d7f1978d9686.ssl.cf2.rackcdn.com/files/89446/area14mp/image-20150723-22849-1anubmx.png"><img src="https://62e528761d0685343e1c-f3d1b99a743ffa4142d9d7f1978d9686.ssl.cf2.rackcdn.com/files/89446/width668/image-20150723-22849-1anubmx.png" alt=""></a>
The chart reports the marginal excess burden of a number of taxes including a stylised personal income tax (represented by a flat rate), a stylised tax on labour income only and the GST. An out-of-model calculation for a marginal tax rate of 25% is presented as an illustration of an average taxpayer in 2011-12. As it can be seen in the chart above, the MEB estimates for the GST and the stylised income tax are nearly identical.
Is the GST less equitable than the income tax?
To answer this question, I need to define a couple of simple terms.
A tax system is regressive if the tax paid, as a fraction of income, decreases with income. A common view of the GST, reflected in the Shadow Treasurer’s statement, is that poorer households pay proportionally more than do richer households. Conversely, a tax system is progressive if the tax paid, as a fraction of income, increases with income. By design, the income tax rate faced by individuals in Australia increases with their income.
The table below uses a survey of households undertaken by the Australian Bureau of Statistics (ABS) to shed light on this question. It shows the average amount of GST, taxes and net income per income quantile for the 2009-2010 financial year. Net income includes pensions, family tax payments, and other benefits, and excludes tax paid on income. As expected, the income tax is clearly progressive. The amount of GST as a fraction of gross income varies considerably less across most of the income distribution, although it is overall decreasing, with the exception of the lowest quintile who pays a much higher fraction of their gross income as GST. Taxes and GST paid as a percentage of average weekly household gross income per income quantile (2009-2010).
However, looking at the fraction of GST paid and income may be misleading as incomes are volatile and spending can be smoothed via borrowing and savings. To take this into account, I report below the amount of GST paid as a fraction of total expenditures, which is likely a better measure of the level of spending that households can sustain. Once again, the lowest quintile pays substantially more GST as a fraction of expenditures, but there is a small variation for the other groups.
Verdict
The Assistant Shadow Treasurer is correct that the efficiency of the GST as a tax is similar to that of income tax. He is also correct that the income tax is more progressive than the GST and that the GST hits disproportionally those in the bottom of the income distribution.
However, while technically the data above suggests that the GST is a regressive tax, the difference between the fraction of income or expenditures paid in the form of GST is small amongst the various quantiles of the income distribution, with the exception of the poorest.
Review
I concur with the comparative distribution effects of the GST and personal income tax.
In the case of relative efficiency effects, because the income tax in practice falls on capital income as well as labour income and because it has a progressive rate schedule, it has additional distortion costs to those assessed with a flat rate tax on labour income considered in the FactCheck.
First, income tax applies to <a href="https://www.wisegeek.org/what-is-capital-income.htm">capital income</a> (for example, stock dividends) as well as to labour income. Capital income tax distorts aggregate saving versus current expenditure decisions. The hybrid Australian capital income taxation of different saving options distorts the composition of savings between one’s home, other property, bank deposits, superannuation and so forth.
Second, while the GST has a flat rate of 10%, the income tax rate schedule is a progressive one with marginal rates from zero to 49%. With efficiency costs increasing more than proportionately with the tax rate, a progressive tax rate generates larger distortions on average than a flat rate tax.
Accepting the comparative efficiency and distribution effects of the GST and income taxes, most sensible suggestions for taxation reform which involve a more comprehensive base and/or higher rate GST to reap efficiency gains from a tax mix change also propose that some of the GST revenue gain be recycled as higher social security rates and a lower but more progressive income tax rate schedule to maintain the effective purchasing power of the poor.
John Freebairn is professor, Department of Economics at University of Melbourne and an author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/john-freebairn-90" target="_blank">here</a>.
 
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Is the GST as efficient but less equitable than income tax? Factcheck

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Negative gearing is a very controversial issue. The latest round of debate stems from the Reserve Bank’s submission to the House of Representative Standing Committee on Economics regarding the enquiry into home ownership. The Bank believed that “there is a case for reviewing negative gearing”.
Treasurer Joe Hockey promptly responded to again rule out any change of the tax policy on negative gearing. In particular, it was reported that he claimed that removing negative gearing would create “an exception to a standing rule in taxation law”.
Is negative gearing in accordance with well-established tax rules? A fundamental principle in the tax law is that a taxpayer should be able to deduct expenses only if the expenses have been incurred to generate assessable income.
This is why an employee can only deduct expenses that are sufficiently related to work. For example, a funeral director at tropical Queensland would be able to deduct the cost of his black jacket (but not his black trousers) because the ATO believes that no rational person – except a funeral director – would wear a black jacket in such a hot place.
Should mortgage interest on an investment property be deductible? Investment properties generate two kinds of income: rental income and capital gains (if any). As capital gains on investment property can enjoy a 50% tax discount if the property has been held for at least a year, strictly speaking only 50% of the interest expenses related to the capital gain should be deductible.
In practice, it is impossible to predict whether there will eventually be a capital gain, and also impossible to predict the amount of the gain. This presents the key difficulty in the design of the tax policy on negative gearing.
Allowing full deduction of the interest expenses every year effectively allows deduction of expenses that may be incurred to generate the tax free portion of the capital gain (if any), and therefore may violate the fundamental tax principle for deductions. However, how can the Australian Tax Office (ATO) determine how much of the interest expenses should be disallowed every year before the investment property is actually sold?
Many countries resolve this issue by quarantining losses on investment properties. It means that losses generated from negative gearing cannot be used to offset against other sources of income, for example, salaries or business income. Instead, the losses can be carried forward to future years to offset against income from the investment properties.
This policy is fair in the sense that the same tax principle for deductions applies to both taxpayers with and without negative gearing. Many countries adopt this quarantine policy, including major developed countries such as the US, the UK, France and Japan.
Some countries have even stricter tax rules on investment properties. For example, China allows a fixed 20% deduction of the rental income, and the Netherlands tax property investors on a deemed yield rate of 4% on the value of the properties. In other words, these countries do not allow deduction of any tax losses on investment properties at all.
Australia’s current tax policy on negative gearing seems overly generous when compared to both groups of countries. More importantly, it is not fair to taxpayers who do not have negative gearing. The policy effectively subsidies negative geared property investors through the tax system.
The Reserve Bank concluded its submission to the enquiry into home ownership by rightly stating that “policy should not unduly advantage property investors at the expense of prospective owner-occupier home buyers … tax and regulatory frameworks should avoid encouraging over-leveraging into property”.
Of course, the negative gearing issue is complex and highly political. The ATO’s Tax Statistics for 2012-13 showed that taxpayers claimed a total of $12 billion tax losses from investment properties, and almost 1.3 million taxpayers had negative gearing.
The sheer number of taxpayers currently enjoying the benefit of negative gearing dictates that it will demand strong political will and leadership before a politician is willing to propose changes to the current tax rule on negative gearing.
Even if the government is bold enough to change the rule, careful consideration has to be given to transition rules to cater for the existing taxpayers that have negative gearing. This is a story for another day.
Antony Ting is associate professor at University of Sydney and also an author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/antony-ting-117958" target="_blank">here</a>.
 
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