Are you eligible for the new HomeBuilder program?

In an effort to support jobs in the residential construction sector, Scott Morrison has recently announced the introduction of the new HomeBuilder program.

The HomeBuilder program provides eligible owner-occupiers (including first home buyers) with a grant of $25,000 to build a new home or substantially renovate an existing home where the contract is signed between 4 June 2020 and 31 December 2020.

Who is eligible?

To be eligible for the HomeBuilder program the applicant must:

• be an owner-occupier of the relevant property;
• be a natural person (not a company or trust) aged 18 years or older;
• be an Australian citizen;
• meeting one the following two income caps:
  • ​have a taxable income of $125,000 or less per annum for an individual applicant based on their 2018-19 or later income tax return; or
  • have a combined taxable income of $200,000 or less per annum for a couple based on their 2018-19 or later income tax returns;
• enter into a building contract between 4 June 2020 and 31 December 2020 to either:
  • build a new home as a principal place of residence, where the property value does not exceed $750,000; or
  • substantially renovate an existing home as a principal place of residence, where the renovation contract is between $150,000 and $750,000, and where the value of the existing property does not exceed $1.5 million;
• construction must commence within three months of the contract date.

What dwellings are eligible?

All dwelling types (house, apartment, house and land package, off-the-plan, etc) are proposed to be eligible under the HomeBuilder program, in accordance with the requirement that the owner-occupier must contract to build a new dwelling or substantially renovate their existing dwelling.

Who is excluded?

The program is aimed at owner-occupiers that engage third-party builders. Accordingly, owner-builders and those seeking to build a new home or renovate an existing home as an investment property will be ineligible for the HomeBuilder program.

Importantly, anti-avoidance provisions are likely to apply, and thus in negotiating a building contract, the parties must deal with each other at arm’s length. This effectively means that the contract must be made by two parties freely and independently of each other, and without some special relationship, such as being a relative or related party.

Further, the Government has stated that the terms of the contract should be commercially reasonable and the contract price should not be inflated compared to the fair market price.

Who can provide the building work?

Renovations or building work must be undertaken by a registered or licenced building service “contractor” (depending on the relevant state or territory) and named as a builder on the building licence or permit.

The registered or licensed builder must 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, if requested by the purchaser.

What renovations are eligible?

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

How is the grant treated for income tax purposes?

The HomeBuilder grant will be non-taxable; consistent with existing state and territory First Home Owner Grant programs.

How do you apply?

The HomeBuilder program will be implemented via a National Partnership Agreement, signed by the Commonwealth and state and territory governments.

Applicants will be able to apply for the HomeBuilder program once the relevant State or Territory Government signs the National Partnership Agreement with the Commonwealth Government.

When the States and Territories begin accepting HomeBuilder applications, they will backdate acceptance of these applications to 4 June 2020.

What is the economic impact?

The Government has stated that the program is expected to provide around 27,000 grants at a total cost of around $680 million. The HomeBuilder program is proposed to support the 140,000 direct jobs and another 1,000,000 related jobs in the residential construction sector including businesses and sole-trader builders, contractors, property developers, construction materials manufacturers, engineers, designers and architects.

The program has been a welcomed stimulus measure to support those operating in the residential construction sector.

Examples of the HomeBuilder grant

First home buyers Brad and Jen decide to purchase a house and land package:

Brad and Jen enter into a house and land contract for $550,000 on 25 September 2020. Brad and Jen apply to the relevant State or Territory revenue office to receive the HomeBuilder $25,000 grant. The revenue office conducts the eligibility checks and reviews the couple’s documentation and confirms that both Brad and Jen are Australian citizens, over the age of 18, have a combined taxable income under $200,000 based on their 2018-19 tax return and the value of the contract is under the $750,000 contract price cap.

As the eligibility criteria have been met, Brad and Jen will be eligible for the HomeBuilder grant.

Owner-occupier Liam decides to substantially renovate his home:

Liam enters into a contract to substantially renovate his home on 31 December 2020, with renovations valued at $500,000. The value of his home is $950,000 (this includes the value of the house and the land). Liam pays the builder $10,000 to commence the renovation of his home on 20 February 2021. Liam then applies directly to the State or Territory revenue office to receive the

$25,000 HomeBuilder grant. The revenue office conducts the eligibility checks and confirms that Liam owns the property, is an Australian citizen, over the age of 18, and has a taxable income under $125,000 based on his 2019-20 tax return. The revenue office also confirms the value of the renovations is between $150,000 and $750,000, and the value of his home is less than $1.5m and Liam has made the first progress payment on the renovations.

As the eligibility criteria have been met, Brad and Jen will be eligible for the HomeBuilder grant.

How can RSM help?

If you have any questions regarding the new Homebuilder program and your eligibility, please get in touch with your local RSM property and construction expert today.