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  • CGT discount for affordable housing

    An additional 10% capital gains tax (CGT) discount may be available when you sell an Australian residential rental property you used to provide affordable housing. This increases the maximum capital gains discount percentage on your sale from 50% up to 60%.

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    What is affordable housing

    For the affordable housing CGT discount purposes, affordable housing is any dwelling (house, unit or apartment) where the following conditions are satisfied:

    • The dwelling is both taxable Australian real property (TARP) and residential premises you rent out or genuinely make available for rent. Caravans, mobile homes and houseboats are not residential premises.
    • The dwelling is not a commercial residential premises.
    • Management of the tenancy or its occupancy is done exclusively by a registered community housing provider (CHP).
    • Each entity that holds an ownership interest in the dwelling has a certificate from the provider showing that the dwelling was used to provide affordable housing.
    • No entity that has an ownership interest in the dwelling is in receipt of an incentive from the National Rental Affordability Scheme (NRAS) for the NRAS year.
    • If a managed investment trust (MIT) has an ownership interest in the dwelling, the tenant does not have an interest in the MIT that passes the non-portfolio test.

    Eligibility for affordable housing CGT discount

    You may make a capital gain when you sell a rental property you used to provide affordable housing. You may qualify for an additional up to 10% affordable housing capital gain discount if you meet the following eligibility conditions:

    The capital gain must have been either

    • made by you as an Australian resident individual, or
    • distributed or attributed to you either
      • directly from a trust or managed investment trust (MIT)
      • indirectly from a trust through an interposed partnership, MIT or other trust (this does not include public unit trusts or super funds).

    You must have also provided

    • new or existing affordable housing
    • rental rates below market rent
    • affordable housing to eligible tenants on low to moderate incomes (based on household income thresholds and household consumption)
    • affordable housing for a minimum period of three years (1,095 days) from 1 January 2018. This can be continuous or an aggregation of three years over a longer period.

    The additional discount will be pro-rated for periods where you don't use the property for affordable housing purposes.

    Example: Working out the aggregate period

    Lisa purchased a dwelling that is a residential premise on 15 August 2018.

    When she owned the dwelling, Lisa:

    • left it vacant and made repairs from when she acquired it on 15 August 2018 (her acquisition date for CGT purposes) until 1 December 2018 (109 days)
    • rented it out through a CHP as affordable housing from 2 December 2018 until 20 August 2020 (628 days)
    • rented it out through a real estate property manager at market rates (that is not providing affordable housing) from 21 August 2020 until 31 August 2021 (376 days)
    • rented it out through a CHP as affordable housing from 1 September 2021 until 15 January 2023 (502 days)
    • vacated the property and prepared it for sale on and after 16 January 2023 (57 days).

    On 13 March 2023, Lisa signs a contract to sell the dwelling, with settlement on 11 April 2023. Lisa makes a capital gain of $100,000.

    Lisa has held the dwelling for a total of 1,672 days. She used the dwelling to provide affordable housing for 1,130 of the 1,672 days. As Lisa uses the dwelling to provide affordable housing for more than 1,095 days, she may be eligible for the additional affordable housing capital gains discount. Lisa will need to check that she also meets all the other conditions to claim this additional discount.

    End of example

    Dwelling used to provide affordable housing before you acquire it

    For affordable housing capital gain discount purposes, you can't count the number of days the previous owner used their ownership interest in the dwelling to provide affordable housing when you either:

    • buy it
    • inherit it
    • get it rolled-over to you from your spouse upon your marriage or relationship breakdown.

    If you also intend to use the ownership interest that you acquire in this dwelling for affordable housing and claim the affordable housing capital gain discount, you must accrue the 1,095 days during your ownership period on or after 1 January 2018.

    Calculating affordable housing capital gain discount

    You can reduce your capital gain by a capital gain discount percentage of up to 50% upon sale of your property. This is if you held the property for at least 12 months and meet the other conditions. In addition to that discount percentage, you can also claim the affordable housing capital gain discount of up to 10% if you rented the property out as affordable housing and meet the eligibility conditions.

    Combining both the capital gain discount percentages, you may be able to claim up to 60% discount on capital gains upon sale of this rental property. This means, you can end up including a minimum of 40% of capital gains in your assessable income.

    The affordable housing discount percentage is worked out as follows:

    • (capital gain discount percent ÷ 5) × (affordable housing days ÷ total ownership days).

    These amounts are:

    • capital gain discount percent – a discount of up to 50% on capital gains
    • affordable housing days – the number of days you used the dwelling to provide affordable housing (on or after 1 January 2018) during your ownership period, less the number of days you were a foreign or temporary resident in this period only
    • total ownership days – the number of days you held the dwelling from the time you acquired it until a CGT event occurs, less the number of days you were a foreign or temporary resident after 8 May 2012.

    Example: Affordable housing discount percentage

    Following Lisa's example above, her affordable housing capital gains discount percentage is equal to:

    • (capital gain discount percentage ÷ 5) × (affordable housing days ÷ total ownership days).

    She works this out as:

    • (50% ÷ 5) × (1,130 ÷ 1,672) = 6.75%.

    (This is the discount percentage available for the provision of affordable housing.)

    The discount percentage is equal to the sum of the capital gain discount percentage and the affordable housing capital gains discount percentage:

    • 56.75% (50% plus 6.75%).

    Lisa has a capital gain of $100,000 which she reduces by the discount percentage as follows:

    • capital gain × (1 − discount percentage)
    • $100,000 × (1 − 56.75%) = $43,250.

    Lisa will only include $43,250 of the $100,000 capital gain from her investment in affordable housing in her assessable income.

    Note: Capital gains can also be reduced by capital losses and other concessions or exemptions. These have not been factored in to this example.

    End of example

    Registering with a community housing provider (CHP)

    A condition for claiming the affordable housing CGT discount is that your rental property must be managed by a registered community housing provider (CHP). A CHP provides rental housing to tenants who are members of the community earning low to moderate incomes.

    When your property is managed by a CHP and is used to provide affordable housing, your provider will issue you with an annual affordable housing certificate.

    A provider is also required to provide an annual report to us with details of all the affordable housing certificates they issued during the income year.

    See Community housing providers for more information.

    Affordable housing certificate

    When you invest directly in a rental property that is used to provide affordable housing, your provider will issue you with an annual Affordable housing certificate. This certificate will show the number of days your investment property was used to provide affordable housing during the income year and declare that it met the residential premises and property management conditions. These conditions are required in order to claim the affordable housing CGT discount.

    Your provider must issue your certificate on or before 31 July immediately following the relevant income year. For example, a certificate covering the 2020–21 income year must be issued by your CHP on or before 31 July 2021.

    Your provider may issue your certificate in any format, for example, electronically via email or on paper via post.

    If you haven't invested directly in affordable housing, the provider will issue the certificate to the trust, MIT or partnership that you invested through.

    It's important to keep a record of your affordable housing certificates. You will need them to work out the total number of days your dwelling was used to provide affordable housing after 1 January 2018. This information will help you to determine your eligibility and work out your affordable housing CGT discount percentage for any capital gain you make on the sale of your rental property.

    See Issuing an affordable housing certificate for more information.

    Investing in affordable housing through a trust

    You can invest in affordable housing through a trust. The capital gain must be a discount capital gain for the trust that has realised the gain. The trust can be a managed investment trust (MIT) but not a public unit trust or super fund.

    The capital gain can be distributed or attributed to you directly from the trust, or indirectly from the trust through an interposed partnership, MIT or other trust (other than a public unit trust or super fund). Only you, as the individual investor, can claim the additional affordable housing capital gain discount – the trust, MIT or partnership can't claim this discount.

    When you receive the capital gain distribution, you will also need to obtain the following information from the trust, MIT or partnership in order to work out your affordable housing capital gains discount percentage and net capital gain amount:

    • number of days the dwelling was used to provide affordable housing (the trust, MIT or partnership will have this information because they should have received the affordable housing certificates from the provider)
    • dates the rental property was used for affordable housing (only required if you had any period or periods of foreign or temporary residency during the investment period).
    • total ownership days of the rental property.

    The trustee of the trust will determine how they provide you with the affordable housing information you need to work out your discount percentage. They may do this by providing:

    • additional notes in your attribution managed investment trust member annual (AMMA) statement or the standard distribution statement
    • a separate statement or courtesy letter
    • information on their website.

    Foreign or temporary residency

    Only Australian resident individual investors are eligible to claim the additional affordable housing capital gain discount. This means, you will need to factor in any periods of your foreign or temporary residency when working out your affordable housing discount percentage.

    If you had a period of foreign or temporary residency after 8 May 2012, you may not be entitled to the full 50% capital gains discount percentage on a capital gain from the sale of your rental property.

    Additionally, if your number of days of foreign or temporary residency occurred at any time in the period your rental property was used as affordable housing, you will need to reduce the number of affordable housing days by the number of foreign or temporary residency days when working out your affordable housing discount percentage.

    Before you work out this discount percentage, you need to make sure that you have met all the eligibility conditions for affordable housing capital gain discount. One condition is the 1,095 days of affordable housing during your ownership of the property.

    Example: Affordable housing discount percentage – period of foreign or temporary residency

    William purchased a dwelling that was residential premises on 1 January 2015. He used it to earn rent for the whole time he owned it. William used the property to provide affordable housing from 1 January 2018 until 30 June 2023 (2,007 affordable housing days).

    On 30 June 2023, William sells the dwelling and makes a capital gain of $200,000.

    William moved to the United States of America on 1 July 2022, becoming a foreign resident for taxation purposes. This means William was an Australian resident for taxation purposes for 2,738 days and a foreign resident for 365 days of the 3,103 total ownership days of the dwelling.

    William does not have any other capital gains or losses in the 2022–23 income year and does not have any prior year capital losses.

    To work out his net capital gain for 2022–23 income year, William first calculates his capital gain discount percentage as:

    • 50% × (Australian resident days ÷ total ownership days)
    • 50% × (2,738 ÷ 3,103) = 44.11%

    William then calculates his affordable housing capital gain discount percentage as:

    • (capital gain discount percentage ÷ 5) × ((Affordable housing days less foreign or temporary residency days) ÷ (Total ownership days less foreign or temporary residency days)
    • (44.11% ÷ 5) × ((2,007 − 365) ÷ (3,103 − 365))

    = 8.822% × (1,642 ÷ 2,738)

    = 8.822% × 0.60

    = 5.29%.

    The discount percentage is equal to the sum of the capital gain discount percentage and the affordable housing discount percentage:

    • 49.4% (44.11% plus 5.29%).

    The capital gain is reduced by the discount percentage. William's capital gain of $200,000 will be reduced to:

    • capital gain × (1 − discount percentage)
    • $200,000 × (1 − 49.4%) = $101,200

    William will only include $101,200 of the $200,000 capital gain from his investment in affordable housing in his assessable income.

    End of example

    Community housing providers

    Community housing providers (CHP) provide rental housing to tenants who are members of the community earning low to moderate incomes. Providers may own some of the dwellings, and also manage dwellings on behalf of investors, institutions and state and territory governments. Many providers specialise in providing accommodation to particular client groups, which may include disability housing, aged tenants and youth housing.

    An eligible CHP is an entity that is registered as a CHP to provide community housing services under a law of the Commonwealth, state or territory or is registered by an Australian government or government entity.

    An eligible CHP is either:

    • an entity registered (however described) under an Australian law as a provider of community housing services
    • an entity registered (however described) by an Australian government agency as a provider of community housing services.

    However, an entity that ceases to be registered continues to be an eligible CHP for 90 days starting on the day of the cessation.

    CHPs are regulated under the National Regulatory System for Community HousingExternal Link. This is monitored and enforced by state-based community housing registrars. Providers match eligible tenants with properties and have specific reporting obligations.

    Find out about:

    Issuing an affordable housing certificate

    One of the conditions of use as affordable housing is that the registered CHP who manages the property must issue each individual, trust, MIT or partnership that holds an ownership interest in a dwelling, with an annual Affordable housing certificate.

    A dwelling can only be taken to be used for providing affordable housing if the provider has issued each investor in the dwelling with an annual affordable housing certificate in the approved form.

    The CHP must issue the affordable housing certificate by 31 July immediately following the relevant income year. For example, certificates covering the 2020–21 income year must be issued by 31 July 2021.

    The additional CGT discount is available if the dwelling was used to provide affordable housing on or after 1 January 2018 for at least 1,095 days. As such, if there were dwellings that met the affordable housing conditions from that date, providers may be required to issue certificates for the 2017–18, 2018–19 and 2019–20 income years. However, since the law for these changes did not pass until December 2019, this will be few.

    There is also no requirement for CHPs to report details of certificates for the 2018–19 and 2019–20 income years to us because of the 1,095-day requirement from 1 January 2018 for the additional CGT discount.

    To be in the approved form, the certificate must contain the following:

    • sufficient details to identify the owner of the property used to provide affordable housing. The owner may be an individual investor, trust, MIT or partnership
    • sufficient details of the dwelling used to provide affordable housing
    • sufficient details to identify the CHP issuing the certificate
    • a declaration confirming the status of the property and that it was exclusively managed by a CHP

    The affordable housing certificate can be issued in electronic or paper format as long as it contains the information detailed in the example below. Or you can download and complete our Affordable housing certificate form (NAT 75348).

    The following example displays the format and content of the certificate.

    Example: Affordable housing certificate

    Section A – Investor details

    ABN (if applicable):

    Name:

    Contact name:

    Contact phone number:

    Section B – Dwelling details (dwelling providing affordable housing)

    Dwelling address:

    Period(s) of affordable housing use (optional):

    Start date:

    End date:

    Start date:

    End date:

    Total number of days the dwelling was tenanted or available to be tenanted as affordable housing:

    Section C – Community Housing Provider (CHP) details

    ABN:

    Branch:

    Name:

    Contact name:

    Contact phone number:

    Section D – Declaration (to be made by CHP)

    I (name of authorised person) declare on behalf of (name of community housing provider) that:

    a) the information in this certificate is true and correct

    b) I reasonably believe that the dwelling(s) are taxable Australian real property and is residential premises that

    • it was tenanted or available to be tenanted, and
      • was not commercial residential premises.
      • the tenancy or prospective tenancy of the dwelling was exclusively managed by me as an eligible community housing provider.

    Signature of authorised person

    Date

    End of example

    CHP annual report

    Providers that issue affordable housing certificates must also provide an annual report notifying the Commissioner of Taxation in the approved form of the details of all certificates they provide during an income year.

    The CHP annual report needs to be issued to us on or before 31 days following the end of the relevant income year, or within such further time as the Commissioner allows.

    These reports are required annually under law from 1 January 2018. However, an exemption has been granted for the 2018–19 and 2019–20 years (legislative instrument Exemption of Eligibility Community Housing Providers from Providing Third Party Reports for the 2018–19 and 2019–20 Years Determination 2019). This means the first annual report covering the 2020–21 income year is due on or before 31 July 2021.

    Lodging online

    From the 2020–21 financial year onwards, a provider or their authorised tax agent can lodge their annual report online using Online services for business or Online services for agents. You can lodge electronically where the data file has been prepared and stored locally.

    Lodging electronically online will:

    • reduce paperwork
    • provide a secure way for reports to be lodged
    • provide an online receipt when the report is lodged
    • ensure that all of the necessary fields to lodge the report have been completed, via in-built checks
    • be available 24 hours a day, seven days a week.

    For more information see File transfer.

    Extension of time to lodge

    If you need additional time to lodge the CHP annual report electronically after 31 July, due to exceptional and unforeseen circumstances, phone us on 13 28 66 and provide the following information:

    • the entity and their ABN
    • the reasons for requesting an extension
    • the proposed new deadline for lodgment.
    • Report content

    The following is a list of the information that you may need to include in your CHP annual report, noting that not all the information is mandatory:

    Intermediary details – these are the details of the entity lodging the annual report. This may be a CHP or their authorised tax agent

    • ABN
    • branch number
    • name
    • contact name
    • contact address
    • contact phone number
    • contact email address.
    • Provider details – these are the details of the CHP
      • ABN
      • name
      • contact name
      • contact phone number
      • address
      • email address
      • reporting period start date and end date
      • financial year the report relates to
      • is it an original or replacement report
      • number of certificates issued during reporting period.
    •  Investor details – these are the details of each resident individual investor that was issued with a certificate by the CHP. The investor may be an individual person or a managed investment trust
      • ABN
      • name
      • surname or family name
      • first name
      • date of birth
      • address
      • contact name
      • contact phone number
      • dwelling managed by CHP ('Yes' or 'No')
      • number of days dwelling used for affordable housing
      • dwelling address
      • email address.
    • Declaration – this is a declaration that the report is true and correct
      • full name of signatory
      • signatory position
      • tax practitioner registration number
      • contact phone number
      • declaration (Y)
      • date authorised. 
    CSV file format

    The file format for the CHP annual report is a comma separated values (CSV) file. This is a delimited text file that uses a comma to separate values. A CSV file stores tabular data (numbers and text) in plain text. Each line of the file is a data record. Each record consists of one or more fields, separated by commas.

    Trusts, MITs and partnerships

    This information is for trustees of trusts that invest directly, or indirectly through a trust, an MIT or a partnership, in affordable housing. When the trust, MIT or partnership has made a capital gain from the sale of the affordable housing investment property, they will need to provide the individual investor or interposed entity with other information in relation to that gain. The trust, MIT or partnership must have used the dwelling to provide affordable housing for a period or periods totalling at least three years and meet all other eligibility conditions. The individual investor or interposed entity will need this other information in order to calculate their affordable housing discount percentage.

    Information you need to provide

    You will need to provide the individual investor or interposed entity with the following information about the capital gain from the sale of affordable housing investment property:

    • capital gain amount attributable to the affordable housing
    • number of days the dwelling was used to provide affordable housing (you should have received this information in the form of an annual affordable housing certificate from the community housing provider who managed the investment property)
    • dates the investment property was used for affordable housing (this is required by the individual investor because they will need to exclude days of foreign or temporary residency during the ownership period from the number of affordable housing days).

    How to provide affordable housing information

    As the trustee or partner, you can determine how you provide the affordable housing capital gain information to the individual investor or interposed entity. You may choose to provide it by:

    • including additional notes in your attribution managed investment trust member annual (AMMA) statement or the standard distribution statement (SDS)
    • a separate statement or courtesy letter
    • publishing the information on your website.

    If you are an interposed entity that has received the above affordable housing information from a trustee or partner, you will need to pass on the information to the individual investor.

    Last modified: 04 Aug 2021QC 66040