New legislation to introduce tax incentives for BTR developers

As part of the Albanese government’s ambitious goal to build 1.2 million new homes by 2029, draft legislation has been released to introduce tax incentives for build-to-rent developments.

According to the Treasury, the build-to-rent model has been “successfully used overseas to increase housing supply” and is specifically designed to be rented out rather than sold to individual buyers.

The new bill will make amendments to the Income Tax Assessment Act 1936, 1997 and 1953. Under the bill, the improved incentives for investors include increasing the capital works deduction rate from 2.5 per cent to 4 per cent and reducing the final withholding tax rate on fund payments from eligible managed investment trust investments from 30 per cent to 15 per cent.

The tax incentives will apply to build-to-rent projects that consist of 50 or more apartments or dwellings and are made to rent to the general public.

Furthermore, the dwellings must be retained under single ownership for at least 15 years, while a minimum of 10 per cent of dwellings in a development need to be made available as affordable tenancies, the Treasury confirmed.

These incentives apply to eligible new projects that commenced construction after the policy’s announcement in last year’s budget (7:30 pm AEST, 9 May 2023).

The new legislation is set to operate separately from state and territory initiatives designed to support the build-to-rent sector.

The joint media release with Treasurer Jim Chalmers and Minister for Housing Julie Collins stated: “Attracting more investment into housing will support our ambitious national effort to build 1.2 million new, well‑located homes over five years from 1 July 2024.

“Industry estimates that changes to promote build‑to‑rent investment will make an important contribution to achieving this national target and could see an extra 150,000 rental homes built over the next decade.

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

“For a long time, we haven’t been building the homes that Australia needs and the former government wasted nearly a decade in office while these problems only got worse.”

According to the Treasury, the Albanese government has committed over $25 billion in new housing investments over the next 10 years, and will maintain ongoing cooperation with all levels of government to "ensure more Australians have a safe, secure and affordable place to call home".

"We have a plan to kickstart the construction of more homes, to attract more institutional investment, to cut red tape and planning hurdles, to help more Australians into home ownership, to support renters, and to help those who need a safe home the most."

Reacting to the announcement, the Property Council of Australia said the tax settings of the draft legislation are "critical" to achieving the 1.2 million homes target.

Property Council Group executive policy and advocacy, Matthew Kandelaars, said the technical details of the draft legislation will "make or break" the delivery of these new homes.

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

“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," Kandelaars said.

This announcement came after a report released by the Real Estate Institute of Australia (REIA) found that the government’s build-to-rent initiatives were set to “fall well short” of the budget 2023 projections.

REIA president Leanne Pilkington said the report delivered “mixed results” for the outlook of the topical asset class.

Housing supply concerns continue to be front of mind for many as Australia’s property organisations have vocalised their concerns to the Albanese government.

The latest Building Approvals data released by the Australian Bureau of Statistics (ABS) revealed another drop in total dwellings approved during February, following a 2.5 per cent decline in January.

The Treasury stated it welcomes further feedback on the draft legislation before 22 April 2024.

[RELATED: Build-to-rent ‘insufficient’ in addressing housing supply: REIA]

Adrian Suljanovic is a journalist at Broker Daily with more than two years experience reporting on all facets of the third party distribution channel.

Adrian has written for a range of business and finance titles including IFA, Investor Daily and Lawyer’s Weekly before joining the mortgages team in 2022.

He graduated from the University of Wollongong in 2021 gaining a Bachelor of Communication & Media with a major in Digital & Social Media.

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