Home Property Australia Government releases draft legislation for build-to-rent tax changes

Government releases draft legislation for build-to-rent tax changes

  • April 10, 2024
  • by Property Australia
Treasurer Jim Chalmers

The Australian Government yesterday released an exposure draft of legislation that would give effect to a measure announced in last year’s Budget, intended to stimulate the supply of new build-to-rent (BTR) housing.

For projects that began construction after 7:30 PM (AEST) on May 9, 2023, the government is implementing significant changes.

Firstly, there will be a reduction in the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30 to 15 per cent. 

Additionally, the rate for the capital works tax deduction will be increased to four per cent per year, up from the previous rate of 2.5 per cent.

The tax incentives apply to BTR projects, consisting of 50 or more apartments or dwellings, made available for rent to the general public.

The dwellings must be retained under single ownership for at least 15 years and a minimum 10 per cent of dwellings in a development need to be made available as affordable tenancies.

The Treasurer Jim Chalmers said BTR is a model that has been used successfully overseas to increase housing supply.

“This is all about more homes for home buyers, more homes for renters and more homes for Australians who are doing it tough.”

2023 modelling from EY, commissioned by the Property Council, showed that implementing a 15 per cent managed investment trust (MIT) withholding rate, without an affordable housing mandate, could lead to the creation of 150,000 apartments by 2033.  

Further EY research showed lowering the MIT withholding tax rate to 10 per cent for BTR projects with an affordable housing component could accelerate the delivery of 10,000 affordable homes over 10 years on top of those 150,000 rental homes. 

Property Council Group Executive Policy and Advocacy Matthew Kandelaars said technical details of the draft legislation will make or break the delivery of these new homes and to achieving our national housing target.  

“The enormous potential of a 150,000-apartment pipeline hangs in the balance and there’s only one chance to get this legislation right,” Mr Kandelaars said.  

“Affordable housing is a crucial part of a broader housing mix, which is why we proposed an additional model that would protect the pipeline of 150,000 BTR apartments and deliver a further 10,000 affordable rental apartments at no extra cost to the taxpayer. 

“The purpose of reducing the managed investment trust withholding rate from 30 to 15 per cent – which we welcomed – was to ensure that build-to-rent projects were put on a level playing field with other asset classes.  

“Even with the best of intentions, drafting missteps could risk the delivery of high-amenity, securely tenured homes backed by the institutional capital that’s critical to deliver the homes our nation desperately needs.   

“The Property Council is reviewing the details of the legislation and will work with the government to ensure it delivers on its potential to create 150,000 rental homes and an additional 10,000 affordable rental homes,” he said.