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

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.

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.

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.

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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