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CGT increase discount for affordable housing investors

by | May 31, 2017 | Capital Gains, Property Taxation, Tax Planning

CGT discount increased for affordable housing investors

Affordable Housing stock for investors

From 1 January 2018, the capital gains tax discount will be increased from 50% to 60% for resident individuals who invest in affordable housing. This measure was included as part of the housing affordability section of the 2017/18 Federal Budget.

The conditions to access the 60% discount are:

  • • the housing must be provided to low to moderate income tenants
  • • rent must be charged at a discount below the private rental market rate
  • • the affordable housing must be managed through a registered community housing provider, and
  • • the investment must be held for a minimum period of three years.

Once further information is released by the Treasury when the Bill is tabled in parliament, we will be able to provide detailed analysis of the measure. However, at this point in time, the following things are clear to us:

National Rental Affordability Scheme

Although the NRAS is due to be replaced with the National Housing Infrastructure Facility, it appears from this early stage that the scheme will be similar in a few ways. Firstly, the NRAS provides tax offsets and other cash benefits for investors who provide affordable housing. That is, new housing that charges rent at below the private rental market rate to renters who are low to moderate income earners.

At present, there has been little information available regarding the additional discount status for investors in the NRAS. Many investors have the option to lease in the scheme for 10 years. Even though the Scheme is not taking new applicants, it appears that the first two conditions would already be met. If an NRAS investor is currently not using a registered community housing provider, we would recommend doing so once this legislation passes.

Time frames

The investment must be held for a minimum of three years in the registered community housing provider. As the discount is available from 1 January 2018, we would tend to believe that the increased discount is available for owners of property from prior to 1 January 2015. This has not been confirmed, however, the forward estimates have booked a cost to revenue for the 2019/20 financial year.

Specifically, it is not confirmed that it is the sale that provides the additional discount from 1 January 2018 or whether it is the investment is made after that date.

Investor opportunities

Practice example of potential tax savings

Investors who are already receiving a rebate from the National Rental Affordability Scheme would have an additional tax advantage by further reducing their capital gains tax liability, if they can satisfy all conditions. A capital gain of $100,000 under this scheme will calculate as a reduction of $10,000 in assessable income. At marginal rates of 37% plus 2.5% Medicare levy, this could benefit investors by a tax saving of $3,950 in the year sold, definitely worth the effort.

For investors to take part in this measure, it must be managed through a registered community housing provider. The registrar of these providers are currently held by each state, and their websites are listed below. Also, please see quick reference to the National Provider Register is here.

ACTOffice of Registrar Community Services Directorate

NSWRegistrar of Community Housing

NTDepartment of Housing NT Registrar of Community Housing

QLD — Department of Housing and Public Works Regulatory Services

SAOffice of Housing Regulation

TAS — Housing Tasmania

VIC — Housing Victoria

Last reviewed: 23 May 2017  Courtesy of © CCH and Garry Wolnarek

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