$25,000 Home Builder Grant Scheme Announced

The Federal Government has announced a new Home Builder grant scheme, providing eligible owner-occupiers (including first home buyers) with a tax-free grant of $25,000 to encourage people to build a new home or substantially renovate their existing home.

The Home Builder grant is only available on building contracts signed between 4 June 2020 and 31 December 2020, and construction must begin within 3 months of the contract date.

The Home Builder grants will be distributed by the revenue office of the State or Territory where you live, or plan to live, on behalf of the Australian Government, which will be the State Revenue Office ( SRO ) in Victoria.

There are a few complexities to consider for the Home Builder grants, for both home builders/renovators and the building industry in general, and we recommend that all of these issues are considered in detail before signing a new contract on the expectation that the Home Builder grant will apply.

Eligibility criteria

Various eligibility criteria apply to those individuals applying for the Home Builder grant and the builders engaged to complete the building project.

Individual applicant eligibility

The Home Builder scheme is available to owner occupiers, including first home buyers, but it is not accessible to owner builders, developers or investors.

To be eligible you need to be:

An individual (not a company or trust); and
18 years of age or older; and
An Australian citizen (not for non-residents, permanent residents or New Zealand citizens).

The individual applicant will also need to meet the income test, which states you cannot earn more than:

Individuals - $125,000 based on your 2018-19 or later tax return; or
Couples - $200,000 based on both of your 2018-19 or later tax returns.

The income limit is based on your gross income, before tax and excluding superannuation. The easiest way to confirm your income with your 2019 Notice of Assessment, which shows your taxable income for the 2018-2019 financial year.

The Government has noted that the gross income threshold will be tested against your most recent lodged tax return. We note that the Home Builder grant will likely be a self-assessment application process, so if the SRO later identifies that your income exceeds the thresholds above (even as a result of a subsequent amended 2019 tax assessment), you may be required to repay the $25,000 grant payment.

The building project eligibility

The building contract must be signed between 4 June 2020 and 31 December 2020, and the construction or renovation must commence within three months of the contract date.

The grants are available if you build a new home or renovate a home to live in (your principal place of residence) where:

For " new home " (incl. house, apartment, house and land package, off-the-plan, etc) construction - the property value (house and land) does not exceed $750,000; or

For " renovation works " (incl. renovation works must be to "improve the accessibility, liveability and safety" of the dwelling) completed to substantially renovate your existing home - where:

The renovation contract is between $150,000 and $750,000, and

The value of your existing property (house and land) does not exceed $1.5 million

We note that "renovation works" must be made to "improve the accessibility, liveability and safety" of the dwelling, and cannot be for additions to the property (such as swimming pools, tennis courts, outdoor spas and saunas, sheds or garages (unconnected to the property)).

If you own or have purchased land but have not signed a contract to build your home, you may meet the eligibility criteria if you:

Own a property (house and land), and demolish the house to rebuild a new dwelling – this will be counted as a substantial renovation, and therefore subject to the "renovation works" price range of $150,000 to $750,000 provided the total value (house and land) of the property does not exceed $1.5 million pre-renovation;

Own vacant land before 4 June 2020, and then build – the total value of the land and new build cannot exceed $750,000; or

Buy the land after 4 June 2020, and then build – the total value of the land and build cannot exceed $750,000.

Building contract integrity measures

Building contracts must be agreed at arms-length rates , that is, the parties cannot be related, connected or between two parties not freely independent of each other. Renovations or building work must be undertaken by a registered or licenced builder and have a currently valid building licence or permit.

We note that you cannot be an owner builder, individually employ tradespeople to complete the renovations, or use a contract from earlier than 4 June 2020 even if construction has not started yet.

In relation to the pricing requirements, the terms of the building contract should be commercially reasonable, and the contract price should not be inflated compared to the fair market price. The rules enable the purchaser to request that the builder demonstrate that the contract price for the new build or substantial renovation is no more than a comparable product (measured by quality, location and size) as at 1 July 2019.

Interaction with first home owner grant scheme

The Home Builder grant does not exclude first home buyers from accessing other grants and concessions such as the First Home Owner Grant, stamp duty concessions, the First Home Loan Deposit Scheme, and First Home Super Saver Scheme.

Timing issues to consider

We note that payment timing of the $25,000 Home Builder grant has not been confirmed by the Government at this time. If you are entering into your building contract before the Home Builder grant is paid out, we recommend you consider whether the access to the $25,000 grant payment is not essential for you to be able to complete and finance the building project.

We also note that the $25,000 Home Builder grant should not be relied upon to fund the deposit for the building project, for the same timing reason explained above.

Finally, as the builder/contractor needs to commence building works within three months of the contract date, so it will be important to make certain that the contract clearly recognises the commencement dates.

What is the application process & what documentation should be provided?

You will be able to apply for Home Builder grant through your relevant State or Territory revenue office or equivalent authority, once the State or Territory Government that you live in (or plan to live in) signs the National Partnership Agreement.

The State or Territory revenue office (ie. the SRO in Victoria) will require certain documents to process an application, and it is currently understood (at a minimum) that you will need to provide the following information/documentation:

Proof of identity;
A copy of the building contract, dated and signed by you and the registered or licenced builder;
A copy of the builder's registration or licence (depending on the state you live in);
A copy of your 2018-19 tax return (or later) to demonstrate your eligibility against the income cap; and
Documents such as council approvals, building contracts or occupation certificates and evidence of land value.

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Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further

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