On April 9 2024, the Australian government released draft legislation and related explanatory materials dealing with two key tax concessions to encourage the construction of, and investment in, new build-to-rent (BTR) developments.
These new tax concessions were foreshadowed in the 2023–24 Australian Budget on May 9 2023 and are now subject to a consultation process, with submissions due on or before April 22 2024.
Build-to-rent tax concessions
The two key concessions to encourage investment in, and the construction of, BTR developments include:
Reducing the final withholding tax from 30% to 15% on eligible payments from managed investment trusts (MIT) for active BTR developments; and
Increasing the capital works tax deduction from 2.5% to 4% for active BTR developments.
The government’s priority is to incentivise the construction of new BTR developments to increase housing supply given the long-term trend of an increasing number of Australians renting rather than owning housing.
Active build-to rent developments
The five key conditions to be eligible for the BTR concessions, and thus be regarded as an active BTR development, are as follows:
The BTR development’s construction commenced on or after May 9 2023;
The BTR development consists of 50 or more dwellings made available for rent to the general public;
All the dwellings in the BTR development continue to be directly owned by a single entity for at least 15 years;
Dwellings must be offered for lease terms of at least three years throughout the 15-year period; and
At least 10% of the dwellings in the BTR development are offered as ‘affordable tenancies’ throughout the 15-year period.
Australian Treasury consultation
The government has commenced consultation, including with respect to the following two measures:
The minimum proportion of dwellings offered as ‘affordable tenancies’; and
The length of time dwellings must be retained under single ownership before being able to be sold (potentially 10 years).
Other issues
As expected, there are certain integrity-related provisions that will neutralise the relevant tax benefits where some of the qualifying conditions are not consistently met throughout the 15-year period, including the BTR development misuse tax.
Further reporting requirements are proposed related to tenancies; affordable tenancies; commencement, expansion, and change in direct ownership of BTR developments; and other related matters.
There does appear to be some flexibility with the single entity/single ownership retention condition(s), although these are subject to further consultation.
It is intended that the reduced MIT withholding tax concession will apply from July 1 2024.
