You may be familiar with our series of short articles in which we consider Build to Rent development opportunities in Australia and New Zealand, implications of the Foreign Investment Review Board on land transactions (including build to rent projects) and the associated tax incentives for build to rent developments in Unlocking the potential of build to rent: Navigating Commonwealth tax concessions for investors (Tax Article).

In this article, we outline the planning characteristics of a build to rent (BtR) development in Queensland (QLD), New South Wales (NSW), and Victoria (VIC). By way of example, to identify what (if any) corresponding form of development is capable of being carried out consistent with the Commonwealth's (Cth) proposed BtR reforms.

In our Tax Article, we outlined the conditions required to be met in order to qualify for the tax concessions proposed by the Treasury Laws Amendment Bill 2024: Build to rent developments (BtR Bill Conditions) and the corresponding conditions for BtR concessions at a state level. In order to take advantage of these concessions however, regard must be had to the character or the purpose for which the building (to which the concessions are to be applied), is being used or proposed to be used. This is where consideration of the local planning controls are a relevant consideration and their compatibility.

In NSW a build to rent development is a prescriptively defined land use under planning legislation, whereas in VIC and QLD, the use of land for the purpose of BtR is not so prescriptively defined in the applicable planning legislation.

In VIC, the Courts have held that such a land use is to be defined by reference to the Victorian Land Tax Act. In QLD there have been recent amendments to the planning legislation to facilitate BtR; in particular, the introduction of a definition of build to rent on 22 July 2024, which appears to apply retrospectively.

In the following table we compare the Cth BtR Conditions and the corresponding State planning controls for such development:

Is your BtR a commercial residential premises?

In planning law (as in tax) the proper characterisation of the use of land can be determinative of the application of laws.

Meeting the definition of a BtR will be fundamental to whether or not you will be able to claim the incentives proposed, and so ensuring that your development maintains the character of a residential premises will be key. This also means ensuring that it cannot be characterised as a commercial residential premises.

It is easy to see how this might arise; the Property Council of Australia has described the development as an “investment” that is “customer led”, which tends to suggest that conceptually the form of development could be seen to be commercial in nature.

The BtR Bill Conditions adopt the definition of commercial residential premises for the A New Tax System (Goods and Services Tax) Act 1999 (Cth), which includes:

(a) a hotel, motel, inn, hostel or boarding house; or

(b) premises used to provide accommodation in connection with a school; or

…

(f) anything similar to residential premises described in paragraphs (a) to (e).

Determining whether a premises is a commercial residential premises or residential premises often raises questions of fact involving matters of impression and degree: ECC Southbank Pty Ltd as trustee for Nest Southbank Unit Trust v Commissioner of Taxation [2012] FCA 795 (ECC Southbank) at [50].

In VIC this is less likely to be a risk in circumstances where the characteristics of the form of development aligns with the local BtR tax provisions; which in turn, mirror in the most part the proposed Cth BtR incentives. However, in NSW and QLD the characteristics of a BtR not being commercial in nature are not so clear. In NSW there appears to be a prescription of a commercial nature; that is, the requirement to have an on-site managing agent. However, in QLD while there is no such requirement, the definition of BtR lends itself to other forms of development, such as a hostel.

Examples of cases where the Court was required to consider whether a commercial use was similar to a residential premises are ECC Southbank and Wynnum Holdings No 1 Pty Ltd and Ors and Commissioner of Taxation [2012] AATA 616 (Wynnum).

In ECC Southbank the owner and the sublessee (the Entity) primarily provided accommodation to students from several educational institutions pursuant to Rooming Accommodation Agreements; however, accommodation in the premises was also available to persons other than students, pursuant to Studio Accommodation Agreements. The primary differences between the two agreements were:

• Rooming Accommodation Agreements (made between the sublessee and the “resident” or “customer”) related to a shared apartment but did not identify the room or its inclusions.
• Studio Accommodation Agreements (made between the lessor entity and the “tenant”) identified the room and its inclusions, together with specific clauses which concerned the tenant’s right to possession and quiet enjoyment of the premises.

The premises was centrally controlled and managed by the Entity and included a reception desk (which operated 24 hours a day) providing services similar to those often provided by the reception desk or the concierge’s desk of a hotel.

The Court held at [50] that, “The test to be applied for the purpose of determining whether the Urbanest premises are commercial residential premises involves asking whether the Urbanest premises is a hotel, motel, inn, hostel or boarding house or whether it is similar to – in the sense that it has a likeness or resemblance to – any of those types of establishment. The application of this test necessarily raises questions of fact involving matters of impression and degree.” In so applying this test, the Court concluded that the entity was a hostel.

At [66] to [67] concluding at [70] that:

In my view, the…premises bears a much closer resemblance to a hostel than a hotel. The accommodation available… is intended to be (at least in the case of the shared apartments) comparatively low in cost and is obviously configured with the needs of students seeking low-cost accommodation in mind. The accommodation provided … is supervised in the sense that the reception desk is manned 24 hours a day…It is true that meals are not provided to residents or customers of the…premises as they might usually be in the case of a more traditional hostel. However, that does not mean that the…premises may not be fairly described as a hostel or, at least, as being similar to a hostel. In my opinion, if the Urbanest premises is not a hostel, it is very similar to a hostel…the services provided by staff to residents through the reception desk are by no means insignificant and, considered along with all other relevant matters, confirm my view that the … premises are properly regarded as commercial residential premises for the purposes of the GST Act.

In Wynnum the Court applied ECC Southbank. The Court undertook an examination of the form of the entity that owned the premises, all of the different configurations and offerings of the individual units available that were furnished, with all the services provided. Ultimately, the Court found at [72] that the premises was a commercial residential premises as it did “…seem to have some of the attributes of a “hostel”, and at least in some respects to be “similar to” a hostel. With an on-site manager, it could hardly be said that it is not a “supervised place of accommodation”.”

A key takeaway from Wynnum is that the Court helpfully identified what it considered to be factors, which if present, would not result in a finding of a commercial residential premises at [76]:

Clearly enough, there are factors that tend towards a conclusion that the property is commercial residential premises for the purposes of the GST Act. Factors that tend that way are set out in [72] above. But there are factors that tend away from such a conclusion. Those factors are:

• that occupants agree to occupy the units in the Complex for a “Periodic Term”, often for months or years at a time;
• that a “condition report” is prepared at the commencement and conclusion of the term of occupation;
• that a cleaning fee is imposed when an occupant leaves;
• that the possibility of alterations to the unit by the occupant is contemplated;
• that the possibility of keeping pets is contemplated; and
• that occupants must separately arrange and pay for the connection of telephone, electricity and gas services to their units.

Key Takeaways

• Careful consideration of the local planning law is necessary to understand whether or not you will be able to take advantage of the BtR tax concessions (as set out in our Tax Article).
• Characteristics of the various forms of BtR from State to State may result in a building that could not be characterised as not being used as a commercial residential premises; in particular, where the premises are owned by one entity and managed.
• To provide more certainty of the likelihood that your BtR project is being used as residential premises, application of the factors established in Wynnum may be of assistance.

How we can help

For detailed advice on the planning controls for BtR developments, our planning practice would be delighted to assist you.

Our planning practice provides practical and commercial solutions utilising in-depth industry knowledge and experience. We regularly advise a diverse range of clients on complex matters concerning development controls on a wide range of development types across multiple jurisdictions.

Our wider team have a wide range of experience in relation to BtR projects and would be delighted to assist on planning, property, tax, corporate, and construction law issues.