As part of the Queensland Government’s aim to stimulate investment and social and affordable housing, on 28 March 2023, Treasurer Cameron Dick announced tax concessions for the Build-to-Rent (BTR) sector in Queensland from 1 July 2023 onwards.
BDO commends this announcement and is pleased to provide additional information on the new tax framework below.
BTR viability and opportunities
BTRs have proven incredibly successful for urbanising populations around the world. While a popular and long-established phenomenon overseas, Australia is still yet to fully embrace the trend. There are many barriers to entry preventing BTR schemes in Australia, including current tax laws, high construction costs, lack of financing, and the cost of land close to the city.
Australia ranks as one of the most expensive countries in the world for construction costs and, combining this with the potential yield of BTR developments being lower than other investments, it is understandable why interest in the scheme previously stalled.
In BDO’s Looking Ahead at Real Estate and Construction webinar on BTR last year, our experts discussed the necessity of tax reform and decisive state and federal government action in order to capture the full benefits of BTR schemes.
Background
Under the current land tax provisions in Queensland, unless an exemption applies, an entity is subject to land tax on an annual basis for all land ‘owned’ in Queensland as at midnight on 30 June each year. The amount of land tax levied is tiered on a progressive basis and is only payable where the taxable value of the land is $600,000 or more. However, where the owner of the Queensland taxable land is a foreign entity (e.g. foreign individual, company and/or trust), an additional surcharge of 2 per cent applies in relation to all land tax owned for the relevant year.
Separately, where a foreign entity acquires residential land in Queensland, in addition to the amount of transfer duty ordinarily payable for acquiring the property, the foreign person is subject to an additional 7 per cent in Additional Foreign Acquirer Duty (AFAD).
The Proposed Tax Concessions
In order to reduce the land tax payable in the BTR sector, it is proposed that BTR developments that include at least 10 per cent of their rental homes as affordable housing will receive the following incentives from 1 July 2023 onwards:
- A 50 per cent discount on land tax payable for up 20 years
- Exemption from the 2 per cent foreign investor land tax surcharge for up to 20 years
- Exemption from being subject to AFAD for the future transfer of the BTR site.
Key Takeaways
BDO considers the introduction of these new measures is promising news for the property and construction sector, however, the nuts and the bolts still need to be determined. Whilst the introduction of these measures may assist in kick-starting BTR investment, the Government will need to explain before 1 July 2023:
- Whether the land tax concessions will be available for the upcoming 2024 land tax year
- What constitutes as ‘affordable housing’
- What the conditions are to ensure the land tax discount and exemption remain for 20 years
- Whether purchasers of intended BTR developments will be eligible to be exempt from AFAD.
Questions? Contact us for more information
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