New Incentives for Build to Rent Developments Explained
As of January 1, 2025, the Federal Government has rolled out new incentives for Build to Rent (BTR) developments under the “Homes for Australia” plan. These incentives aim to increase housing supply by making BTR projects more attractive to investors. Along with these incentives, initial affordability standards for BTR developments have also been introduced.
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Key Incentives for BTR Developments
- Faster Depreciation
Eligible BTR developments (those that began after 7:30 PM AEDT on May 9, 2023) can now benefit from an increased capital works deduction rate of 4%—up from the previous 2.5%. This shortens the depreciation period for construction costs from 40 years to just 25 years. - Lower Withholding Tax
For income generated by eligible BTR developments, the withholding tax rate for payments from managed investment trusts (MITs) has been reduced from 30% to 15%.
Eligibility Criteria
To access these incentives, BTR developments must meet certain criteria and notify the Australian Tax Office (ATO) by lodging the approved form (NAT 75663). These criteria include:
- At least 50 residential dwellings available for rent to the general public.
- The development must be taxable Australian real property, specifically residential premises (not commercial).
- Ownership: The development must be owned by a single entity for at least 15 years (it can be sold to another entity and still qualify).
- The development must be tenanted by lease for at least 5 years.
- At least 10% of dwellings must be classified as “affordable,” with the number of non-affordable dwellings equal to or greater than the affordable ones.
If a development fails to meet these criteria during the 15-year compliance period, a misuse tax may apply. This tax will recover the capital works deduction and BTR withholding amounts claimed during the compliance period.
Defining an "Affordable Dwelling"
The first phase of affordability standards has been set. An “affordable dwelling” must meet these requirements:
- The discounted rent for the dwelling should be 74.9% or less of the market rate for a comparable property.
- Tenants must meet income thresholds when signing or renewing their lease:
- Single adult: Taxable income under 120% of the average annual earnings.
- Two or more adults, no dependent children: Combined taxable income under 130% of the average annual earnings.
- Families: Combined taxable income under 140% of the average annual earnings.
What's Next for BTR Developments?
The government plans to release the next set of affordability standards in consultation with stakeholders. These may include:
- Involving community housing organizations in managing affordable dwellings.
- Banning no-fault eviction clauses in BTR tenancy agreements.
- Ensuring that a portion of affordable dwellings are reserved for lower-income earners.
For more information on Build to Rent incentives and eligibility, visit the ATO website.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.