By Craig Gibson, Partner and Yvonne Liaw, Senior Associate
Queensland landowners are actively starting to voice their concern over changes to the Land Tax Act 2010 (Qld) (Land Tax Act) set to commence in 2023, that will see many landowners face significant increases in their Queensland land tax liabilities if they own interstate property.
Despite Queensland’s Treasurer describing the revised land tax system as “sensible, prudent reform” that is “fairer and more equitable”, the burdensome administrative nature of the new regime and the significant compliance obligations (for both landowners and the Queensland Revenue Office) have led to universal criticism by taxation experts and the broader property industry.
Set out below is a summary of the new regime and some of the issues we see arising, together with tips and recommendations for interstate landowners to manage their Queensland land tax exposure.
What are the changes?
At present, land tax in each State and Territory is calculated only by reference to the value of land owned by a landowner in that specific State or Territory. That is, if a company owned land in Queensland and Victoria, in calculating the rate of land tax payable in Queensland, only the value of the Queensland land is taken into account.
However, from the Queensland land tax year commencing 1 July 2023, changes introduced pursuant to the Revenue Legislation Amendment Act 2022 (Qld) will see land tax calculated in Queensland having regard to the total value of all Australian land owned by the relevant taxpayer.
While land tax is not intended to be directly imposed by Queensland on a taxpayer’s interstate landholdings, the practical implications of the changes are that the effective rate of land tax applied to calculate a taxpayer’s Queensland liability will utilise rates in higher land tax brackets if the taxpayer has interstate landholdings. The greater the taxpayer’s interstate landholdings relative to those in Queensland, the more the taxpayer will lose the benefit of lower ad valorem land tax rates.
This is achieved practically by:
- Calculating the hypothetical land tax that would be payable if all the taxpayer’s Australian land was Queensland land; and
- Apportioning the calculated amount relative to the value of the taxpayer’s Queensland land compared to its total Australian landholdings.
By way of example, assume a company has Queensland land valued at $2,000,000 and Victorian land valued at $8,000,000:
Under the current regime, the rate of land tax payable by the taxpayer in Queensland would be determined only on the value of the Queensland land.
Based on a value of $2,000,000, the land tax would be $29,500 (calculated as $1,450 plus 1.7 cents for each $1 more than $350,000 – falling in the second bracket of Queensland’s ad valorem rates of calculation for company taxpayers).
Under the new regime commencing 1 July 2023, the taxpayer’s Queensland land tax would be calculated by reference to the total value of the company’s landholdings in Australia ($10,000,000) before apportioning the amount based on the relative value of the taxpayer’s Queensland land compared to the taxpayer’s total Australian landholdings ($2,000,000 / $10,000,000 = 20%).
Based on a total Australian landholding value of $10,000,000, the hypothetical amount of land tax would be $187,500 (falling in the final bracket of Queensland’s ad valorem rates of calculation for company taxpayers). Apportioning this amount 20:80 results in Queensland land tax payable of $37,500 ($187,500 x 20%), an $8,000 (or 27%) increase to the $29,500 of land tax that would have been payable by the taxpayer under the current regime.
Administrative Issues – reporting requirements and land valuations
The new regime places obligations (with risk of penalties) on Queensland landowners to notify the Queensland Commissioner of State Revenue (Queensland Commissioner) of their interstate land holdings each year, and to provide the Queensland Commissioner with the ‘statutory value’ of each interstate landholding for the financial year (to be used to determine the taxpayer’s total Australian land values).
The statutory value of interstate land for a financial year is defined to be the land’s relevant interstate value when the liability for land tax arises in Queensland – being in simple terms the land’s unimproved value last assessed for rating and land tax purposes in the relevant State or Territory (known as its “site value” in Victoria and South Australia, “land value” in NSW and Tasmania, “unimproved value” in Western Australia and the ACT, and “unimproved capital value” in the NT).
Management of statutory valuations is already a complex exercise. The burden of this Queensland reporting regime will be compounded by:
- The timing of compliance relative to receipt of interstate statutory valuations, which differ based on the jurisdiction; and
- The impact of supplementary valuations and/or successful valuation objections in the land’s location State / Territory, necessitating an update to the prior notifications made to the Queensland Commissioner (or the seeking of a refund for land tax already assessed on values that are subsequently lowered in the land’s home jurisdiction), which will make both taxpayer compliance and the Queensland Revenue Office’s accuracy in calculating and collecting the correct amount of land tax incredibly complicated.
There are also restrictions on the grounds of objection available to a taxpayer under the new regime. In particular, a taxpayer will not be able to object to the use of a statutory value to calculate Queensland land tax, if the taxpayer missed the opportunity to object to the statutory value in the relevant State of valuation.
While Queensland’s land tax regime (like that of many other jurisdictions) favours landholding groups that disaggregate their holdings into separate entities (each enjoying the tax-free threshold and benefit of progressive ad valorem rates), the benefit of this disaggregation in the context of trust holdings can be impacted in Queensland if a common trustee holds land for more than one trust, and the beneficial interests in those trusts are the same.
This is not a new development, and many institutional investors and landholdings groups would be aware of this aggregation provision (and accordingly use separate trustee entities for their Queensland landholdings). However, many landholding groups have not previously needed to consider the risks of using a common trustee for separate trusts that hold land in different States.
The new regime amends the trust land aggregation section of the Land Tax Act (section 20), making it clear that the interstate land held by a taxpayer on a separate trust to its Queensland holdings may be aggregated for land tax calculation purposes, if the trusts have common beneficiaries. Accordingly, careful thought should be given to the use of a common trustee for interstate landholdings and thought given urgently to a change of trustee before 1 July 2023.
The new regime provides for the ‘exclusion’ of some interstate land when calculating the taxpayer’s Queensland land tax liability. The interstate land must meet the general requirements for exemption under the Land Tax Act (as if it were Queensland land), under one or more of the following categories of exemption:
- Home (principal place of residence);
- Primary production;
- Supported accommodation;
- Moveable dwelling (caravan) park;
- Retirement village;
- Transitional home;
- Charitable institutions; or
- Aged care.
There are a number of issues with this exclusion mechanism. Specifically:
- The exclusion mechanism necessitates that the taxpayer applies to the Queensland Commissioner for ‘exclusion’ status, even if the relevant land already enjoys exemption in its own State or Territory;
- The requirements for exemption in Queensland do not neatly align with similar categories of exemption in other States and Territories. For example, while land leased to a charity is exempt from land tax in Victoria regardless of whether or not the owner of the land is a charity, that exemption would not be recognised under Queensland’s ‘charitable institutions’ exemption, which necessitates that the owner of the land is itself a charity. This means that the landlord of a property exempt from land tax in Victoria will need to notify the Queensland Commissioner of the statutory value of that property, which will be taken into account in calculating the landlord’s Queensland land tax liability; and
- The dates of relevance for determining whether an exemption is satisfied in one State (for example, in Victoria, being 31 December in the year immediately preceding the land tax year) will differ to the relevant date for Queensland land tax purposes (being 30 June immediately preceding the financial year).
The absurdity that land not subject to land tax in its home state may be relevant for calculation of land tax in Queensland means that taxpayers need to give careful consideration each year to valuation objections for their exempt properties, even though a successful objection may have no material land tax benefit in the land’s home State.
Land tax recovery from tenants
The new regime is silent on its impact on land tax recovery in Queensland and has left the issue of recovery considerations to the commercial bargaining of landlords and tenants (subject to the existing statutory restrictions on land tax recovery in Queensland).
Therefore, there is a real possibility that the burden of the increased rates of calculation could be worn by Queensland business tenants, notwithstanding the Queensland Government’s view that the new land tax system makes the position fairer for Queenslanders.
Recovery will be dependent on the nature of each tenancy (i.e. commercial, retail, residential and/or the timing of the lease’s entry) and the wording of the relevant lease for outgoing recovery purposes. It is therefore prudent that Queensland landlords with interstate landholdings give early consideration to their Queensland lease provisions, and whether the increased land tax amounts expected from 1 July 2023 can be passed on to existing tenants as part of future financial years’ outgoings. Those landlords should also give careful consideration to outgoing recovery clauses in any new leases that are entered, if they wish to recover any additional land tax costs.
Tips and recommendations
Having regard to the above issues, in preparation for the introduction of the new land tax regime, taxpayers that hold land in both Queensland and other States and Territories should undertake the following well prior to 30 June 2023:
- Landholding restructure: give consideration to the disaggregation of their interstate land into a separate landholding entity;
- Valuation Management: carefully consider the management of their interstate statutory valuations, appreciating that a successful objection may lead to tax savings in both the land’s home jurisdiction and in Queensland;
- Trustees: avoid the use of a common trustee for separate trusts with common beneficiaries, and take steps to change trustees in interstate jurisdictions before 1 July 2023 if necessary;
- Excluded land: give consideration to the availability of an ‘exclusion’ for interstate land under one of Queensland’s exemption categories, and consider a pre-emptive application for exclusion and/or the taking of any necessary steps to ensure the availability of the exclusion (come 30 June 2023); and
- Queensland Leases: pre-emptively review land tax recovery clauses in existing leases, and carefully consider land tax recovery clauses in new leases.
In addition, Queensland’s bold actions should be seen as a warning for landholders across Australia – whether they hold land in Queensland or not. As with the foreign land tax surcharge, nearly every State and Territory has followed Victoria’s early lead at introducing equivalent additional taxes on foreigners. Inevitably, revenue offices across Australia will be watching Queensland’s new regime with interest, and likely considering the introduction of similar regimes as State budgets struggle to recover from the COVID-19 pandemic and State Governments look for opportunities to lessen their dependence on stamp duty.
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