Revised build-to-rent tax concessions lay foundations to encourage housing investment

In accordance with their shared goals under the National Housing Accord, Australia’s Commonwealth and some State governments have introduced tax concessions which seek to incentivise the development of build-to-rent (BTR) projects to help achieve the agreed goal of building 1.2 million well-located homes over five years from mid-2024. 

Not all states and territories have introduced BTR concessions and those that have been introduced vary in some important characteristics. There have also been some important changes to these concessions announced in several 2026 state budgets. In this article, we highlight the key features of the existing federal and state concessions, outline recent policy changes and consider the implications for current and future investors.

Background

BTR is a system whereby a land owner retains ownership of a group of residential units, as opposed to selling them for a gain. Under this model, income is derived through a stream of rental income once construction of the units is completed. Investors looking to the residential housing market for a secure and steady source of income are often attracted to BTR projects. Accordingly, many of these incentives seek to promote institutional investment in this sector, particularly from foreign investors.

According to the Property Council of Australia, the recent Commonwealth BTR amendments will “unlock 80,000 new rental homes, including 8,000 affordable homes with 1,200 affordable homes immediately available through the inclusion of existing BTR projects”. These homes will be delivered over a 10-year period.

Commonwealth tax concessions

The Commonwealth has enacted legislation to introduce the following tax concessions for BTR developments:

• an accelerated deduction for capital works of 4 per cent over 25 years (instead of 2.5 per cent over 40 years); and
• a reduced withholding tax (WHT) rate of 15 per cent on eligible fund payments made to a foreign resident of an information exchange country from a managed investment trust (MIT) where the income is derived from a BTR development (instead of a 30 per cent WHT rate).

The accelerated deduction applies to projects commenced after 9 May 2023 and commences when construction is complete. In contrast, the reduced WHT rate applies from 1 July 2024 to all eligible projects (including existing projects commenced prior to 9 May 2023). 

The eligibility criteria for the concessions include that the project has a minimum of 50 BTR dwellings, a single owner holds the development for 15 years and 10 per cent of the tenancies are “affordable dwellings”. The Commonwealth requires BTR owners to offer a minimum five-year lease to tenants, in contrast to the states’ concessions’ criteria which include a minimum three-year lease requirement. However, an owner can ask the Commissioner to exercise his discretion to reinstate access to incentives where certain criteria (including among others, the lease term) are not satisfied. 

If the BTR development fails to meet any of the eligibility criteria in the 15-year period after notifying the Commissioner of an owner electing that the development is an active BTR development, misuse tax may apply. Misuse tax is the total of the ‘capital works deduction amount’ and the ‘BTR withholding amount’. A deduction is not available for misuse tax paid. Misuse tax will only apply to the owner who owned the development at the time of any non-compliance. Misuse tax is not payable after the 15-year compliance period. Instead, non-compliance is addressed through amended assessments.

State tax concessions 

BTR concessions are currently offered in Victoria, New South Wales (NSW), Queensland, South Australia (SA) and Western Australia (WA). No BTR concession is currently available in Tasmania, the Australian Capital Territory or the Northern Territory. 

Victoria, NSW and Queensland offer concessions in respect of ordinary land tax, surcharge land tax and surcharge purchaser duty. SA and WA, which do not impose surcharge land tax, offer only land tax concessions (i.e. no surcharge purchaser duty concessions are available). 

Victoria introduced a Commercial and Industrial Property Tax^[1] (CIPT) from 1 July 2024, which is imposed on certain properties in addition to ordinary land tax. Land that is eligible for a BTR benefit under the Land Tax Act 2005 (Vic) may also qualify for a reduced rate of CIPT of 0.5 per cent, instead of the ordinary CIPT rate of 1 per cent of the unimproved value of land. 

At the time of publication of this Insight, the SA regulations outlining the key criteria in relation to BTR developments had not been released.  

BTR tax concessions

Taxable value reduction threshold

NSW, Victoria, Queensland and SA each offer a reduction of 50 per cent of the taxable value of land for land tax assessments. In WA, for projects that become eligible to be lawfully occupied between 1 July 2025 – 30 June 2028, the exemption will increase from 50 to 75 per cent for the first three assessment years. After this, the threshold will revert to the original 50 per cent concession. 

Length of concession 

Victoria offers the BTR concession for up to 30 years, whereas Queensland and WA restrict the concession to a maximum of 20 years. NSW has just announced in its 2026 budget that from the 2026 land tax year, the land tax concession will apply indefinitely. Unfortunately, developments that are already receiving or have applied for the BTR land tax concession for the 2025 land tax year or prior are ineligible to receive the extended concession. Most jurisdictions require the BTR dwellings to be made available for rent by 2030 to 2032.

Minimum number of dwellings 

In NSW, Victoria and Queensland, each BTR development must have a minimum of 50 dwellings per property whereas in WA, the minimum is only 40 dwellings. 

Ownership and use requirements

Victoria, NSW and WA each require the development to be held for 15 years by a single entity. All jurisdictions allow the development to be sold in this time, but to be eligible for the BTR concessions during this 15-year period, the BTR development must be sold to a single owner. In WA, the Commissioner has a discretion not to enforce strict compliance with the 15-year period. Victoria has recently introduced a provision to allow the Commissioner to determine that land is eligible for BTR benefits despite any period for which a dwelling in a BTR development fails to satisfy certain occupancy requirements temporarily (e.g. due to damage by a fire). However, in NSW, the Commissioner does not have such a discretion. In Queensland, there is no 15-year ownership requirement but other rules such as a continuity of use rule apply. 

In Queensland, land must be used solely or primarily for an eligible BTR development – it can’t have a mixed use. Whereas in NSW, Victoria, SA and WA it is possible to carve off certain non-BTR aspects of the development. Like the Commonwealth’s affordable dwelling policy, Queensland has a requirement that at least 10 per cent of dwellings in the development must be occupied by eligible tenants under a discounted rent housing agreement. NSW, Victoria and WA do not impose any minimum affordable dwelling policies, however, the NSW guidelines state BTR properties must comply with any affordable housing policies that may be imposed from time to time. SA has flagged that it may introduce affordable housing regulations in the future. 

In Victoria, NSW, WA and Queensland student accommodation developments do not qualify for BTR benefits because those premises restrict leasing to students, rather than offering dwellings for lease to the general public.

NSW conditions

NSW has announced in its recent state budget that from the 2026 land tax year, it will extend the 50 per cent reduction in land value indefinitely (as opposed to ending the concession on 31 December 2039) and it will no longer require a proportion of its labour force hours to be performed by specified classes of workers. 

This is a wise move to remove the labour force hours requirement because it was counter-productive to encouraging investment in housing in NSW. The current exemption contains very onerous conditions. In addition to construction commencing after 1 July 2020 and the Chief Commissioner being satisfied the building is used and occupied in accordance with the Treasurer’s approved guidelines, the Chief Commissioner had to be satisfied that 10 per cent of the labour force hours spent on the construction of the building must involve work from one or more of the following classes of worker:

• apprentices or trainees;
• long-term unemployed workers;
• workers requiring upskilling;
• workers with barriers to employment (such as persons with disability);
• Aboriginal jobseekers; and
• graduates. 

It is unclear why the NSW Government chose to impose social policy conditions when it was simultaneously trying to encourage developers to undertake BTR projects. Accessing the current concession required significant investment in identifying, recruiting and then evidencing compliance with the concession over a 15-year period. It also raised issues about when workers move out of particular categories. 

What does this mean for BTR investors?

The perfect storm of increased construction costs following the pandemic, coupled with the lack of meaningful tax reform has seen the sustained growth in housing prices which has ultimately led to a national shortage of affordable housing. It is from this background that both federal and state governments now recognise the need to invest in BTR tax concessions in order to encourage investment and create more housing options for Australians. Whilst some government tax policies such as surcharge purchaser duty and land tax discourage foreign investment, relieving or reducing the impact for investors from such taxes for BTR developments will help projects to become financially viable for foreign investors and result in developments being undertaken. 

Not only will BTR projects create affordable new homes, but they will also create jobs and significant economic investment which will benefit states long-term. One down-side might be the competition for skilled labour between jurisdictions as all states seek to encourage BTR investment. For example, WA’s 75 per cent reduction in the taxable value of land for land tax purposes for three years will assist developers to lure people west with the promise of higher wages. 

While the current tax concessions encourage development of BTR projects, the requirements, and concessions that the various Commissioners can grant, vary substantially between states and the Commonwealth. Accordingly, investors considering undertaking a BTR project in Australia should obtain advice and support from external advisors well in advance of commencing the project. It is important to understand the eligibility conditions because the consequences for failing to structure the transaction to meet the concession conditions could have a significant impact on the financial viability of a project.

^{[1] See our earlier insights, ‘Victorian Commercial and Industrial Property Tax Reform Act is now law: here’s what you should know’ and ‘Victorian Commercial and Industrial Property Tax detail announced’ for more information on the CIPT.}