Home Property Australia What are the tax settings for build-to-rent across the country?

What are the tax settings for build-to-rent across the country?

  • May 24, 2023
  • by Property Australia
Governments are looking at ways to increase investment in the burgeoning sector.

In the midst of mounting worries over housing strains throughout the country, governments across Australia have introduced new tax settings to spur investment in the burgeoning build-to-rent asset class.

So, what are some of the recent changes that have been announced?

National

On 28 April 2023, the Australian Government announced it would provide incentives to increase the supply of housing, by:

  • Reducing the withholding tax rate for eligible fund payments from managed investment trusts (MIT) attributable to residential build-to-rent projects from 30 per cent to 15 per cent. This measure will apply from 1 July 2024 for income attributable to newly built build-to-rent projects. Currently, foreign residents from an information exchange country are subject to a final MIT withholding tax rate of 30 per cent for income attributable to a residential property, including build-to-rent projects.
  • Increasing the capital works tax deduction depreciation rate for eligible new build-to-rent projects from 2.5 per cent to four per cent per year. This measure will apply to projects where construction commences after the Budget (9 May 2023) and will shorten the period that construction costs of eligible buildings are depreciated from 40 to 25 years.

Announced in the budget, these benefits will be applicable to build-to-rent properties that include a minimum of 50 residential units available for public renting. The ownership of these units must remain with a single entity for a minimum of 10 years, and each dwelling must offer a lease term of at least three years.

Queensland

In March, the Queensland Government announced it will slash land tax by up to 50 per cent for build-to-rent developments that feature at least 10 per cent of rental homes as affordable housing, driving more investment to deliver new rental supply.

The range of investment-attracting tax concessions for build-to-rent developments will include:

  • A 50 per cent discount on land tax payable for up to 20 years
  • A full exemption for the two per cent foreign investor land tax surcharge for up to 20 years
  • A full exemption from the Additional Foreign Acquirer Duty for the future transfer of a build-to-rent site.

These changes are set to take effect on 1 July 2023.

The Queensland Government has also been partnering with the development sector to deliver affordable rental housing through new build-to-rent developments.

The government has approved three Brisbane-based affordable build-to-rent housing projects to provide roughly 1,200 rentals, including 490 at discounted rentals.
New South Wales

Last year, the New South Wales government introduced a land tax discount for new build-to-rent housing projects until 2040.

Build-to-rent developments, the government announced at the time, will receive an exemption from foreign investor duty and land tax surchargers (or a refund of surcharges paid).

The buildings on a parcel of land must contain at least 50 self-contained dwellings used specifically for the purpose of build-to-rent.

Developers that subdivide within 15 years of receiving the concessions will be required to repay the benefit.

Victoria

Late last year, the Victorian government announced that from 1 January 2022 until 31 December 2031, eligible build-to-rent developments will receive a 50 per cent land tax concession for up to 30 years and a full exemption from Absentee Owner Surcharge over the same period.

Australian-based entities may also be eligible for a comparable exemption from the eight per cent foreign purchaser additional duty if the build-to-rent property is deemed to make a significant contribution to the housing stock supply in Victoria.

South Australia

Eligible build-to-rent developments receive a 50 per cent reduction in the land value of relevant parcels of land, where the land is being used as an eligible build-to-rent project.

The land tax reduction will be available from the 2022-23 financial year up to, and including, the 2039-40 financial year.

In cases where the build-to-rent property is deemed a significant development of new residential homes or the property owner is recognized as a significant developer, ex gratia relief may be granted regarding the seven per cent foreign ownership surcharge.

Western Australia

This month, the WA government introduced a build-to-rent bill into parliament to provide a 50 per cent land tax exemption for eligible developments for up to 20 years.

They must contain 40 self-contained dwellings, be owned by the same owner and be completed between 12 May 2022 and 1 July 2032.

Retrospective land tax would apply if an eligible build-to-rent development stops meeting the criteria within the first 15 years after the exemption is granted.