Property Council warns against further tinkering with offshore investment rules

Property Council of Australia chief executive Peter Verwer has warned the government not to introduce further changes to its withholding tax rules, which could create more uncertainty in the minds of institutional investors.

The withholding tax is charged on income paid to foreign investors who invest in managed schemes, many of which fund large infrastructure and property projects in Australia.

Last year, the government doubled the tax rate on distributions from 7.5% to 15% for all buildings in managed schemes, except those constructed after July 1 with a five-star energy rating, where a 10% tax rate has been implemented.

Verwer told Property Observer that the important thing was certainty amid concerns that government may tinker with the thin capitalisation regime – the debt side of institutional investments.

“There is the potential for them to make changes to the thin capitalisation regime, which would send a further negative signal to rest of the world and would complicate the ability of schemes to raise money internationally,” he said.

Currently, institutional investors can borrow up to 75% and take advantage of a favourable tax regime for this debt. The proposed changes would reduce the gearing threshold at which the thin-cap rules apply.

“International investors have been dismayed by the chopping and changing regime.

"They see Australia’s economic growth as attractive for long-term investment, but are dismayed at the ad hoc approach taken to taxing them,” he said.

Verwer said the PCA’s preference was for a single, low rate “that sends a clear message to the world”.