Tax Benefits for Investing in Affordable Housing

October 2017

Housing affordability is a push-button topic for many Australians and the Government is providing an increase in the CGT discount for investors in affordable housing.

The 2017-18 Federal Budget included a series of measures that were intended to improve housing affordability across Australia, including tax benefits for investors. Draft legislation is now complete and the detail has been released for scrutiny.

A 10% increase in the CGT Discount

There are two aspects to the changes announced in the Budget. Firstly, individuals who make a capital gain on residential property that is offered as affordable housing for at least three years after 1 January 2018 can potentially qualify for an additional CGT discount of up to 10%. The 3-year period does need to have been continuous.

This increases the standard discount to 60%. While the additional 10% CGT discount applies if you meet the eligibility criteria, the 60% discount rate is not automatic – it's 'up to' and the final total discount could be less than 60%.

The additional discount needs to be apportioned to take into account periods when the individual was a non-resident or temporary resident as well as periods when the property was not used to provide affordable housing over its ownership period.

The second aspect of the rules allows individuals to also access an additional 10% CGT discount on their share of capital gains that are distributed by certain trusts (e.g., managed investment trusts) where the gain is attributable to dwellings that have been used to provide affordable housing for at least 3 years. 

The compliance hoops

There are a few compliance hoops to jump through to be 'affordable housing': 

  • The property must be residential (not commercial)
  • The tenancy of the dwelling or its occupancy is exclusively managed by an eligible community housing provider;
  • 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;
  • No entity that has an ownership interest in the dwelling is entitled to receive a National Rental Affordability Scheme (NRAS) incentive for the NRAS year; and
  • If the ownership interest in the dwelling is owned by a Managed Investment Trust, the tenant does not have an interest in the MIT.

Get advice before you invest

Contact us on 02 9957 4033 for further information and to ensure you're both eligible and compliant with the CGT changes.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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