Budget 2017-18: Affordable Housing
As part of the Turnbull Government’s drive on affordable housing it will be changing the rules in respect of MIT’s ability to invest in residential property with effect from 1 July 2017.
Currently, the view taken by the ATO is that investment in residential property is “active”, with a primary purpose of delivering capital gains from increased property values. As such, these types of investments have not been eligible for the MIT tax concessions which apply to passive investments only. In such circumstances, the income is taxed at 30%.
The proposed changes to eligible activities for MIT’s would mean that MITs could invest in affordable housing if:
Foreign resident investors would be able to access the final 15% withholding tax rate on distributions if they are a resident of a country with which Australia has an exchange of information treaty. This will increase to 30% if the properties are held for less than 10 years or the 80% threshold is breached.
Individual resident investors will continue to be taxed on investment returns at their marginal tax rates. However, capital gains will be eligible for the increased CGT discount.
With effect from 1 January 2018 the CGT discount for individuals directly investing into affordable housing will be increased from 50% to 60%.
To qualify for the increased discount, the housing must be provided to low to moderate income tenants, with rent charged at a discount. Eligibility of tenants will be based on household composition and income thresholds.
Furthermore, the affordable housing must be managed through a registered community housing provider and held for a minimum period of 3 years. Where the property is used for affordable housing prior to being purchased it will count towards the buyer’s qualifying investment period (provided the previous owner did not claim the additional discount).
The additional discount will be pro-rated for periods where the property is not used for affordable housing purposes.