The Turnbull Government is ensuring more Australians have access to secure and affordable housing, a key priority of the Federal Budget announced in May.
Today, the Government is releasing draft legislation to implement critical elements in our comprehensive housing affordability plan for Australians including:
- enabling investors to obtain a 60 per cent capital gains discount in affordable rental housing;
- enabling managed investment trusts (MITs) to invest in affordable housing; and
- clarifying that from 4:30pm AEST 14 September 2017 MITs cannot acquire residential property, other than affordable housing.
From 1 January 2018, residents investing in eligible affordable housing will be entitled to a capital gains discount of up to 60 per cent if they hold the investment for at least three years, rather than the standard 50 per cent discount.
From 1 July 2017, MITs can hold affordable housing for the purpose of deriving long-term rent. The same MIT will also be permitted to derive other eligible investment business income from investments including shares or commercial property.
The draft legislation also clarifies that MITs will be able to construct or develop the affordable housing property within the MIT. This will provide further incentive for MITs to invest in affordable housing projects.
Consistent with current MIT withholding tax rules, eligible foreign residents will generally be able to take advantage of a reduced withholding tax of 15 per cent on investment returns, including income from capital gains. This concessional rate will not apply to capital gains income derived from selling affordable housing held for less than 10 years.
To qualify for the higher CGT discount and MIT concessional tax treatment, affordable housing tenancy will need to be managed by a registered Community Housing Provider. As part of this, housing providers will determine the tenant eligibility criteria, including the rent charged, consistent with state and territory affordable housing policies.
The draft legislation released today also includes an integrity measure which clarifies that, from today, MITs cannot acquire investments in residential property, except where it is affordable housing. This will prevent MITs from investing in houses, units and apartments to hold for long term rent (other than affordable housing).
This change provides legislative clarification of the long-standing convention that the primary purpose of the MIT concessional tax treatment is to apply to passive investment income. This change is crucial to maintaining the integrity of the tax base and will help direct foreign investment to where it’s needed most.
MITs currently holding residential property will be provided with a transitional period until 1 October 2027, for their existing property assets.
The Government encourages interested stakeholders to make a submission on the draft legislation. The exposure drafts and details of the consultation process are available on the Treasury website.