Build-to-rent tax concessions: exposure draft released

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On 9 April 2024, Treasury released for consultation its tax incentives package, announced as part of the 2023-24 Budget, for new Build-to-rent (“BTR”) developments.  This package forms part of the Government’s key policy of increasing housing supply across Australia by stimulating interest in the BTR sector.

The Treasury Laws Amendment Bill 2024: Build-to-rent developments provides the following draft measures:

  • Reduced withholding rate for Managed Investment Trusts (MITs), reduced to 15 per cent withholding tax rate from 30 per cent, on eligible distributions to foreign investors attributable to newly constructed residential BTR properties.
  • Accelerated depreciation for eligible new BTR projects from 2.5 per cent to 4 per cent per annum, where construction commences after 9 May 2023. This measure will allow expenses to be depreciated for tax purposes over a 25-year period, rather than the usual 40 years, accelerating the benefits.

Access to one or both BTR measures will be dependent on satisfying the following conditions:

  • Construction must have commenced after 9 May 2023 (2023-24 Federal Budget night)
  • The development must consist of at least 50 residential apartments or dwellings made available to rent to the general public
  • The dwellings continue to be owned by a single entity for at least 15 years before being sold (the entirety of the dwellings may be sold to another single entity during this period)
  • The dwellings must be offered for a lease term of at least three years, and
  • At least 10 per cent of the dwellings are offered as affordable tenancies (with the inclusion of income thresholds for these tenants).

The Capital Works (Build to Rent Misuse Tax) Bill 2024 introduces the key integrity feature of the scheme, whereby a ‘misuse tax’ is imposed if one or both tax concessions are wrongly claimed, and aims to clawback and neutralise any tax benefit where the BTR development ceases to be an active BTR development during the 15-year period.
Entities participating in BTR developments will be subject to a specific reporting mechanism, whereby they must notify the Commission of certain events and information when required.  
The BTR industry has been flagged as an important contributor in resolving the growing housing crisis in the country, however to date this asset class has been hindered by less favourable tax treatment and the ever increasing building costs and high interest rates. It is expected that the Governments increased focus on the BTR sector will promote growth in new dwelling numbers and accessibility for renters in the future. These proposed measures sees the federal government moving in the same direction as a number of the states, particularly Victoria and New South Wales have already, in offering concessions for eligible BTR projects.
We had previously discussed the complexities of rising rental costs, the importance of encouraging the BTR sector and how this impacts businesses and investors in our pre-2023 budget article: Coping with a dual shock: housing supply and rising rents. Despite numerous announcements around increasing supply since then, we are yet to see the rubber hit the road and a tangible increase in supply, so the rental and affordability crisis continues to bite for many. Given the Government’s commitment to increasing housing supply nationally, along with increased affordable housing, we expect this to be a consistent theme in the upcoming Federal Budget.
Consultation for these measures is open for submissions until 22 April 2024.
Should you wish to discuss this in more detail, please don’t hesitate to reach out to Anika Reside, Sian Sinclair or Yan Wong.

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