Legislation was introduced last week with the view to providing an increase in the Capital Gains Tax (“CGT”) discount for investments in affordable housing.
The existing CGT discount can be accessed by resident individuals and trusts who hold assets for longer than 12 months and it applies at the rate of 50%.
But if the legislation is passed, this will increase to 60% for individuals who’s investments meet certain criteria as follows –
- The housing must be provided to low to moderate income tenants,
- Rent must be charged at a discount below the private rental market,
- The affordable housing must be managed through a registered community housing provider,
- The investment must be held for a minimum of three years.
The 60% discount rate will also be available to resident individuals investing in affordable housing via managed investment trusts.
The new rules are to take effect from 1 January 2018, though there is a proportioning element based on the number of days a property is actually used for affordable housing.
This is a bit of a strange one given there has been so much talk of the capital gains discount being removed. But instead the Government has moved to increase it (in this particular circumstance).
Having said that, while the measures around affordable housing are to be commended, individual investors and taxpayers should be wary. Other such initiatives have resulted in the advent of spruikers in this area, with many investors coming undone. If you are considering an affordable housing investment, please do speak to us first so that you can make a fully informed decision.
You can read the legislations Explanatory Memorandum for Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 here.