Federal Government passes legislation on build-to-rent tax concessions

Legislation on build-to-rent tax concessions

The legislation to enact the tax concessions for eligible BTR developments now awaits Royal Assent before becoming law.

The legislation has three key elements:

increases the capital works deduction rate from 2.5 percent to 4 percent where construction has commenced on or after 9 May 2023;
reduces the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30 percent to 15 percent where such payments are made on or after 1 July 2024; and
introduces a potential claw back mechanism via a so-called ‘misuse tax’.

Key amendments

We have summarised below the key amendments that were enacted.

For a full summary of these measures visit KPMG Tax Now.

Eligibility for the MIT withholding tax concession

The eligibility for the MIT withholding tax concession has been extended to all BTR developments that satisfy the eligibility requirements, even if the development existed or construction commenced before 9 May 2023 (the date of the 2023/24 Federal Budget which announced the BTR concessions).

Multi-tiered trust structures

The carve out preventing multi-tiered trust structures from accessing the MIT withholding tax concession has been removed by limiting liability to pay the BTR misuse tax to the entity that owns the BTR development immediately before that development ceases to be an active BTR development. Consequently, the calculation of the BTR misuse tax has been adjusted.

Minimum lease period

The minimum lease period that must be offered to tenants has been extended from 3 to 5 years (this requirement does not apply if the tenant elects a shorter term).

Lease terms

Lease terms will be subject to satisfying requirements to be determined by the Minister by legislative instrument.

Definition of ‘affordable dwelling’

The definition of ‘affordable dwelling’ is subject to satisfying requirements to be determined by the Minister by legislative instrument.

Change of ownership

Both the acquiring entity of an ownership interest in an BTR development and the disposing entity must notify the Commissioner of the change of ownership interest within 28 days of the change of ownership event.

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