Starting 1 January 2025, new incentives for Build to Rent (BTR) developments are available as part of the Federal Government’s “Homes for Australia” plan, which aims to increase the housing supply. Alongside these incentives, an initial set of affordability standards for BTR developments has been established.

New Incentives

The new incentives include:

• Faster Depreciation: For eligible new BTR developments (those that began after 7:30pm AEDT on 9 May 2023), the capital works deduction rate has been increased from 2.5% to 4%. This change reduces 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) has been reduced from 30% to 15% for income generated by eligible BTR developments.

Accessing the Incentives

To access the incentives, a BTR development must meet specific eligibility criteria and notify the ATO by lodging the approved form (NAT 75663) to elect the development as an active BTR development.

To be eligible for the incentives, the BTR development must:

• Be made up of 50 or more residential dwellings available for rent to 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 (the entity can sell to another entity and still retain access to the incentives).
• Be tenanted under a lease for a period of 5 or more years.
• Have at least 10% of the dwellings available as “affordable dwellings” with the number of comparable non-affordable dwellings equal to or greater than the number of affordable dwellings.

If these criteria are not met during 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, aiming to recover the tax incentives claimed during the compliance period.

What Is an “Affordable Dwelling”?

The first stage of the affordability standards outlines the criteria for an “affordable dwelling.” The discounted rent for an affordable dwelling should be 74.9% or less of the market rate for a comparable dwelling (similar size, standard, and condition, including aspects like number of bedrooms, floor area, and amenities).

Additionally, tenants must meet the following income thresholds when signing or renewing their lease or if their situation changes (e.g., an adult moves in or out, or no dependent children remain in the dwelling):

• Single adult: Taxable income less than 120% of average annual earnings.
• Two or more adults, no dependent children: Combined taxable income of less than 130% of average annual earnings.
• Family (one or more adults with one or more dependent children): Combined taxable income (for a couple) less than 140% of average annual earnings.

What’s Next?

The next phase of affordability standards for BTR developments will be developed by the Government in consultation with stakeholders. This is expected to include:

• Requiring community housing organisations to manage affordable dwellings.
• Preventing BTR operators from including no-fault eviction clauses in tenancy agreements.
• Ensuring that a portion of affordable dwellings is reserved for lower income earners.

For more information on Build to Rent incentives and eligibility criteria, visit the ATO website.