It’s never been a better time to invest in affordable housing, now that the ATO has announced new tax incentives for investors who provide housing to people in the low- to moderate-income range. On 9 May 2017, the Australian Government opened up new possibilities for real estate investors to save money when tax time rolls around. Starting 1 January 2018, the Government will add a 10 more percentage points to the existing discount on capital gains tax (CGT) for Australian residents who invest in affordable rental housing, bringing the total discount to 60 percent.
How Investors Can Qualify for the CGT Discount on Affordable Housing
Housing investments must qualify for the discount and provide proof to receive the drop in tax rates. Tenants must have low to moderate incomes, depending on their household consumption as well as their household size and income. and landowners must charge a discounted rate compared to the going private rental market rate. A registered community housing provider must manage the properties, and investors must hold onto their properties for at least three years before the discount applies. The discounts will go through managed investment trusts (MITs).
NRAS Investors Must Wait Until NRAS Coverage Ends to Apply
Since investors who already have invested in affordable housing with the National Rental Affordability Scheme (NRAS) already get a yearly financial incentive, the new 10 percent CGT discount will not apply to them. Those investors must wait for NRAS coverage to end before they can apply for the CGT discount.
Existing Properties to Benefit from New CGT Discount
The new discount will not only apply to new housing but also to existing properties. Investors must, of course, make their property available to low- to moderate-income households. Starting 1 January 2018, such rentals will count toward the three years’ wait investors must have before they receive the discount. Existing housing whose owners rent to eligible tenants will then receive the CGT discount beginning 1 January 2021.
The discount will also apply to properties held in existing Managed Investment Trusts, provided the investors are all residents. Foreign residents, unfortunately, will not benefit from this provision in the law; however, the Government has loosened a few other restrictions in other statutes to encourage foreign residents, too, to provide affordable housing to low- to moderate-income tenants.
With this new discount on the horizon, investors should rush to buy suitable properties now so that they can get in on the ground floor of this opportunity. Not only can it be a savvy investment for one own’s portfolio, but it can also be a worthwhile investment for the community overall. As more opportunities for decent, yet affordable housing open up, it will stabilise communities all over the nation.
Talk to your Pherrus accountant to seek advice on the CGT discount and how it may affect you and your investments.