By Andrew Spalding, Partner, and Marina Raulings, Partner
Significant land tax changes were announced as part of the 2019-20 Queensland Budget. These changes have now been implemented by the Revenue and Other Legislation Amendment Act 2019.
Below are the key changes and impacts, including recommended actions for businesses and property holders.
The following land tax changes apply from the 2020 land tax year:
- Increased land tax costs for companies and trusts of 0.25% – from 2% to 2.25% (land value over $5m); from 2.5% to 2.75% (land value over $10m).
- Companies and trusts will be subject to a further surcharge of 2% if they qualify as a foreign company or foreign trust (assessed as at 30 June 2019 and each 30 June thereafter). These concepts mirror the definitions used for Queensland additional foreign acquirer duty (AFAD) purposes. The surcharge applies to both commercial and residential properties.
- Increased absentee owner surcharge rate from 1.5% to 2% (relevant for individuals). Australian citizens and holders of permanent visas are now excluded.
These land tax changes may result in significant land tax costs for businesses and property holders:
- Discretionary trusts holding Queensland real property will become subject to the surcharge of 2% if default beneficiaries are broadly defined to include foreign persons. Trust deeds can be amended to remove those default beneficiaries, but any adverse duty and CGT costs should be weighed up against the land tax savings.
Action: Businesses and taxpayers holding property through discretionary trusts should revisit their trust deeds.
- Unit trusts, Funds and Companies holding Queensland real property will become subject to the surcharge of 2% if at least 50% of interests are held by investors that constitute foreign natural persons, foreign companies and foreign trusts (either alone or together with Australian related investors). This will mean that property investment and development vehicles may now be subject to significant extra land tax costs without those costs having previously been included in feasibility studies.
To the extent properties are leased to commercial tenants (leases not governed by the Retail Shop Leases Act 1994), the land owner may be able to pass the land tax surcharge onto tenants as an outgoing. However, this may make those properties less attractive and ultimately result in landlords having to effectively reduce rents, thereby forcing foreign owned land owners to bear the economic cost of the surcharge.
Landlords of leases which are governed by the Retail Shop Leases Act 1994 will not be able to pass the land tax surcharge onto tenants as land tax is not a recoverable outgoing under that Act.
Action: Unit Trusts, Funds and Companies with foreign investors should assess their investor base as to percentage of foreign ownership (together with Australian related investors) and consider strategies to fall under the 50% threshold. To the extent that land owners are liable for the land tax surcharge, they should revisit their leases to check these costs can be passed onto their tenants. For future projects, these costs should be addressed in feasibility studies and product disclosure statements (and equivalent documents).
- Ex-Gratia Relief: There are no equivalent exemptions from the land tax surcharge for developers as in Victoria or New South Wales. It is hoped that some of the concessions developed for AFAD — for example, ex gratia relief for particular foreign property developers that bring capital investment, employment, and an increase in the housing stock to Queensland — may also be extended to these new land tax rules.
Action: Monitor whether guidelines are published by the Queensland Revenue providing for ex-gratia relief. In the meantime, applications should be made on a case by case basis.