Update: Following the original publication from September 15 2022, Queensland Premier Annastacia Palaszczuk announced on 30 September 2022 a decision to scrap the Queensland land tax changes. The Queensland government will have to pass an amendment to reverse the relevant legislative provisions, which were enacted on 30 June 2022.
Queensland’s new Revenue Legislation Amendment Act 2022, enacted on 30 June 2022, contains a significant change to Queensland’s land tax regime and implements what was originally announced in the Queensland Government’s 2021-22 Budget Update – Mid-Year Fiscal and Economic Review on 16 December 2021. The new land tax rules it contains will apply from the 2023 land tax year onwards.
The new land tax regime will affect taxpayers who own land in Queensland as well as in other states and/or territories across Australia (“Australian land”).
When calculating the amount of land tax payable, the Queensland Revenue Office (QRO) will take into account the total value of the Australian land in working out:
- Whether the tax-free threshold for Queensland land tax has been exceeded; and
- The rate of Queensland land tax that will be applied to the Queensland proportion of the taxpayer’s landholdings (noting that the rates of land tax are on a progressive scale).
Those who own land in Queensland only, or who do not own any land in Queensland will not be affected by the new regime.
How does the new regime work?
From 30 June 2023, when determining whether the tax-free threshold1 has been exceeded and the rate of land tax that should be applied to Queensland landholdings of an individual or an entity, the total value of all Australian land owned by the taxpayer must be taken into account.
The value of land in states and territories outside of Queensland is generally the unimproved value/land value/site value as determined under the respective valuation or rating legislation of each jurisdiction and is the value typically used in the assessment of land tax in each jurisdiction.
Generally, those impacted by the change are expected to face an increase to their annual Queensland land tax bill (which could be tens of thousands of dollars).
The example below illustrates how the new regime could result in a significant increase for a person who owns land in multiple jurisdictions.
|TaxMe Pty Ltd owns land in Queensland with a taxable value of $8,000,000. The company also owns land in Victoria with a taxable value of $5,500,000. A comparison of the company’s land tax position before and after the new regime changes is set out below.|
|The company’s land tax position under the current regime||The company’s land tax position under the new regime|
Taxable value of land: $8,000,000
$75,000 + (2.25% × 3,000,000) = $142,500
Determine the gross amount (total value of all Australian land): $13,500,000
Apply the relevant land tax rate4 to the gross amount:
$187,500 + (2.75% × $3,500,000) = $283,750.
$283,750 is then applied to the QLD portion of the company’s land to derive the land tax liability:
($8,000,000 ÷ $13,500,000) × $283,750 = $168,148.15
Taxable value of land: $5,500,000
$27,975 + (2.55% × 2,500,000) = $91,725
Land tax payable in Victoria is unaffected by the new Queensland land tax regime and remains at $91,725.
|Company’s total land tax liability: $234,225||Company’s total land tax liability: $259,873.15|
Under the new regime, the company’s overall land tax has increased by $25,648.15 per annum.
If a taxpayer is an absentee individual or a foreign company or trust, the surcharge rate of 2% will apply to the taxable value of the Queensland land portion in addition to the standard rate of land tax.
What about land tax exemptions?
Land in Queensland
Land in Queensland that is exempt under the Queensland land tax legislation will not be included within the scope of the Queensland land tax assessment process. Under the new regime, the existing exemptions under the Queensland land tax legislation will continue to be available for land in Queensland (where such land is qualifying land or where the relevant requirements for the exemption are met).
Land outside Queensland
Interstate land that is exempt in accordance with the rules of the relevant jurisdiction may not necessarily be exempt or excluded from the calculation methodology under the new land tax regime in Queensland.
The relevant exemption requirements under the Queensland land tax legislation must be met in order for the interstate land to be treated as “excluded interstate land”, that is, land that is excluded from the scope of the new land tax regime in Queensland.
Queensland’s requirements for a particular exemption could be different to those of the other states and territories, despite sharing similar descriptions or names. Therefore, you should not assume that an exemption that applies to land in one state will automatically also be applicable in Queensland. A close examination of the particular exemption provision in the Queensland land tax legislation is required to ascertain whether interstate land is excluded from the scope of the new Queensland land tax system due to the land qualifying for a land tax exemption.
Further, an application would need to be made to the QRO for the interstate land to be excluded from the land tax calculation. According to the Queensland Government’s webpage at the time of writing, more information on exclusions and how to apply will be available after 30 June 2023.
By way of an example, land located outside greater Melbourne that is used primarily for primary production should be exempt from land tax in Victoria under section 65 of the Land Tax Act 2005 (Vic).
However, this land may not be an “excluded interstate land” under the new Queensland land tax regime because the relevant primary production exemption in the Queensland legislation requires not only that the land is solely used for primary production, but also that the primary production activities must be carried out in a form of a “business”.
The requirement that the land is used solely for the “business” of primary production means that the primary production activity must constitute a “business” (i.e., the activity is for the purpose of profit on a continuous and repetitive basis) as opposed to an activity that is less than a business. If the landowner cannot satisfy the “business” requirement, even if the land is exempt for Victorian land tax purposes, we understand that the land would not be excluded from the new land tax assessment regime in Queensland. It remains to be seen whether, and if so, how the QRO intends to address this anomaly.
What about land held in separate but related entities?
Under the new rules as enacted on 30 June 2022, the value of land held by separate but related entities is not taken into account.
Please note that land held by related trusts that have the same trustee and the same beneficiaries may be aggregated for land tax assessment in Queensland under the pre-existing land tax rules and the new rules from 2023.
Taxpayers must declare their interstate landholdings (in an approved form including details such as property description, value and interest in the land) to the QRO on or before 31 October in the relevant financial year or within 30 days of receiving a land tax assessment notice, whichever is earlier.
A failure to comply with the reporting obligation is an offence that may attract a penalty equal to 100 penalty units (current value of $14,375).
Summary of implications
People who own land in Queensland as well as outside Queensland will generally be worse off under the new land tax regime because:
- The Queensland land tax-free threshold will be easier to exceed as the land tax assessment pool is extended to all relevant interstate lands;
- Due to the differences in exemption requirements between the land tax legislation in Queensland and other states or territories, land that is otherwise exempt in jurisdictions outside of Queensland could be brought into the Queensland land tax assessment pool because it does not satisfy the equivalent Queensland exemption; and
- Even though the new regime does not purport to impose Queensland land tax on a person’s landholdings in other states or territories, the effect of it is that the person’s Queensland land tax will increase (in some instances significantly) because of that person’s interstate landholdings. As there is no credit given for the land tax that the person has already paid outside Queensland, the new regime effectively results in a double tax scenario for that landowner.
Additionally, it may be even more important to ensure that any challenges to the land values used for land tax assessment purposes are done in accordance with the processes of the relevant state or territory’s land valuation framework, as those values will not only continue to be relevant for local land tax and rates assessments but will also factor into the land tax payable in Queensland under the new regime.
What are the next steps?
Clients who hold land in Queensland as well as in other states or territories should consider the implications (including a potential increase to their annual land tax liability) of the new land tax regime for their landholdings and contact their Pitcher Partners representative for assistance as required.