The ‘housing and productivity contribution’ (tax) is here

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By Aaron Gadiel, Partner

The new ‘housing and productivity’ system of state development levies kicked-in on 1 October 2023, with some last-minute twists in the details of the scheme.

Mills Oakley first wrote about the new scheme in our July 2023 article here.   The NSW Government subsequently released a draft ministerial order setting out the details of the scheme.  Mills Oakley wrote about that draft order in September 2023 here.

The ministerial order has now been made — and it commenced on 1 October 2023.  It is known as the Environmental Planning and Assessment (Housing and Productivity Contribution) Order 2023.  It is available here.

In this article, we highlight important aspects of the new regime, but we do not cover every element of the new scheme.  This article is an updated version of the article we published in September.

Three types of development

The new levy is called a ‘housing and productivity contribution’.  It applies in the following regions:

  • the Central Coast region;
  • the Greater Sydney region;
  • the Illawarra-Shoalhaven region; and
  • the Lower Hunter region.

(It does not apply in certain ‘Lease Areas’ within Port Botany, Port Kembla and Port of Newcastle.)

The levy is required when development consent (including a complying development certificate) is granted for:

  • ‘residential development’;
  • ‘commercial development’; and
  • ‘industrial development’.

In brief terms, a ‘residential development’ is limited to either:

  • a residential subdivision;
  • a residential strata subdivision;
  • ‘high-density residential development’;
  • development for the purposes of a manufactured home estate (in respect of which development consent is granted under Part 8 of State Environmental Planning Policy (Housing) 2021).

The reference to ‘high-density residential development’ is a reference to development for the purposes of any of the following:

  • build-to-rent housing;
  • a residential flat building;
  • shop top housing; and
  • seniors living consisting of a group of independent living units.

A development consent for, ‘multi dwelling housing’ — that does not authorise the strata subdivision — does not trigger the need for the payment of the housing and productivity contribution (unless it is approved as ‘build-to-rent housing’ under Part 4 of Chapter 3 of the State Environmental Planning Policy (Housing) 2021).

(In simple terms, ‘multi dwelling housing’ is development for three or more dwellings — attached or detached —  on a single lot , where each dwelling has access at ground level.  This type of development typically presents as terraces or townhouses.)

The obligation to pay the new state levy is triggered if ‘multi dwelling housing’ is strata subdivided (which is often carried out under a complying development certificate after the building has been approved by a development consent).

‘Co-living housing’ is treated as a type of ‘commercial development’ for the purposes of the levy regime.

Boarding houses, public housing, residential (aged) care facilities, certain ‘affordable housing’ — and some similar categories of housing — are exempt from the new levy regime.

A development is ‘commercial development’ if it is one of 17 development types listed in the order.  These development types are:

  • amusement centres;
  • animal boarding or training establishments;
  • centre-based childcare facilities;
  • co-living housing;
  • commercial premises (being business premises, office premises and/or retail premises);
  • entertainment facilities;
  • function centres;
  • highway service centres;
  • marinas;
  • medical centres;
  • registered clubs;
  • restricted premises;
  • service stations;
  • sex services premises;
  • tourist and visitor accommodation, other than bed and breakfast accommodation and farm stay accommodation;
  • veterinary hospitals; and
  • wholesale supplies.

Not everything that might be thought of as ‘commercial development’ in a plain-English sense is captured by the above list.  For example, a private hospital is not a ‘commercial development’.

A development is ‘industrial development’ if it is development for any of the following purposes:

  • an industrial training facility;
  • industry (being general industry, heavy industry or light industry);
  • storage premises; or
  • a warehouse or distribution centre.

Trigger for payment

Generally speaking, the new state levy must be paid before the issue of the first construction certificate (in relation to a development consent to which the levy applies).

If no construction certificate is required (such as a development authorised by a complying development certificate), the levy must be paid before the commencement of any work authorised by the development approval.

Where the development consists only of:

  • residential strata subdivision, or
  • residential strata subdivision and a change of use of an existing building,

the levy must be paid before the issue of the first strata certificate relating to the residential strata subdivision.

If no construction certificate is required for high-density residential development, the levy must be paid before the issue of the first strata certificate relating to the development.

Where the relevant development consent consists only of residential subdivision, the levy is to be paid before the issue of the first subdivision certificate in relation to the development.  However, the monetary contribution may be paid progressively if a subdivision certificate would create only some of the lots under the development consent.

A concept development consent may be granted subject to a condition requiring the levy only for the first stage of development (for which detailed proposals have been set out in the application).  However, there will also be a condition that a levy may be payable for development the subject of a subsequent development application.

For a manufactured home estate, the levy must be paid before the installation of the first manufactured home on a dwelling site (if no construction certificate is required in connection with the development).

Cashflow and financing implications for high-density residential development

There has been a big change from the draft ministerial order.  This change will mean that the levy will have a greater impact on the finance costs and cash flow of new high-density residential development.

In short, under the draft ministerial order, there was to be no obligation to pay the new levy on high-density residential development before the issue of a strata certificate.  This, of course, normally comes towards the end of the construction process (around the time of the issue of an occupation certificate).

However, just weeks after the draft ministerial order was publicly released, the government has back-flipped, and the new levy must now be paid prior to the issue of a construction certificate for the new development.

Three components of contribution

A single development may be subject to three different components of ‘housing and productivity’ contribution.

Since the passage of the legislation, the NSW Premier, Chris Minns, has made a public statement indicating that the Government was looking to go beyond the contribution amounts announced in the lead-up to the parliamentary debates.

The draft ministerial order — and its associated implementation guide — paves the way for these additional contributions.

In brief terms, the ‘housing and productivity contribution’ is divided into three components:

  • the base component;
  • a strategic biodiversity component; and
  • a transport project component (initially limited to the Pyrmont Peninsula).

The base component rates will initially be as follows.

In Greater Sydney:

  • Residential subdivision — $12,000 per new dwelling lot.
  • Residential strata subdivision — $10,000 per new strata dwelling lot.
  • High-density residential development — $10,000 per new high-density dwelling.
  • Commercial development — $30 per square metre of new gross floor area.
  • Industrial development— $15 per square metre of new gross floor area.

In the Central Coast, Illawarra-Shoalhaven and the Lower Hunter:

  • Residential subdivision — $8,000 per new dwelling lot.
  • Residential strata subdivision — $6,000 per new strata dwelling lot.
  • High-density residential development — $6,000 per new high-density dwelling.
  • Commercial development — $30 per square metre of new gross floor area.
  • Industrial development — $15 per square metre of new gross floor area.

A ‘housing and productivity contribution’ is not required for:

  • the strata subdivision of high-density residential development; or
  • the subdivision of the land on which the manufactured home estate is located.

This avoids what would otherwise be double-taxation on the same dwellings.

The government had originally proposed that the scheme would start with a Cumberland Plain Conservation Plan strategic biodiversity component.  However, the commencement of this component has been ‘deferred’.  No timeline has been publicly released on when it will be finalised.

The Government has flagged that a strategic biodiversity component may be introduced for other areas.  However, such a component can only be imposed for measures required for biodiversity certification of the land.  For this reason, it seems to us that it is unlikely that it will be extended to developments within well-established urban areas.

The Pyrmont Peninsula (Sydney Metro) transport project component is initially as follows:

  • Residential subdivision — $15,000 new dwelling lot.
  • Residential strata subdivision — $15,000 new strata dwelling lot.
  • High-density residential development — $15,000 per new high-density dwelling.
  • Commercial development — $200 square metre of new gross floor area.

The Government’s ‘Implementation Guide’ says that the transport project component is an additional contribution from new development on land near significant transport infrastructure investment ‘that increases development potential’. The Government says it will determine a ‘transport project component’ of the contribution based on a ‘capacity to pay’ analysis.

All of the above rates will be indexed quarterly, starting 1 January 2024, in-line with the ‘Producer Price Index (Road and Bridge Construction (NSW))’ published by the Australian Bureau of Statistics.  At times, this index has increased at a faster rate than the consumer price index.

Transitional arrangements

In general

The new regime does not apply to a development consent if the development application was lodged before 1 October 2023 —  even if development consent is granted after that date.  (The same can be said for an application for a complying development certificate.)

A levy will not be payable for the later strata subdivision of a ‘high-density residential development’ approved under such a development consent — even if the application for the strata subdivision was lodged since 1 October 2023.

Multi dwelling housing

However, the transitional arrangements treat ‘high-density residential development’ (such as residential flat buildings and shop top housing) differently from ‘multi dwelling housing (terraces and townhouses on a single lot).


  • you have obtained a development consent for ‘multi-dwelling housing’;
  • the ‘multi dwelling housing’ is not ‘build-to-rent housing’ under the State Environmental Planning Policy (Housing) 2021; and
  • you have not obtained any approval for subdivision,

you may end up having to pay the new state levy when as part of your subdivision approval.

If the development application or complying development certificate application for the strata or Torrens subdivision of ‘multi dwelling housing’ is lodged from 1 October 2023, the ’housing and productivity’ contribution will be payable on each new strata/residential lot.  It will not matter that the development consent for the erection of the ‘multi-dwelling housing’ was pending on (or granted before) 1 October 2023.

Temporary discount period

If a housing and productivity contribution is paid:

  • before 1 July 2024 — the amount otherwise payable (apart from any transport project component amount) is reduced by 50 per cent;
  • between 1 July 2024 and 30 June 2025 — the amount otherwise payable (apart from any transport project component amount) is reduced by 25 per cent.

If a transport project component is paid at any time before 1 July 2024, the amount is reduced by 25 per cent.

It is important to emphasise that — to be eligible for the relevant discount — the contribution must be paid in the nominated timeframe.  The discount is not available merely because development consent has been obtained by a certain date.  This distinguishes the new scheme from some past discounting/concessional arrangements.

Stages subject to a concept development consent

There is a limited exclusion for new development consents that have been granted under an earlier concept development consent (if the concept development consent was granted before 1 October 2023 or its development application was pending on that date).

In that case, no ‘housing and productivity levy will be payable if the relevant construction, subdivision or strata certificate that would otherwise trigger the payment of the levy ‘could have been issued’ before 1 July 2025.

This means, for example, if:

  • you lodge a new development application — on or after 1 October 2023 — for the carrying out of a stage of an approved concept development; and
  • the development consent is only granted on or after 1 July 2025,

you will need to pay the new ‘housing and productivity’ levy.

Western Sydney Growth Areas and Western Sydney Aerotropolis

Land in the Western Sydney Growth Areas and Western Sydney Aerotropolis special contributions area is excluded from the new housing and productivity contribution until 1 July 2026 (and the old special infrastructure contribution regime will continue to apply in the interim).  This seems intended to ensure that those areas do not benefit from the initial discounting that is on offer.

Concession for past contributions

There are also transitional provisions allowing the Secretary of the Department of Planning and Environment to certify that either:

  • a contribution to the provision of State or regional infrastructure has been made in relation to development on land; or
  • a change to an environmental planning instrument applying to land.

Such a certificate has the effect of reducing the housing and productivity contribution, consistent with the certificate.

However, the Secretary will lose the power to issue such certificates from 1 July 2026. Developers and landowners should not lose sight of the need to make a timely application to obtain such a certificate (where they think they may be eligible).

Planning agreements

Transitional provisions have been put in place so that planning agreements that excluded (or modified) the application of the former ‘special infrastructure contribution’ regime will also exclude (or modify) the new ‘housing and productivity contribution’ regime.

Bottom line

The bottom line is that the NSW Government has introduced a new broad-based scheme of taxation for new development.  This scheme will burden new development — and create new cash-flow issues during the construction phase of new development.

The new taxation scheme has been designed so that it can be readily expanded in areas that benefit from new transport infrastructure investments. Prudent developers may decide to factor in the possibility of additional levies where this may be an issue.

In areas where biodiversity certification is expected, prudent developers may also want to consider the likelihood of a further levy, by way of a strategic biodiversity component, being imposed.

For further information, please do not hesitate to contact us.

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