Introduction
The Federal Budget has placed a strong emphasis on increasing
support for housing development to address the current housing
crisis by introducing over $6.2bn of new and additional spending on
social and affordable housing, new housing infrastructure, and rent
assistance, amongst others.
From a tax perspective, however, the Federal Budget was very
light on providing stimulus to increase investment in this area.
Whilst we expect the announced measures will impact unlocking
additional housing, we encourage the Government to engage in
further consultation with industry regarding the previously
announced Build to Rent (BTR) tax incentives. The initial Exposure
Draft legislation fell short in many key areas, which must be
addressed if the measures are to achieve the expected construction
of 150,000 additional apartments in the coming decade (per the
Property Council of Australia’s modeling).
Strengthening the foreign resident capital gains tax (CGT)
regime
regime
In the most significant corporate tax change, the Federal Budget
announced new changes to the foreign resident CGT regime, which are
intended to expand and clarify these rules. Treasury forecasts an
increase in taxation on foreign resident investors of $200m
annually from implementation ($600m in total).
The Federal Budget announcement noted that consultation will be
undertaken, which will permit affected businesses to have some say
in the complexities that will likely arise when implementing these
changes. A&M will contribute to these discussions.
The following three changes are expected to apply from 1 July
2025:
Other relevant Federal Budget measures
FIRB
The Budget reaffirms previously announced and welcomed changes
to Australia’s foreign investment framework, including:
- Refunding 75% of fees for foreign investment applications that
do not proceed because the applicant was unsuccessful in a
competitive bid; - Allowing foreign investors to acquire existing BTR properties
(subject to the property continuing to be operated as a BTR
development) and - Reducing FIRB fees for BTR properties (subject to the property
continuing to be operated as a BTR development).
In our view, the impact of the BTR changes will be dependent on
the final form of the BTR tax incentives.
PBSA
More detail has been provided on the role universities will play
in addressing the housing shortage by affirming that regulatory
requirements will be placed on universities to deliver new
purpose-built student accommodation (PBSA) in order to increase
their international student enrolments above their initial
allocation. New PBSA must be available to both local and
international students. Universities will need to partner with
external PBSA developers and operators to meet these requirements.
We recommend that providers engage early with universities to
ensure they are involved in the consultation process.
Thin Capitalisation
Disappointingly, the Federal Budget confirmed that the recent
amendments to the thin capitalisation regime exempted only
Australian plantation forestry entities from the earnings-based
test. Industry groups have called for Australian real property
entities to also be carved out from the new thin capitalisation
rules given the challenges these rules present to stimulating
investment into Australian housing by foreign resident
investors.
Originally published 19 May 2024
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
