GST and Build-to-Rent: It’s Time to Fix the Missing Link

By Ken Fehily, GST Specialist, Fehily Advisory

Ken Fehily is Director of Fehily Advisory, specialising exclusively in consulting on GST. He was a member of the Federal Treasurer’s GST Technical Advisory Committee during the introduction of GST in 2000, served nearly 10 years on the ATO’s GST Rulings Panel, and is a long term and continuing member of the ATO’s GST Stewardship Group.

The Build-to-Rent (BTR) sector has gathered extraordinary momentum as Australia grapples with housing undersupply and affordability pressures. Developers, superannuation funds, and institutional investors increasingly view BTR as a stable, long-term asset class. Yet a fundamental obstacle remains: the way Australia’s Goods and Services Tax (GST) applies to large-scale residential developments intended solely for long-term rental.

Having advised the ATO, Treasury, industry, and the private sector on GST since its introduction in 2000, I can say with authority that BTR faces a unique and unintended disadvantage. The GST system was never designed to deal with BTR at scale, and reform is now overdue.

The GST Mismatch

Under the law, largely unchanged since July 2000, GST treatment depends on the end use of the property:

  • Build-to-Sell: Developers claim full GST input tax credits on land and construction. GST is payable on sales later, often reduced under the margin scheme, and is passed on to purchasers. Developers carry no permanent GST cost.

  • Build-to-Rent: Rental income is GST “input-taxed” so no GST is charged on the rent, but no input tax credits are available during the development. The 10% GST becomes a permanent cost embedded in the project carried by the developer.

For BTR, this can mean millions in unrecoverable GST before the first tenant even moves in. That distorts feasibility, deters institutional capital, and limits the sector’s growth. In effect, GST favours Build-to-Sell over Build-to-Rent despite today’s clear policy objective of expanding long-term rental supply.

Realistic Options for change

The GST settings were defensible in 2000, but the housing and investment landscape is very different today. Reform is now essential:

  1. Efficiency: Allowing credits on construction costs would remove a deadweight cost during the development phase and create neutrality between BTR and BTS.

  2. Supply: With credits restored, more projects stack up financially, more become bankable and more rental housing comes online.

  3. Investor confidence: Offshore investors are particularly sensitive to after-tax returns. A permanent 10% impost on capital expenditure makes Australian BTR less competitive.

  4. Revenue integrity: GST is meant to tax private consumption, not business inputs. Denying credits contradicts that design principle.

  5. Parity: Even if GST was imposed later on rental flows, maybe at a concessional rate like the current half GST rate for long-term residential accommodation and/or capping it till it reaches the GST that would be payable on the margin scheme for sales, removing the upfront denial would make BTR feasible and fair.

Learning From Abroad

Australia is not alone in grappling with a housing crisis. Other jurisdictions have acknowledged that when governments prioritise affordable housing, tax systems should not undermine feasibility and delivery.

The ATO’s Role

The ATO can only apply the law Parliament gives it. Its current draft update to GSTR 2012/6 confirms that modern BTR developments will be assessed against existing principles, but the Commissioner’s view is unchanged. The ATO is clear that it cannot rewrite the rules. That responsibility lies squarely with government.

Industry and Policy Momentum

Developers, investors, and peak bodies are increasingly vocal about the GST barrier. Federal, state and territory governments already support BTR through planning reforms and other tax concessions. But GST problem remains the missing link, undermining otherwise supportive policy settings.

Having worked with Treasury, the ATO, and the property sector for decades, I have seen how pragmatic GST adjustments can unlock investment. The law was designed to be flexible and now is the time to use that flexibility to meet today’s housing challenge.

Conclusion

BTR has enormous potential to reshape Australia’s housing landscape. Without GST reform, however, the sector will fall short of what it’s capable and desirous of delivering. The cost of inaction will be measured not only in stalled projects and subdued investment, but in the thousands of Australians who miss out on secure, long-term rental homes.

The solution is not really that radical. It is a reasonable alignment of GST laws with current housing realities. What was fit for purpose in 2000 is no longer fit for 2025. If government is serious about addressing housing supply and affordability, it must act and fix the missing link.