Joss Engebretsen
Barwon Investment Partners says the proposed changes announced in the Federal Budget would be a net positive for the Barwon Disability Accommodation Fund (BDAF) and the broader Specialist Disability Accommodation (SDA) sector.
Joss Engebretsen, Portfolio Manager of BDAF points to three areas where the announced measures, if legislated, work in the fund’s favour.
The proposed removal of the 50 per cent CGT discount on established residential property, and the restriction of negative gearing to new builds will change where investor capital flows. Barwon estimates tens of billions in annual investment previously directed to established, negatively geared housing may need to find a new home.
SDA is well placed to receive some of that capital. SDA properties that are well located, and strongly occupied are cashflow positive and receive substantial depreciation benefits. This means income distributions have very low, or even nil, taxable components in the early years.
The 30 per cent minimum trust tax announced in the budget applies to discretionary trusts only.
Joss Engebretsen said “The proposed changes in the budget will change the numbers on investing in established residential property for a lot of investors.
“Should they be legislated, the capital that was going to negatively geared housing must go somewhere else. SDA offers investors access to cashflow positive properties supported by government-sponsored, inflation-adjusted rents, and high depreciation benefits that retain much of the tax advantages held before these changes offering an increasingly attractive after-tax return compared to other investments.
He added, “BDAF is a fixed unit trust, and so the new minimum tax on discretionary trusts does not apply at the trust level here. Given very high proportion of tax-deferred income in our quarterly distributions, investors were already in a good position, and that has only become more attractive if these measures go through parliament. The budget headlines around trust taxation are not our story.”
The Government’s NDIS reforms target community participation spending and participants with higher functional capacity who can live more independently and have lower reliance on the NDIS overall.
Neither area touches the SDA cohort. In a recent National Press Conference, Minister Butler outlined a series of measures to make the NDIS more sustainable for who it was originally intended.
In post briefing Q&A highlighted that accommodation support for participants, amongst other essential services provided to those with extreme functional impairment and very high support needs, were not the focus of these measures.
SDA is approximately 1 per cent of total NDIS expenditure and operates on a separate funding track. The participants it serves are those with the most significant and permanent disabilities, and are not the target of eligibility tightening. Unmet demand for SDA nationally currently exceeds 9,500 places.
Barwon has argued for some time that the SDA sector is safer under a more financially sustainable NDIS than under one which has ongoing political pressure from unchecked cost growth. The Government’s commitment to bringing expenditure growth from 10 per cent per annum to 2 per cent over four years, while explicitly protecting the highest-need cohort, is consistent with that view.
