Government unveils tax incentive to build more affordable housing

The federal government has released draft legislation to implement its “comprehensive housing affordability plan for Australians”.

Under the plan, investors would be able to obtain a 60 per cent capital gains discount in affordable rental housing if they hold the investment for at least three years.

This change, which would take effect on 1 January 2018, would represent an increase on the standard 50 per cent discount.

The plan would also allow managed investment trusts (MITs) to invest in affordable housing.

Another measure would forbid MITs – as of today – from acquiring residential property other than affordable housing.

Housing must be managed by community providers

Since 1 July 2017, MITs have been able to hold affordable housing for the purpose of deriving long-term rent.

Today’s draft legislation has clarified that MITs will be able to construct or develop the affordable housing property within the trust.

The aim is to provide further incentive for MITs to invest in affordable housing projects.

To qualify for the 60 per cent capital gains discount and MIT concessional tax treatment, affordable housing tenancy must be managed by a registered community housing provider.

Housing providers would then determine the tenant eligibility criteria, including the rent charged, consistent with state and territory affordable housing policies.

Trusts now limited to affordable housing

The draft legislation also includes an integrity measure that clarifies that MITs can no longer invest in residential property other than affordable housing.

This integrity measure makes it clear that the primary purpose of the MIT concessional tax treatment is to apply to passive investment income.

The government said 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.

The public has until 28 September to comment on the government’s draft legislation.