14 June 2022

Little-known rental scheme saves on land tax, supports tenants

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Do you know how to access full land tax exemption on your investment property? Photo: HomeGround.

Canberra is the nation’s most expensive city to rent a property. It’s topped the list for housing rents since late 2018 and units since late 2020. As demand remains higher than supply, rental properties are an ongoing problem.

Many landlords acknowledge rent for the average Canberran is unaffordable, but feel unable to offer their properties at a lower rate in order to balance the books.

As the end of the financial year approaches, many landlords will pay closer attention to their returns. And while Canberra rents have never been higher, the increase in land values has left investment property owners with ever-increasing land tax bills.

The costs of keeping a property, such as land tax, can have a huge impact on cash flow throughout the year, especially when coupled with increasing rates, utility supply charges, strata levies, maintenance and repair costs.

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But there’s an alternative still relatively unknown to many ACT property investors.

In 2019, an ACT Revenue Legislation Amendment Bill was released which exempted landlords from paying land tax if they listed their properties through the National Rental Affordability Scheme.

It works in line with the ACT Housing Strategy, which aims to provide affordable housing to tenants unable to easily afford the private rental market.

To be eligible for the land tax exemption, landlords need to list their property through a registered and approved community housing provider at a lower price than the market rent – a minimum 25 per cent discount to eligible tenants.

HomeGround Real Estate Canberra, a social enterprise of CHC Australia (Community Housing Canberra) is the city’s only fully licensed real estate agency with access to the land tax exemption program.

HomeGround brochure

A tight rental market is the perfect time for property investors to ask their financial advisers or contact HomeGround about the National Rental Affordability Scheme. Photo: HomeGround.

Tenants in the affordable scheme are chosen by the landlord, once their income eligibility is established by HomeGround.

A tenant’s income should not exceed upper limits and must also be high enough so the rent doesn’t exceed about 30 per cent of their income.

For example, a couple with one child can earn up to $100,000 per annum and still be eligible for a property. They must also have a good rental history, positive references, and the capacity to improve their situation through access to the scheme.

The goal for HomeGround’s tenants is to help them establish a reserve of funds to invest in their education and development or progress to homeownership themselves.

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Landlords who join the affordable rent scheme have an added opportunity to save money. HomeGround’s management fees are a fraction of many of the other agencies in Canberra (starting from six per cent) and free advertising of their properties is provided on Domain and AllHomes.

HomeGround also looks to provide landlords with great value property management and the reassurance that any excess funds generated are reinvested back into their local community.

Depending on individual circumstances, property owners through the HomeGround landlord program can access longer-term tax benefits of additional capital gains tax discount of 10 per cent (resulting in a total capital gains tax discount of 60 per cent), plus tax-deductibility of foregone rent.

This means the affordable rent scheme can be delivered with very little to no cost to landlords, and makes a positive difference to those who get the opportunity to be HomeGround tenants.

As the financial year is ending, now is the perfect time for property investors to ask their financial advisers or contact HomeGround to get a free appraisal. Contact Maria Edwards on 0478 626 125 for a chat. You have nothing to lose, except perhaps the quarterly land tax bill.

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While this scheme sounds like a nice charity idea for a charitable organisation, why would any landlord want a 25% rent reduction when rates and other taxes in the ACT are so high and when the ACT government keeps increasing rates exorbitantly every year? The rent is not allowed to be increased at the same level as the rates are going up. Plus my understanding of this scheme makes the landlord declare the FULL rent amount in their tax (not the 25% rent reduced amount) so landlords are paying full tax on the amount even if they are not actually receiving it in rent. Seems like not a lot of benefits to a landlord. Perhaps if rates (as well as land tax) were waived as well it might attract more people. It seems the ACT government wants landlords to provide charity while at the same time the ACT government has the most anti-landlord laws in Australia and has created a horrible environment for landlords. The blame should not fall on landlords, but on the woeful ACT government who has been in power for decades and repeatedly failed to provide proper low-cost government housing to vulnerable people.

mariahomeground10:46 am 27 Jun 22

Hi Joriel, appreciate your comments and the scheme is definitely not for every landlord – but there are situations where landlords are in a financial position to offer their property at the reduced rent eg when there is only a small ( or no) mortgage on the property and there is a surplus of income from the rent that they receive which they then pay tax on at their marginal tax rate. There are also landlords out there for which is is not a purely financial decision, but they feel it is not just up to the Government to solve the housing crisis and want to play a part & improve the life of someone less fortunate.

Are there 5 properties under this scheme since 2019 so far? Indeed very little must be known about it even perhaps among MLAs with investment properties who voted for it. Perhaps more known that most rental properties in NSW (Queanbeyan) won’t attract land tax without any rent reduction. If the rent doesn’t cover outgoing costs then lowering it further by 25% will amplify losses even with land tax exemption. A loss of profit by reducing rent to the benefit of a needy tenant is charity. Charity has never been about making profit or achieving tax reduction though. I guess charitable solution to control rents being built into ACT Housing Strategy more highlights its intrinsic problem than offers solution. We need more appeals like this. There should be more than 5 investors in Canberra willing to share their wealth with charity. And to get more buy in from genie donors the author should more highlight the scheme’s charitable nature.

mariahomeground11:03 am 20 Jun 22

Hi Alex, just wanted to confirm for you we have many more than 5 investors who have elected to rent their property through the land tax exemption scheme, not all of the properties we have are advertised on our website as it is undergoing an upgrade, but our properties are advertised through AllHomes as they become available. Since the program was launched 3 years ago the comment I have received from landlords most often is that they appreciate their privileged position in owning an investment property and absolutely want to assist those less fortunate, the fact that the Government is also coming to the party with tax concessions is a further incentive – the land tax exemption whilst in some cases does not fully offset the rent reduction, still it does make a difference. Currently we are assisting over 50 households through the scheme and it is growing steadily, the need for more landlords to join has never been greater given the growing economic gap between those that own property and those that don’t. The housing crisis in Canberra is complex and whilst there are no easy solutions we are really to be able to offer a unique, socially responsible property management service with a charitable component, its a step forward for so many.

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