Overview

The build to rent (BTR) development tax incentives give owners and investors in eligible BTR developments access to:

• an accelerated deduction of 4% for capital works relating to BTR developments
• a concessional final withholding tax rate of 15% on eligible fund payments (amounts referrable to rental income and capital gains from the BTR development).

To access these incentives, the owner must first notify their choice to opt in by lodging the Build to rent development – notice of events (NAT 75663) approved form.

If a BTR development fails to meet the eligibility criteria in the 15-year period after making the choice, the misuse tax may apply.

Capital works accelerated deduction

The owner of a BTR development can claim a 4% deduction for capital expenditure incurred in constructing the development. This includes buildings, structural improvements and alterations.

To claim the capital works deduction, the activity must have a construction expenditure in that income year. The accelerated deduction is generally allowed once construction is complete and the owner notifies us of their choice to commence an active BTR development.

There are exceptions that allow eligibility to continue in some circumstances where a dwelling is not tenanted due to the construction of an extension, or an alteration or improvement to a dwelling or building.

Concessional withholding rate

A reduced withholding tax rate of 15% will apply to eligible fund payments made to a foreign resident of an information exchange country, from a managed investment trust (MIT).

A fund payment will not be MIT residential housing income (subject to a withholding tax rate of 30%) and can access the reduced withholding tax rate of 15% to the extent it is referrable to any of the following amounts:

• A payment of rental income under a lease of the dwelling within the build to rent development (dwelling).
• The amount is attributable to a capital gain from a CGT event in relation to the dwelling.
• The amount is attributable to or part of a capital gain from a CGT event in relation to a membership interest in the owner of the BTR development.

Accessing the incentives

To access the BTR development tax incentives:

• a BTR development must meet all the eligibility criteria below
• the owner must notify their choice for the development to be an active BTR development.

To access the accelerated deduction of 4%, construction of the BTR development must have commenced after 7:30 pm AEDT on 9 May 2023.

A MIT that owns an active BTR development can access the 15% concessional withholding rate, irrespective of when the development was constructed.

Eligibility criteria

• The BTR development consists of 50 or more residential dwellings made available for rent to the general public.
• The dwellings are residential premises, taxable Australian real property, and not commercial residential premises.
• The dwellings in the BTR development (and common areas that are part of the BTR development) continue to be owned by a single entity, for at least 15 years.
  • The BTR development can be sold during this period to another single entity and remain eligible for the incentives.
• Dwellings are tenanted or made available to the public to be tenanted by way of lease for a period of 5 years or more in accordance with any relevant legislative instrument.
• 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.

If a BTR development fails to meet any of these criteria in the 15-year compliance period, after making the choice, the misuse tax may apply.

15-year compliance period

The BTR compliance period starts from when a development commences to be an active BTR development and ends 15 years later.

If dwellings are added to a BTR development as part of an expansion, the 15-year compliance period starts when those dwellings are added.

Affordable dwelling

A dwelling will be an affordable dwelling if it satisfies the initial requirements determined by the Minister in the legislative instrumentExternal Link.

• The Government has announcedExternal Link these are initial standards and that it will work closely with stakeholders on the next tranche of affordability standards, including:
  • requiring community housing organisations to be involved in managing affordable dwellings
  • ensuring a proportion of affordable dwellings are reserved for lower income earners based on their household income.

Rules and legislative instruments

The Australian Government has announced that build to rent rulesExternal Link will be made, including to prevent no fault evictions and a second trancheExternal Link of affordability standards. More details will be provided once available.