As of 1 January 2025, new incentives for Build to Rent (BTR) developments are available as part of the Federal Government’s “Homes for Australia” plan to increase housing supply. An initial set of affordability standards for BTR developments has also been established.
New incentives
The new incentives are:
- Faster depreciation: For new eligible BTR developments (ie, those that commenced after 7.30pm AEDT on 9 May 2023), the capital works deduction rate has been increased from 2.5% to 4%. The change shortens the depreciation period for construction costs from 40 years to 25 years.
- Lower withholding tax: The withholding tax rate for eligible fund payments from managed investment trusts (MITs) will drop from 30% to 15% for income generated by eligible BTR developments.
Accessing the incentives
To access the incentives, a BTR development needs to meet all the eligibility criteria and must notify the ATO of the choice to make the development an active BTR development by lodging the approved form (NAT 75663).
To be eligible to access the initiatives, the BTR development must:
- be made up of 50 or more residential dwellings available for rent by the general public;
- be taxable Australian real property and residential premises not commercial residential premises;
- be owned by a single entity for at least 15 years (can be sold to another single entity and remain able to access the incentives);
- be tenanted by way of a lease for a period of 5 or more years;
- have at least 10% of the dwellings available as “affordable dwellings” and the number of comparable non-affordable dwelling is greater than or equal to the number of comparable affordable dwellings.
If the development fails to meet these criteria in the 15-year compliance period after electing to be an active BTR development, the misuse tax may apply. The misuse tax is the total of the capital works deduction and BTR withholding amounts and aims to recover tax incentives claimed during the compliance period.
What is an “affordable dwelling”?
The first stage of the affordability standards set out the requirements for an “affordable dwelling”. The discounted rent for the “affordable dwelling” should be 74.9% or less of the market rate of a dwelling of comparable size and standard (eg general condition including number of bedrooms, floor area, cooling, cooking facilities etc; inclusions like carpets or blinds, or access to a gym/pool in the development; and location). Tenants also need to meet the following income thresholds when signing or renewing the lease, or when the situation changes (eg an adult moves in or out; or if there are no longer any dependent children living in the dwelling):
- single adult: taxable income less than 120% of average annual earnings;
- two or more adults, no dependent children: combined taxable incomes of less than 130% of average annual earnings; and
- family (one or more adults and one or more dependent children): taxable income (combined for a couple) less than 140% of average annual earnings.
What’s next?
The next tranche of the affordability standards for BTR developments will be developed by the Government in consultation with stakeholders, and are expected to include:
- requiring community housing organisations to be involved in managing affordable dwellings;
- stopping BTR operators from including no-fault eviction clauses in tenancy agreements; and
- ensuring a proportion of affordable dwellings in a development are reserved for lower income earners.
More information about the Build to Rent incentives and eligibility criteria can be found on the ATO website.
