Affordable Housing Incentives

The 2017 Budget (9 May 2017) announcements contained measures designed to improve Australians’ access to a home at affordable cost.

The measures include:

Capital Gains Tax

From 1 January 2018, for resident individuals investing in qualifying affordable housing, the CGT discount is increased from 50% to 60%. The additional 10% prorated based on periods of qualifying use.

Residents are otherwise taxed at their marginal rate.

Non-residents continue to be ineligible for any CGT discount, but are eligible (subject to qualifying conditions) for concessional withholding tax rates on investment income through an MIT.

Managed Investment Trusts

From 1 July 2017 MITs can acquire, construct or redevelop property to hold for affordable housing and still be eligible for tax concessions.

Non-resident MIT investors

The non-resident concessional final withholding tax rate on all investment returns (income and capital gains) is 15%.

However the rate will be 30% for

  • non-residents of non-recognised information-sharing countries
  • capital gains earned through MITs which do not make affordable housing available for at least 10 years
  • all income and gains in any year in which MIT does not earn at least 80% of income from affordable housing

Further information

Comparison of key features of new law and current law (source: Explanatory memorandum)

New lawCurrent law
Individualsdirect investment: additional 10 per cent capital gains discount
Individuals are generally entitled to a 50 per cent discount on capital gains for assets held for at least 12 months.

Individuals also are entitled to an additional capital gains discount of up to 10 per cent for capital gains on such assets to the extent they are attributable to capital gains on dwellings used to provide affordable housing for a period or periods totalling at least three years.

Individuals are generally entitled to a 50 per cent discount on capital gains for assets held for at least 12 months.
Individualindirect investment through trusts and MITs: additional 10 per cent capital gains discount
Individuals are generally entitled to a 50 per cent capital gains discount on capital gains that are distributed or attributed to them directly or through an interposed entity from a trust or MIT (if the trust or MIT is entitled to a discount capital gain).

Individuals are also entitled to an additional capital gains discount of up to 10 per cent on capital gains:

* that are distributed or attributed to them directly or through an interposed entity from a trust or MIT; and

* to the extent they are attributable to capital gains on dwellings used to provide affordable housing.

However, the trust or MIT must have used the dwelling to provide affordable housing for a period or periods totalling at least three years.

The interposed entity or trust may be a trust or partnership (other than a public unit trust or superannuation fund).

Individuals are generally entitled to a 50 per cent capital gains discount on capital gains that are distributed or attributed to them directly or through an interposed entity from a trust or MIT (if the trust or MIT is entitled to a discount capital gain).
Providing affordable housing
A dwelling is used to provide affordable housing if the following conditions are satisfied:

* residential premises condition — the dwelling is TARP and is residential premises that is not commercial residential premises and is tenanted or available to be tenanted;

* property management condition — the tenancy of the dwelling or its occupancy is exclusively managed by an eligible community housing provider;

* providing affordable housing certification condition — the eligible community housing provider has given each entity that holds an ownership interest in the dwelling certification that the dwelling was used to provide affordable housing;

* National Rental Affordability Scheme (NRAS) condition — no entity that has an ownership interest in the dwelling is entitled to receive an NRAS incentive for the NRAS year; and

* MIT membership condition— if the ownership interest in the dwelling is owned by a MIT the tenant does not have an interest in the MIT that passes the non-portfolio test.

Not applicable.

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This page was last modified 2017-12-25