The draft ruling provides further clarity on how existing principles apply to build-to-rent (‘BTR’) developments, determining the status of occupants, and the characteristics of hostels and boarding houses.

Supply of BTR leases & status of occupants

The draft ruling provides further clarity on determining if BTR developments are residential or commercial residential premises, namely if the accommodation supplied is similar to a hotel, motel, inn, hostel or boarding house for the purposes of s195-1 (a) of the GST Act.

Several findings of a new example (Example 12A) contained in the ruling outline key criteria to be considered in determining if a BTR development is residential accommodation:

• The apartments are self-contained with bedroom, bathroom, kitchen and living facilities.
• The building includes communal spaces and amenities available to all occupants, including dining area, gym, laundry facilities etc. No shared meals or communal kitchens are provided to occupants.
• Apartments are rented to occupants on a long-term basis. Occupants have the right to quiet enjoyment of the apartment with management having limited reasons and must give reasonable notice under the lease agreement to access occupants’ apartments.

Where the above characteristics are found in an accommodation, the accommodation will not be deemed to be commercial residential premises.

This is on the basis that the nature of the accommodation is permanent, the occupants obtain exclusive possession of their self-contained apartment in the same way as a tenant, and the accommodation does not provide additional services to the occupants that a hotel would, for example.

Paragraphs 188A – 188G of the ruling provide further detail on the rights and enjoyments of a tenant compared to a guest, namely the right of exclusive possession.

Hostels & boarding houses

While the draft ruling namely provides clarification relating to BTR developments and status of occupants, it also provides updates and further clarity on the characteristics of hostels and boarding houses.

In relation to hostels, the ruling provides that while a hostel may serve as an occupant’s principal place of residence for a period of time, the occupancy is generally non-permanent or transient in nature. The hostel is used for a limited time or limited purpose (e.g. student hostel provides temporary residence during period of education) and there is no right or expectation of permanent residence.

Furthermore, the ruling provides that hostels generally have shared facilities, however, the degree of shared facilities may vary. Some hostels may only provide shared kitchen and toilet facilities, while others may provide shared sleeping, toilet, and ablution facilities.

In relation to boarding houses, the ruling includes that even if premises may meet the definition of a boarding house under specific state or territory legislation, this alone does not determine whether the premises are, or are considered similar to, a boarding house.

As such, it is imperative that the premises is determined to meet the characteristics of a boarding house as per GSTR 2012/6, and the definition of a boarding house in state or territory legislation is not solely depended on.

How SW can help

While the ATO has provided further clarity on distinguishing accommodation as residential or commercial, the application of these principles is highly fact dependent. There is no ‘one size fits all’ approach, and each accommodation should be reviewed on a case-by-case basis.

SW’s indirect tax specialists have extensive experience in advising on accommodation. If you would like to explore how the draft ruling may affect your current or planned accommodation arrangements, or if you require tailored guidance on any aspect of the ruling, please reach out to your SW advisor. Our team is ready to help you navigate these changes with confidence.

Contributors

Dylan Kelly

Robert Parker

William Zhang

The post Build-to-rent developments: ATO draft updates to GSTR 2012/6 appeared first on SW Accountants & Advisors.

This guide provides a clear, side-by-side comparison of BTR definitions, tax concessions, and access requirements across all Australian jurisdictions. If you’re planning a BTR project or need help navigating the rules, get in touch with our property tax experts for tailored advice and strategic support.

How can SW help?

We have helped clients navigate the complexities of the BTR scheme and determine their eligibility requirements. As specialists in property funds and property development, we provide strategic tax advice to support the success of your project.

The post Build to Rent | State Taxes comparison appeared first on SW Accountants & Advisors.

The legislation has passed both houses of parliament and will apply to eligible BTR developments to:

• increase the depreciation rate from 2.5% to 4% for capital works that commenced after 7:30pm 9 May 2023
• reduce the MIT WHT tax rate from 30% to 15% from 1 July 2024 for amounts referable to rental income or capital gains. This will align the MIT WHT rate with commercial property (i.e. office, retail and industrial). 

The higher 30% MIT WHT rate was a major impediment to foreign investment in the BTR sector. This legislation should help boost foreign investment in the BTR sector with the PCA announcing that it could deliver 80,000 new homes over the next 10 years.

Key impact of recent amendments

The key points from the recent amendments to the Bill that have been incorporated into the final legislation are:

• It will apply for all eligible BTR developments even if they existed prior to 9 May 2023. This was an important change and ensures that those businesses pioneering BTR have not been left high and dry
• A minimum lease period of 5 years must be offered to tenants (tenants can request shorter periods)
• BTR misuse tax will apply to the entity that owns the BTR development immediately before that development ceased to be an active BTR development ensuring the appropriate owner bears the liability
• The lease terms are to be determined by the Minister by legislative instrument
• The definition of an affordable dwelling will be determined by the Minister by legislative instrument

Key features of legislation

The key features of the BTR MIT legislation are:

Dwelling features

For our original release on the BTR legislation and more details on the various State BTR regimes please click here.

How SW can help

We are specialists in property funds and property development and can provide valuable advice on your projects.

The post Build-to-Rent Managed Investment Trust legislation passed appeared first on SW Accountants & Advisors.

The SW Property & Infrastructure team are at the forefront of key changes and impacts related to BTR and the proposed legislation. Our submission to Treasury will cover all the noteworthy intricacies that will have long term ramifications on the BTR sector as detailed below.

Legislation will not be backdated

It is disappointing that the legislation will not be back dated for the small number of BTR pioneers that commenced construction on projects before 9 May 2023. These projects will be subject to the 30% Managed Investment Trust (MIT) Withholding Tax rate (WTR) imposed on residential property which may leave these small number of assets stranded and as these properties will not have concessional BTR MIT WHT treatment they will be more difficult to sell.  

BTR projects are anticipated to be predominately funded by large offshore investors who already have exposure to this asset class internationally.

Key points

Who’s eligible?

BTR developments must meet the following eligibility criteria:

• The development’s construction commenced after 7.30pm on 9 May 2023. Unfortunately, the Government has stuck with the original start date for the legislation.
• The development consists of 50 or more residential dwellings made available for rent to the general public.
• The development continues to be owned by a single entity, at any one time, for at least 15 years. BTR developments can still be sold during the 15 year compliance period as long as the dwellings in the BTR development continue to be owned by a single entity. The 15 year period does not reset if the BTR development is sold to another entity.
• Dwellings must be offered for lease terms of at least 3 years (unless a shorter term is requested by the tenant)
• At least 10% of the dwellings in a BTR development must be offered as affordable dwellings throughout the 15 year compliance period.

Does this reduce ‘Red Tape’?

The Government’s promise of cutting red tape and planning hurdles to attract more institutional investment in the housing sector seems inconsistent with the legislation’s complexity. The new rules appear more difficult to satisfy than most of the State BTR land tax concessions (as indicated in the below analysis).

• The Government has imposed a requirement to include 10% affordable tenancies in BTR developments. 
• In an active BTR development, there will likely be different types of dwellings with different sizes, total floorspace and different amenities: number of bathrooms, number of bedrooms, etc.
• The owner of the BTR development must make at least one of each apartment or dwelling types available as an affordable dwelling, that is dwellings of comparable size and amenities.
• This is to prevent a BTR owner from allocating only the lowest standard dwellings in a development as affordable dwellings, that is the lowest total floorspace, least number of bedrooms, least number of bathrooms etc.  

Use of foreign capital now requires an affordable tenancy component

A number of the state land tax concessions do not require an affordable tenancies component. Therefore, this will now need to be factored into the rental profile of BTR developments in NSW, VIC and WA where they are looking to fund developments using foreign capital.

15 year compliance period

As the 15% MIT WHT rate is only available for 15 years, the concession is not very beneficial considering the long-term nature of BTR developments and is not consistent with the original announcement that did not mention any restriction on the period of the lower 15% MIT WHT rate. 

All other commercial property held by a MIT is broadly subject to a 15% MIT WHT rate during the duration of the asset holding period by the MIT so it unclear why such a restriction has been imposed on the BTR sector.

Comparison with State BTR regimes

The following table summarises the key features comparison of NSW, Queensland, Victorian and Western Australian BTR land tax concessions.  There are also BTR exemptions for South Australia, Tasmania and ACT.

Get in touch

Should you have any questions regarding the new BTR MIT legislation or would like to contribute to our submission on this issue please contact either Abi, Stephen or Matt.

The post Build to Rent investment legislation released, designed to ease Australia’s housing shortfall appeared first on SW Accountants & Advisors.

On Sunday 10 December, the government announced property tax changes to penalise overseas investors buying homes which are left vacant as well as cutting tax for Build-to-Rent investors. The reform is a bid to increase housing supply, however the effectiveness of these measures to address the broader housing crisis remains open to debate.

Increased costs for foreign buyers

From 2024, foreign investors purchasing established Australian homes will face tripled application fees.

Currently, the application fee charged to foreign investors for buying established homes in Australia is calculated on the property’s value. For instance, properties priced between $1m and $2 m incur an application fee of $28,200. This rises to  a maximum of $1,119,100 for residential acquisitions of more than $40 million.

Additionally, if these properties are left vacant, the investors will incur an equivalent amount as a vacancy fee. 

The tripling of application fee effectively is a six-fold increase in total fees (application plus vacancy fees) for properties bought since 9 May 2017. A vacant property costing between $1m to $2m will have an application fee of $84,600 and an annual vacancy fee of $84,600.

The new measures specifically target established dwellings, encouraging foreign investors to focus on new housing developments. This shift is intended to stimulate the construction sector, creating jobs and contributing to economic growth.

Incentivising ‘Build-to-Rent’ projects

To promote investment in new housing stock, the government is reducing application fees for Build-to-Rent projects. From 14 December 2023, the application fees for Build-to-Rent projects will be set at the lowest commercial rate – irrespective of the nature of the land involved. This initiative aims to make Australia’s foreign investment framework more consistent and attractive for long-term rental housing developments.

However, it’s important to note that this is in contrast with the proposed Federal thin capitalisation changes. Thin capitalisation involves tax reforms to ensure multinational companies pay their fair share, focusing on entities funded by high levels of debt over equity. For the latest update on the proposed changes, we have recapped the Thin Capitalisation rules.

Enhanced compliance measures

To strengthen the enforcement of its new property investment rules, the government is significantly increasing funding for the ATO. This aims to ensure strict adherence to the new regulations by foreign investors. A key regulation is the requirement for foreign nationals to sell their Australian properties upon leaving the country unless they have secured permanent residency.

This commitment to enhanced enforcement goes beyond merely introducing new rules; it reflects a concerted effort to effectively monitor and enforce compliance. Foreign nationals are typically barred from purchasing existing properties. This approach underscores the government’s dedication to addressing the complexities of the housing market and ensuring the integrity of its foreign investment framework.

The new foreign investment rules primarily impacts foreign investors, with increased fees and stricter compliance requirements. The construction industry may see growth from incentivised new housing projects. Australian residents, particularly those seeking affordable housing, could benefit from these changes. Real estate developers involved in Build-to-Rent projects are likely to gain from lower fees, encouraging investment in this sector. The repercussions of these changes are thus widespread, affecting various stakeholders in the property market.

Get in touch with SW

Get in touch with our property experts to learn more about how these new regulations affect you.

In light of these proposed changes, we encourage all stakeholders in the Australian property market to stay informed and actively engage with the evolving landscape. For further updates, insights, and guidance on navigating these new regulations, be sure to follow us on LinkedIn.

Contributors

Rahul Sanghani

The post New foreign property investment rules to combat housing crisis appeared first on SW Accountants & Advisors.

According to the budget papers, for eligible new BTR projects where construction commences after 9 May 2023, the government will : 

• increase the depreciation rate from 2.5 per cent to 4 per cent per year; and 
• reduce the withholding tax (WHT) rate for eligible fund payments from managed investment trusts (MIT) to foreign residents on income from eligible BTR properties after 1 July 2024 from 30 to 15 per cent, subject to further consultation on eligibility criteria. 

These proposed tax changes address a key contentious issue between the BTR industry and government, being that the current MIT WHT rate hits foreign investors twice what they would pay on other eligible property assets. With the MIT tax rate to drop from 30% to 15% from 1 July 2024, the BTR sector will be aligned with other commercial property sectors (i.e office, retail and industrial) and is likely to boost foreign investment in the BTR sector. 

The proposed changes have been welcomed by the Property Council of Australia (PCA) and the Urban Development Institute of Australia (UDIA), both long-time advocates of the industry.

These proposed changes are a welcome first step, although the GST impediments for BTR projects is still to be addressed. We also need to wait for the final legislation to see what is going to be considered a BTR project.  Most State governments have already flagged tax concessions for BTR projects (refer below). However, each State has introduced different regimes and have different definitions of BTR.   

We would hope that the Federal Government’s BTR definition is the least restrictive, and would ensure that if a BTR project qualifies for State tax BTR concessions, that the project will also be eligible for the 15% MIT Withholding Tax (WHT) rate.   

Other considerations 

It will also be important to ensure that the BTR project is structured carefully to ensure that the Trust is not a trading trust (making it ineligible to be a MIT). For example, where BTR developments are structured in such a way to meet the definition of commercial residential premises for GST purposes (so that GST credits can be claimed), there is a risk that the operations may be considered a trading trust.  

State Tax changes 

In addition to the proposed federal tax concessions, there are tax concessions available for BTR developments at the State and Territory level. The most recent State to introduce BTR relief is Western Australia, who introduced new land tax relief for eligible BTR developments on 17 May 2023. We have summarised State and Territory BTR concessions in the table at Appendix A. which we have summarised in the table at Appendix A. 

Greenlight for expanding concessional rate for clean building MITs 

The Federal Budget has also extended the clean building concessional MIT WHT rate of 10% to data centres and warehouses, where construction commences on and after 9 May 2023. The reduced WHT rate will apply from 1 July 2025.  

This measure will also raise the minimum energy efficiency requirements for existing and new clean buildings to a 6-star rating from the Green Building Council Australia or a 6-star rating under the National Australian Built Environment Rating System. 

A MIT will be a clean building MIT where the income is not tainted with income from other assets that are not reasonably incidental. For example, a single MIT cannot hold both a clean building and other non-clean buildings. For MITs that are considering constructing or developing new energy efficient office buildings, shopping centres, hotels, data centres or warehouses, it is important to ensure that you utilise the most appropriate structure to utilise the 10% WHT rate. 

How can we help? 

If you are considering a BTR development or a clean building MIT, we can assist with determining the appropriate structure and provide advice on relevant tax considerations.  

Contributors

Ned Galloway

Eric Lay

Appendix A 

¹ Section 70J, Land Tax Act 2005 (Vic). 
² Section 70K, Land Tax Act 2005 (Vic). 
³ Section 5CA, Land Tax Act 1956 (NSW). 
⁴ Build to Rent – Treasury (act.gov.au) 
⁵ Tax concessions to drive investment into affordable housing – Ministerial Media Statements 
⁶ Queensland Build-to-Rent Pilot Project – Queensland Treasury 
⁷ Exemptions, waiver or relief | RevenueSA 
⁸ Media statements – New land tax relief to bolster Western Australia’s rental market

The post Build-to-Rent Tax Incentives to accelerate Australia’s housing supply and promote sustainable real estate development  appeared first on SW Accountants & Advisors.

SW’s James Ye (叶嘉) and Robert Parker will be joining experts Mark Dawson (Urbis), Sean Ryan (Greystar) and Meg Lee and Eugene Chen (Hall & Wilcox) at the next Hall & Wilcox property sector event in Melbourne.

Global players in the market are already turning their eyes towards Victoria and investing heavily.

The panel will discuss:

• The BTR tax concession
• Learnings from approved BTR projects
• How to present a BTR project for planning approval.

Event details

The post Build-to-Rent and Windfall Gains Tax panel discussion appeared first on SW Accountants & Advisors.

Co-hosted with Bridgestone Property Group and Align Law, our experts discussed:

• Commercial real estate market update and recent transactions
• Windfall gains tax
• Build to Rent Concessions

Your guides online

James Ye Director, SW	Robert Parker Consulting Director, SW	Chao Zhang Director, Stonebridge Property Group
Amber Li Property Law Principal, Aglin Law	Barnaby McIlrath Planning & Environment Counsel, Align Law

The post Victorian Property & Tax update appeared first on SW Accountants & Advisors.

Build to Rent (BTR) projects which will in turn ensure Victorians have access to more rental homes and a greater range of housing options.

BTR Benefits will be introduced to promote Victorian BTR projects. The BTR Benefits will comprise of:

• A 50% reduction in land tax for eligible BTR projects;and
• Exemption from Absentee Owner Surcharge for eligible BTR projects.

Both benefits will be available for a period of up to 30 years.

The concessions will only apply to eligible BTR developments. A BTR development is one or more buildings that are constructed or substantially developed for the purpose of providing multiple dwellings for lease under residential rental agreements.

An eligible BTR development must meet the following requirements for a continuous period of 15 years from the occupancy date:

• It must provide for at least 50 self-contained dwellings
• It is owned by the same owners
• It must be managed by a single management entity (except affordable housing or social housing projects)
• It must be suitable for occupancy after 1 January 2021 and before 1 January 2032; and
• It must be rented or available for rent under a residential rental agreement. The tenant must have an option of at least a 3 year fixed term rental but may elect a shorter term.

The owner of the land must apply to the Commissioner for the BTR Benefits.

A land owner must notify the Commissioner within 30 days if it has claimed a BTR Benefit and there is a change in circumstance that results in the land no longer being eligible. The land owner may then be liable for BTR special land tax which effectively claws back the concessions for all prior years together with interest.

The BTR benefits are largely similar to the concessions introduced in NSW with one noticeable difference being that the Victorian concessions do not provide an exemption from the Foreign Purchaser Additional duty. Instead, landowners will need to specifically apply for an exemption for this additional duty if applicable.

What action needs to be taken?

The BTR concessions are only available to eligible projects. A review should be undertaken of proposed projects to determine eligibility.

How SW can help

Our team can assist with this review and the application to the Commissioner. Reach out to one of our property experts below for support.

Get in touch

Matt Birrell

E mbirrell@sw-au.com

Abi Chellapen

E achellapen@sw-au.com

James Ye

E jye@sw-au.com

Robert Parker

E rparker@sw-au.com

The post Victorian Build to Rent Concessions introduced appeared first on SW Accountants & Advisors.

In August 2020, the NSW Government introduced certain tax concessions for approved Build to Rent (BTR) schemes in New South Wales, being;

• A 50% reduction in the value of the land for the purposes of calculating land tax (Land tax concession);
• A refund or exemption from surcharge land tax for an Australian corporation where an approved BTR property has been constructed on the land or the Commissioner is satisfied that such a building will be constructed (Surcharge land tax exemption); and
• A refund or exemption from the foreign purchaser additional duty where an Australian corporation purchases residential land for the purpose of constructing an approved BTR property that qualifies for the land tax concession (Surcharge transfer duty exemption).

The 3 exemptions / concessions are interrelated as the Surcharge land tax exemption and the Surcharge transfer duty exemption depend upon the land satisfying the Land tax concession once the building is completed.

The Land tax concession and Surcharge land tax exemption apply to residential land owned by an Australian corporation at midnight on 31 December in any year commencing with midnight on 31 December 2020 and ending with midnight on 31 December 2039.

However, if within the period of 15 years after a refund or concession is first applied, the land concerned is subdivided or the ownership of the land is ‘otherwise divided’ then the exemptions and concessions may be revoked, and reassessments issued retrospectively for up to 15 years as if the exemptions or concessions never applied.

The Surcharge land tax exemption and Surcharge transfer duty exemptions apply only to an Australian corporation, which is a corporation incorporated or taken to be incorporated under the Corporations Act 2001.

Such a corporation may nevertheless be a ‘foreign corporation’ if it is subject to foreign control.

It is not apparent whether an Australian corporation acting as a trustee of a trust may be exempted.

In addition, the term may not include bodies incorporated under other Australian legislation (such as an incorporated association, a co-operative society or a statutory body).

Land Tax Concession

For the purpose of assessing land tax, the land value of a parcel of land is to be reduced by 50% if—

a) a building is situated on the land, and

b) construction of the building commenced on or after 1 July 2020, and

c) the Chief Commissioner is satisfied that a significant proportion of the labour force hours spent on the construction of the building involves or involved work performed by persons whom the Chief Commissioner considers belong to any one or more of the following classes of worker—

  i. apprentices or trainees,

  ii. long-term unemployed workers,

  iii. workers requiring upskilling,

  iv. workers with barriers to employment (such as persons with disability),

  v. Aboriginal jobseekers,

  vi. graduates, and

d) the Chief Commissioner is satisfied that the building is being used and occupied for a BTR property in accordance with guidelines approved by the Treasurer for the purposes of this section, and

e) an application for the reduction is made in accordance with the requirements.

The Treasurer has now released the guidelines for the land tax reduction for BTR properties.

The purpose of the concession

The Guidelines state the purpose of the concession as follows:

• The purpose of this tax concession is to address one of the barriers to the institutional provision of rental services and, by doing so, improve the rental experience for tenants. By limiting the benefit to new developments, this measure is expected to help support new construction.
• The concession is expected to support the supply of large-scale rental housing that are professionally owned and managed, and that provide tenants with greater security of tenure and greater quality rental services than that typically offered by small retail investors.

Eligibility

A building (including a group of buildings or parts of buildings on the same parcel of land) must satisfy the following conditions in order to be considered as used and occupied for a BTR property:

1. Planning requirements

1. • All requirements of the relevant development consent must be complied with.
2. Building requirements
   • 50 self-contained dwellings: At least 50 self-contained dwellings used specifically for the purpose of BTR must be constructed on the parcel of land;
     • Dwellings can be spread across multiple buildings on the same land parcel.
     • Where an adjacent site is consolidated with a land parcel that already qualifies for the concession, and the adjacent site provides additional BTR dwellings to the property, the additional dwellings do not have to separately meet the 50-dwelling threshold of Requirement 2a. as these dwellings will be added to the total number of dwellings on the original land parcel.
     • Where an adjacent site is not consolidated with a land parcel that already qualifies for the concession (e.g. by remaining as a separate adjacent land parcel), eligibility for the concession will be determined separately and the 50-dwelling requirement will be applicable.
   • Affordable housing policies: properties must comply with all relevant affordable housing policies that may be imposed under the Environmental Planning and Assessment Act 1979;
     • Note that these concessions and exemptions form part of a larger reform package which includes new state environmental planning policies under the Environmental Planning and Assessment Act 1979 to promote the development of new affordable housing and social housing.
   • Available to general public: BTR dwellings must be made available to the general public without restriction;
     • This is subject to any restrictions necessary to ensure public health and safety, to promote announced Government policy, or to ensure dwellings designated for affordable or social housing are used for that purpose.
3. Ownership structure
   • Unified Ownership structure: The dwellings and common land that comprise the BTR property must be held within a unified ownership structure;
     • This can include a group of entities holding joint ownership.
     • The property must not be held in such a way as to constitute, in the opinion of the Chief Commissioner, a de facto subdivision or divided ownership of the land, or otherwise contrary to the intention to restrict subdivision or division of the land.
4. Management structure
   • Single management entity, with on-site access: The dwellings that comprise the BTR property must be managed by a single management entity, with on-site access to management for tenants;
     • This does not apply if those specific dwellings are made available for use as affordable housing or social housing for a continuous period of 15 years.
     • The management entity can be different to the landholder. That is, the landholder may outsource the provision of the management services, provided that the services are delivered by a single entity.
5. Lease conditions
   • Option for fixed term lease of at least 3 years: Each tenant must be provided a range of lease term choices, including a genuine option to enter into a fixed term lease of at least 3 years;
     • A landlord will not be in breach of this condition if a tenant who has been provided the option of a fixed term lease of at least 3 years opts for a lease of a shorter duration instead.
     • Each tenancy must be subject to a Residential Tenancy Agreement under the Residential Tenancies Act 2010. The requirement for tenants to be offered a Residential Tenancy Agreement likely means that the concessions will not be available for various types of “commercial residential premises” (such as rooming houses, serviced apartments, student accommodation and similar arrangements where residents are granted a licence to occupy their accommodation.
6. Other factors
   • The Chief Commissioner may have regard to any other factors that he or she considers relevant in deciding whether a property is being used for BTR

If a part of a parcel of land is used for purposes other than BTR purposes, the value of land tax concession may be reduced on a proportional basis.

The Guidelines suggest that floor space and area may provide a reasonable basis of apportionment.

How ShineWing Australia can help

Should you be interested in accessing these concessions please contact your ShineWing Australia advisor regarding how you can lodge an expression of interest of interest in the BTR Concessions with Revenue NSW.

Contacts

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