Managed Investment Trust (MIT) reforms have been announced by the Government to incentivise investment into Australia’s Build-To-Rent (BTR) sector and further support investment into certain energy efficient buildings.
As previously announced, the Government introduced two incentives for eligible BTR projects where construction commences on or after Budget night 9 May 2023.
The first incentive sees an increase in the rate of capital works deductions from 2.5% per annum to 4% per annum which is applicable to all taxpayers, whether MITs or not.
The second incentive is a reduction in the MIT withholding tax rate from 30% to 15% for fund payments made in respect of eligible BTR projects. This measure would result in a lower final tax rate for non-resident investors receiving distributions of net rental income and capital gains made by MITs from these projects.
Eligible BTR projects will be those that have 50 or more new apartments or dwellings that are made available for rent to the general public. To access both of these incentives, each apartment or dwelling must be held for at least 10 years by a single owner that must offer it for lease for at least three years.
The Government has announced that implementation details, including requirements for any minimum portion of dwellings required to be offered as affordable tenancies and the minimum holding period, will be the subject of consultation. This consultation process is important to ensure that the provisions can be practically applied by those entities wishing to invest in BTR projects. If enacted, the reduced MIT withholding rate for new BTR projects will apply from 1 July 2024.
These are welcomed measures intended to encourage investment and construction in the growing BTR sector and to assist with expanding Australia’s housing supply.
Clean Building MITs withholding rate
The clean building MIT withholding rate of 10% on fund payments will be extended to buildings that are data centres or warehouses, where construction commences on or after Budget night 9 May 2023. This measure will apply for fund payments made from 1 July 2025.
This measure will also increase the minimum energy efficiency requirements for existing and new clean buildings to a 6-star rating from the Green Building Council Australia or a 6-star rating under the National Australian Built Environment Rating System. The Government has announced a consultation process for transitional arrangements for existing buildings.
Given that the measures apply to construction commencing from Budget night and can provide significant tax incentives to non-resident investors, new MIT building projects should seriously consider the cost-benefit of complying with the energy efficiency requirements for new projects.