The Queensland government will close a loophole with land tax changes to stop investors and interstate landholders from exploiting tax-free thresholds. The changes will result in interstate property investors with multiple landholdings across various states having their annual land tax assessed on the cumulative worth of all properties, rather than just the value of their property located in Queensland.
Introduction to land tax changes
The Queensland Government announced on 16 December 2021 that it will be changing land tax to help improve affordability.
The amendments relate to the calculation of land tax. These amendments may apply to you if you own or have an interest or share in property in Queensland and any other Australian states or territories.
Land tax assessment notices for the year ending 30 June 2021 won’t be affected, and you should pay by the due date.
The changes to land tax are stated on page 23 of the 2021–22 Budget Update (PDF, 1MB).
When announced in the state’s budget update in December, Treasurer and Minister for Trade and Investment Cameron Dick explained that interstate property holders can currently claim the tax-free threshold and benefit from lower land tax rates in multiple states.
The new tax thresholds identify that individuals and entities with more considerable taxable landholdings have more capacity to pay tax. The state Government navigates land tax, which means some interstate landholders have previously exploited tax-free thresholds in different states and territories to minimise tax requirements. Historically, this has meant for Queenslanders who own land only in Queensland they can culminate in paying more land tax than their interstate peers, despite the state’s generous system.
Primary places of residents will remain exempt. There will be no changes in land tax for Queensland residents who only own land within the state. The government will now adjust the current land tax arrangements to factor in the value of land owned interstate when assessing taxpayers’ land tax liability and close the land tax loophole (subject to the passage of appropriate legislative amendments). The land tax tax-free threshold in Queensland is limited to $600,000 per person. Note that if a couple owns multiple properties together, each person in that couple has a $600,000 limit.
Previously, an individual with taxable landholdings of $1 million in Queensland would have paid $4500 land tax or an average of 0.45 per cent.
If an individual landholder owned $600,000 in taxable land in Queensland and $400,000 in NSW, they would pay only $500 in land tax in Queensland and no land tax in NSW, at current thresholds.
A total national taxable land value will exist for each Queensland landholder, excluding exempt land (principal place of residence, for example). The national taxable value will dictate the appropriate tax rate that will apply to the Queensland proportion of the individual or entity’s landholdings value.
Following this approach, an individual with $600,000 in taxable land in Queensland and $400,000 in NSW must pay $2,700 in Queensland land tax. An average rate of 0.45 per cent on their Queensland landholdings is of equal rate as that of the landholder with all their landholding in Queensland.
This change will not affect landholders who only own land in Queensland. Landholders will continue to access all available exemptions, such as the principal residence and primary production exemptions. In addition, supplementary, additional land tax will only apply to the taxable Queensland landholdings of individuals who own land in multiple jurisdictions.
This land tax adjustment will generate approximately $20 million a year.
However, not everyone sees the benefit these new land taxes aim to provide. The announcement caught the property sector off guard and invoked immediate anger. Commenting on the changes, the Real Estate Institute of Queensland (REIQ) stated it was “a slap in the face to the very sector that is propping up the economy” and was “the wrong move at the wrong time.”
Real Estate Institute of Queensland CEO Antonia Mercorella explained that this treatment of property investors as an endless money pit is outrageous. First, the government is raking in a considerable stamp duty windfall, then relying on private investors to provide the majority share of housing supply, and now they’re slapping investors yet again with new taxes.
The Liberal-National Party in Queensland also criticised the proposal, dubbing it a “tax on investment” that will hurt renters.
Renters have already been significantly impacted by the pandemic, with rental prices steadily increasing in Queensland and availability dropping as more Australians relocate to the state throughout 2020 and 2021.
How we can assist investors in the buying process
The property industry is a significant contributor to Australia’s economy. Investor demand has been a critical driver of growth in the residential property market. With all the complexities involved, considering the new and changing legislation related to taxes and other matters, investors must get trusted legal and financial advice before they commit to buying a property to make sure that they have a comprehensive understanding of cost implications that may apply.
Relevant is the decision to purchase a property in your name or the name of an alternative entity such as your spouse, a trust, or a Self-Managed Superannuation Fund (SMSF). The decision can have significant ramifications. For example, it will affect land tax, capital gains tax, stamp duty, tax deductions, and asset protection.
Once you have accumulated assets, it is essential to begin putting in the necessary structures to protect them. These structures may seem unnecessary if your financial position is secure, but you must remember that circumstances may change. Losing assets through litigation can occur if they are not adequately protected. If all of your assets are in your name, you may be particularly vulnerable to asset loss.
How can land tax changes affect you?
Your liability for land tax is deduced at midnight 30 June (the liability date) each year. Changes in your land use or ownership on or before the liability date may affect your land tax. These topics are some everyday events that affect an owner’s liability for land tax.
- Buying or selling land
- No more extended meeting exemption conditions
- Change of residential status
- Revaluation
- Changes affecting trustees, companies and deceased estates
Buying or selling land
Your assessment deliniates your land tax liability. Although, land tax may also become payable when you buy or sell the property.
Refer to the public ruling on contracts for the sale and purchase of the land (LTA011.1) to find out more about land tax liability regarding land under contract.
Sellers
You are still obligated to pay your land tax debt after selling land. The government does not adjust your liability if you only own land for part of the year.
Typically, all mortgages and charges over land must be released when you transfer it. As the first charge over land, the land tax payment is due.
In most circumstances, the payment of unpaid land tax is between you and the buyer via settlement funds.
If the buyer obtains possession prior to settlement, we may still assess the owner if this is undisclosed on the Titles Queensland Form 24, or settlement finalisation within 28 days after 30 June doe not occur.
Buyers
If the seller of the land you are buying has not paid their land tax liability, on the land you are purchasing, their debt may transfer to you. Also, an owner may not know that they have a liability for that year at the time of sale.
Make an application for a land tax clearance search to ensure the payment of the land tax. The government will either issue you with a clearance certificate, cnfirming that no land tax is owing, or notify you of the amount of unpaid land tax required to obtain a clearance certificate.
The government cannot recover unpaid land tax from a purchaser who has received a clearance certificate.
No more extended meeting exemption conditions
Typically, an exemption from land tax will apply until any of the following happens:
- the land is sold
- the description of the landchanges (through rezoning or subdivision, for example)
- you cease to meet the exemption requirements.
You must notify the government if you stop meeting the exemption requirements outlined on the exemption form. Penalties may apply if you do not notify the government within one month after 30 June where you ceased meeting the requirements:
- Land used as your primary residence. You need to occupy the land and no other land continuously as your home for the six months ending 30 June. If you rent out the property, or move out, you may no longer be eligible for the exemption (excluding cases where one can claim a traditional home exemption).
- Land used for primary production. You must have managed a primary production business on the land throughout the year, including 30 June. The exemption
- may be lost if
- the business changes in size or nature
- the business shuts down
- you or a beneficiary no longer lives in Australia or an external territory.
If your circumstances change, you should notify the government in writing as soon as possible. Then, the government will determine if the exemption is applicable.
The government regularly check that owners are continuing to meet exemption eligibility conditions.
Land tax liability will chang if you are not an Australian citizen or permanent visa holder and move outside of Australia or an external territory (are an “absentee”). The change is because the land tax rate for individuals and absentees is different. Learn more about the types of land tax owners.
Residence status change will also affect your eligibility for particular exemptions. Complete an absentee/resident status declaration (Form LT16) if you move overseas or have resided out of Australia for most of the year.
The goverment will then tell you if your resident status changes for land tax purposes based on your circumstances.
If you don’t notify the government, penalties and interest may apply to your land tax.
Revaluation
Queensland Revenue Office (QRO) quantifies land tax using annual land valuations issued by the Valuer-General.
If the Valuer-General revalues your land, you will acquire a maintenance valuation notice. This notice will state the date when the new value takes effect. In addition, the QRO will recalculate land tax liability, and a reassessment notice or refund will come after.
When you obtain a land tax reassessment notice from QRO, check that they used the new value for your land to calculate its taxable value.
Changes affecting trustees, companies and deceased estates
Changes can affect how the assessment of land tax occurs for trustees, companies and representatives of deceased people.
Trustees
Land tax assessments are provided to trustees as the legal owner of taxable land. Although a beneficiary is typically not regarded as the owner for the purpose of land taxes, a change in beneficiaries or a new power of appointment may alter the trustee’s exemption eligibility.
Home exemption
Home or transitional home exemption eligbility depends on all trust beneficiaries occupying land as their principal place of residence. Suppose a beneficiary no longer meets the residency requirement or changes in the beneficiaries or their interest in the trust. In that case, the exemption may no longer be applicable.
Review the public ruling about the home exemption for trustees (LTA041.1) for more information.
If circumstances change, you should notify the government in writing at your earliest convenience. Penalties may apply if you do not notify the government within one month of the 30 June following the change.
Bankrupt or incapacitated people
The government will assess your land tax liability as trustee differently if you are the trustee for someone who:
- declares bankruptcy under the Bankruptcy Act 1966 (Cwlth)
- no long has capacity, as defined by the Public Trustee Act 1978.
Trustees are culpable for land tax if the taxable value of their land is $350,000 or greater. Regarding trustees of bankrupt or incapacitated people, the threshold is $600,000, which means that these owners may have less to pay or no culpability.
Notify the government in writing if you become a trustee in these circumstances and are culpable for land tax. The government will then dictate if the higher threshold applies to your assessment.
Primary production exemption
Where a beneficiary becomes an absentee or is no longer a relevant proprietary company, the exemption will ceaste to apply to land owned on the trust’s behalf, even if used for primary production. Notify the government in writing as soon as possible if this occurs. Penalties may apply if you do not advise the government within one month of the 30 June after the change has occurred.
Companies
A company owns land separate from its owners or directors. Therefore, regular events can occur during the lifespan of a company that will affect land tax assessment.
Consider a scenerio where a company owning land in Queensland with a taxable value greater than $350,000 changes its structure and name or transfer assets, including land, to a subsidiary.
Because land tax assessment on an owner’s land is based from midnight 30 June each year, any ownership changes of the land before this date are unimportant. Therefore, the land tax assessment will apply to the owner listed in the Titles Registry on the liability date.
Primary production exemption
A relevant proprietary company (a company with 50 or fewer shareholders that do not sell shares in it to the public) can claim a primary production exemption on land it owns.
Suppose your company has claimed a primary production exemption but starts selling shares to the public or becomes foreign-owned. In that case, the exemption may no longer apply, even if your land use is for primary production.
Notify the government in writing if any company change impacts your eligibility for the primary production exemption, and they will determine if the exemption is still applicable.
Deceased estates
If the landowner is deceased, the land exemption may still apply. Learn more about deceased estates and land tax.
Vogue Advisory Group – helping our clients grow their portfolio and maximise tax advantages
There is a lot to consider when investing in property. Investors must get trusted legal and financial advice before they commit to buying to ensure that a property will meet their expectations and financial goals and ensure that they have a comprehensive understanding of cost implications that they may face when buying in Queensland.
If you have any questions or concerns regarding tax and your investment portfolio, please contact us.
