How The Proposed Changes to QLD Land Tax Rules Will Impact The Investor

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The Queensland government has announced in the 2021-2022 Budget Update proposed changes to its land tax regime, the changes will see property owners paying land tax on their Queensland landholding by reference to a rate that takes into account all landholding of the property owner on a nationwide basis (i.e. interstate properties will be aggregated to the Queensland landholding in determining the applicable land tax rate)

The changes seek to target what the Queensland Government describes as a loophole, that currently results in landholders with landholdings across more than one jurisdiction, paying less land tax than landholders who hold the same value of land, but where all of the land is located in Queensland.

 

How does it currently work?

 

Land tax is a state-administered tax that taxes property owners on the total unimproved value of a taxpayer’s Queensland landholdings as at 30 June each year. (Not PPR) Land tax is imposed on a progressive rate taking into account total land holdings held by the said taxpayer (individual, company or trustee of a trust), the rate scale for individuals (which has a tax free threshold of $599,999) is more generous in comparison to companies and trustee of a trust (which has a lower tax free threshold of $349,999).

To illustrate, the government has provided the following example in their 2020-2021 budget update:

 

Prior to Changes

 

An individual landholder with $600,000 in taxable land in Queensland and $400,000 in NSW, would pay $500 in land tax in Queensland ($600,000 landholding value calculated at the first-tier rate of 0.0834%) and no land tax in NSW, at current thresholds.

 

 Under the New System

 

The same individual landholder with $600,000 in taxable land in Queensland and $400,000 in NSW would pay $2700 in land tax in Queensland ($600,000 landholding value calculated at the second-tier rate of 0.45%), even though their land holdings in NSW is below the NSW land tax free threshold and him/her is not subjected to land tax in NSW.

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What It Means for You

 

If you are a property investor that owns property in Queensland and also owns other properties in different states under the same landholding structure (e.g. all in your individual name (can be joint owners), all under the same company or all under the same trustee of trusts), then the announced changes will likely have an implication on your land tax liability (if appropriate legislative amendments are passed).

 

 Practical Difficulties

 

  • Real properties have always been governed under state-based jurisdiction
  • The office of state revenue will need to obtain and merge data from other Interstates Land Registry (it would be assumed that some agreement will need to be reached between the states and territory for sharing of such information).
  • There is a lack of uniform land tax rules between each state and territory, as illustrated by the example above, the thresholds differ, other differences include rates, exemption and concessions rules. Arguably, in circumstances where an individual owns taxable land in other states that are subjected to land tax already, they will be penalised for their Queensland landholdings at a higher rate.

 

What It Means for You

 

If you are a property investor that owns property in Queensland and also owns other properties in different states under the same landholding structure (e.g. all in your individual name (can be joint owners), all under the same company or all under the same trustee of trusts), then the announced changes will likely have an implication on your land tax liability (if appropriate legislative amendments are passed).

 

What can you do?

 

Potential ways of mitigating this include:

  • Have each investment property held by a separate structure – there is a myriad of other benefits including asset protection and risk management.
  • As they currently stand, Queensland’s aggregation rules as between different entities are relatively basic, so it is often possible to obtain the benefit of numerous land tax free thresholds through the use of different investment entities.
  • There may even be scope to transfer land from one entity to another to ensure that they are not aggregated for land tax purposes (although the transfer duty and CGT implications should always be considered before undertaking such a step).

However, it should not come as a surprise if the Queensland Government takes this opportunity to broaden the aggregation and tracing rules for land tax purposes (following the example of NSW and South Australia) to make it more difficult for taxpayers to structure their land ownership to manage their land tax liabilities.

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