Federal Parliament has introduced draft legislation to address the rental affordability crisis by incentivising investment in build-to-rent (BTR) housing developments. The draft legislation consists of the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 and the Capital Works (Build to Rent Misuse Tax) Bill 2024.
BTR housing is intended for long-term residential tenancies which are owned and controlled by institutional investors. They are managed similarly to strata schemes but cannot be sold or subdivided at a later stage. Currently, BTR housing accounts for approximately 0.2 per cent of Australia's property market.
Tax concessions
At present, if a managed investment trust (MIT) receives income from a BTR development, the income will be subject to a withholding tax of 30 per cent when paid to a foreign resident. If the proposed legislation is passed, the final withholding tax will be reduced to 15 per cent, providing a clear incentive for developers to invest in BTR schemes.
Further, the draft legislation proposes to increase the capital works deduction rate from two and a half per cent to four per cent per year, allowing developers to claim a higher deduction from their taxable income related to BTR developments.
To be eligible for the concessions, the BTR development must:
- be wholly owned by a single entity for 15 years
- include at least 10 per cent affordable dwellings (being dwellings at 74.9 per cent of the market rent or less)
- have commenced construction after 7.30pm AEST time on 9 May 2023
- consist of 50 or more dwellings available for lease by the public for at least three years.
If a BTR tax concession is claimed but the development subsequently becomes ineligible within the 15-year compliance period, the tax benefit will be recouped under the Capital Works (Build to Rent Misuse Tax) Bill 2024. The reduced tax rate will continue to apply beyond the 15-year compliance period if the BTR development remains eligible.
Implications to consider
Land development organisations should consider the eligibility requirements for any BTR developments commenced since 9 May 2023, and evaluate the feasibility of diversifying their portfolios to include BTR projects to capture these benefits. Property developers, government landowners and commercial landowners should also consider how the proposed BTR tax incentives could influence and guide investment in future BTR housing schemes. We encourage interested parties to seek specialised taxation advice to ensure they comply with the various ATO-related requirements.
Holding Redlich holds extensive expertise across its national taxation, property and development teams. If you would like to discuss the impact this legislation may have on your organisation or have questions regarding this article, please get in touch with a member of our team below.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.