Capital Gains Tax discounts for investment property owners

At Key2 Realty, our landlords are guaranteed expert property management services, but there are also tax incentives for property owners with an ethical investment mindset.

Savvy property investors who choose to rent their property out as ‘affordable housing’ can enjoy a reduction of Capital Gains Tax (CGT) by up to 10% more than the 50% discount when they sell their property. It’s a win-win scenario for landlords and the wider community by ensuring there are affordable housing options available for renters.

Housing affordability is a growing concern which is evident in the ‘State of the Nation’s Housing 2021–22’ research report released by the National Housing Finance and Investment Corporation (NHFIC). The sobering report reveals that housing affordability is an issue, not only for first home buyers and essential workers on minimum wages, but also for a growing number of Mum and Dad and the smaller portfolio property investors, who are worried about housing affordability for future generations.

Legislation and eligibility

The Australian Taxation Office (ATO) have introduced legislation that would see a property investor be eligible for the additional CGT discount when the following conditions are met:

you are eligible for the 50% CGT discount on the property (in whole or part)
you used your property to provide affordable housing for a minimum of 3 years (1,095 days) since 1 January 2018
your property rental was managed by a registered Community Housing Provider (CHP), or their wholly-owned social enterprise real estate agent.
you have an affordable housing certificate from the CHP for each income year for which you are claiming the discount

It is clear from the ATO’s requirements that a property must be rented, or genuinely available for rent, at below-market rates to eligible tenants on low to moderate incomes, thus the requirement of certification from a CHP.

Key2 Realty is uniquely placed to provide ATO certification to investment property owners through our relationship with registered CHP Pacific Link Housing.

An example of how the CGT discount applies

Tom is an investment property owner and has:

held an apartment for a total of 1,672 days
used the apartment to provide affordable housing for 1,130 days
received an annual affordable housing certificate from his CHP,
and met the other affordable housing requirements.

Tom is therefore eligible for the affordable housing CGT discount because he has used the apartment to provide affordable housing for more than 1,095 days in total since 1 January 2018. As such, Tom’s affordable housing CGT discount percentage is:

10% × (1,130 ÷ 1,672) = 6.75%

Tom’s total discount on his capital gain is the sum of the general CGT discount (50%) and his affordable housing CGT discount percentage:

50% + 6.75% = 56.75%

Tom had a capital gain of $100,000 when he sold the apartment. Tom can reduce his capital gain by his total discount percentage:

$100,000 × (1 − 56.75%) = $43,250

In this scenario, the taxable income is reduced at the time of the gain by an additional $6,750 thanks to Tom providing the apartment as genuine affordable housing under a CHP for 1,130 days