New BTR tax incentives
As Australia grapples with a housing affordability crisis, the need for a solution is becoming increasingly important. The build to rent (BTR) sector is emerging as a potential part of the solution to alleviating the housing crisis.
New tax concessions in the BTR sector came into force on 1 January 2025, which are intended to incentivise construction of new BTR development to boost housing supply at scale and address the critical shortage of available rental stock in Australia.
The amendments were announced as part of the 2023-24 Federal Budget and, following an extensive consultation process, the legislation received royal assent on 10 December 2024.
Summary of new tax incentives
The updates include:
Increasing capital works deduction rate from 2.5% to 4% per year for eligible BTR developments. This includes buildings, structural improvements, and alterations. The capital works deduction is only available if construction began after 7:30 pm (AEST) on 9 May 2023;
Reducing the final withholding tax rate from 30% to 15% on eligible payments from managed investment trusts (MIT) for eligible BTR developments during the 15-year BTR compliance period. The MIT withholding tax reduction applies to all BTR developments, regardless of when construction began; and
The introduction of a misuse tax where the BTR development ceases to be an eligible BTR development during the 15-year period and continues to claim the concessions. The misuse tax aims to recover tax incentives claimed during that period.
What is an eligible BTR development?
To qualify for the concessions, the BTR development must satisfy the following eligibility requirements:
The BTR development consists of 50 or more residential dwellings made available for rent to the public. Notably, none of the dwellings can be commercial residential premises;
A single entity owns the dwellings in the BTR development and common property for at least 15 years. A BTR development can be sold to another single entity during this period and remain eligible for the incentives;
Lease terms of at least 5 years for all dwellings in the BTR development must be offered (although a tenant can request a shorter period) with the lease terms subject to requirements to be determined by the Minister; and
At least 10% of the dwellings are available as “affordable dwellings”. The number of comparable non-affordable dwellings is greater than or equal to the number of comparable affordable dwellings. The Minister will determine requirements relating to an affordable dwelling, which may include requirements on the rent payable and the income of the tenant.
Importantly, the concessions only apply to BTR developments that stay continuously eligible throughout the 15-year period and the single owner must notify the Australian Taxation Office of its choice to ‘opt in’ by lodging the approved form.
Impact of the amendments
These amendments come at a critical juncture, helping to remove barriers to investment from foreign investors. The amendments are expected to improve the commercial viability of BTR projects, encourage foreign investment, and subsequently increase housing supply.
However, it is still unclear whether these measures will be sufficient to make BTR developments commercially attractive, and whether developers and operators will find it financially viable to construct and manage these projects.
Briget O’Callaghan
Principal Lawyer
T 03 5225 5244 | M 0436 456 144
E bocallaghan@ha.legal
Evelyn Zeglinas
Associate
T 03 5225 5245
E ezeglinas@ha.legal
