State Legislated Land Tax is often a significant outgoing for any commercial property owner.
Most Net leases are constructed so that landlords are able to recover Land Tax as part of Statutory Outgoings, however, it’s not unusual that some leases will specify that Land Tax is not recoverable, or that it is only recoverable at the lowest rate and not to be increased above the basic rate if the landlord holds the asset in a less tax effective investment vehicle, or as an offshore owner, which may have additional levies. For example, in Queensland If you are an absentee or a foreign company or trust, a surcharge of 2% is added when calculating land tax.
For Gross leases (that can’t recover outgoings), the landlord is at risk of changes to the Land Tax amount. This could come about due to land revaluation or changes to legislation such as that recently passed in Queensland. Personally, I have engaged consultants a couple of times to challenge land tax valuations, and been successful on more than one occasion. If you believe that the most recent valuation changes have been unjustified, or your land value has gone down, then it may be worth challenging the assessment and arguing for a reduction in your asset’s unimproved land value.
Queensland Land Tax (for all Australians)
So what happened recently in Queensland?
Applicable from 30 June 2023, the Queensland Government has legislated that they will calculate land tax on the total value of your Australian land. This includes your taxable land in Queensland and your relevant interstate land.
‘Relevant interstate land’ includes land located in another state or territory that is valued under interstate valuation legislation (and is not excluded interstate land, such as your principal place of residence).
The total value of your Australian land will be used to determine:
- whether the tax-free threshold has been exceeded, and
- the rate of land tax that will be applied to the Queensland proportion of the value of your landholdings.
The current tax-free thresholds are $600,000 for individuals (other than absentees) and $350,000 for companies, trustees and absentees.
If you only own land in Queensland, you will not be affected by this change. You will continue to be able to access all available exemptions, such as the home (principal place of residence) and primary production exemptions.
However, if you own land in Queensland and in another state or territory, you will need to declare your interstate landholdings.
The land tax rate that applies depends on what type of owner you are and the value of your land. This rate (and surcharge, if applicable) is applied to the total value of your Australian land. Then this figure is applied to the Queensland portion to calculate your annual land tax liability.
Lets look at an example from the QLD Government website:
Source: https://www.qld.gov.au/environment/land/tax/interstate
Here are the rates for individuals:
Rates
| Total taxable value | Rate of tax |
| $0–$599,999 | $0 |
| $600,000–$999,999 | $500 plus 1 cent for each $1 more than $600,000 |
| $1,000,000–$2,999,999 | $4,500 plus 1.65 cents for each $1 more than $1,000,000 |
| $3,000,000–$4,999,999 | $37,500 plus 1.25 cents for each $1 more than $3,000,000 |
| $5,000,000–$9,999,999 | $62,500 plus 1.75 cents for each $1 more than $5,000,000 |
| $10,000,000 or more | $150,000 plus 2.25 cents for each $1 more than $10,000,000 |
On 30 June 2022, Andy owns land in Queensland with a taxable value of $745,000. His land tax is calculated as follows:
Taxable Land Value: $745,000 (less the $600,000 threshold) = $145,000
Calculation
$500 + (1 cent x $145,000)
= $500 + $1450
= $1950
Now let’s look at the new legislation after 30 June 2023. Andy also owns land in Victoria valued at $1,560,000.
The total value of Australian land owned by Andy is $2,310,000, which means the land tax is calculated using a higher rate for individuals (see table above).
This is how Andy’s QLD land tax would be calculated:
Taxable value of Australian land: $2,310,000
Calculation
= $4,500 + (1.65 cents × $1,310,000) – the amount above $1m in the table above
= $4,500 + $21,615
= $26,115
This amount is prorated and applied to the Queensland portion of Andy’s land
(i.e. ($745,000 ÷ $2,310,000) × $26,115)).
The QLD Government will issue an assessment notice for $8,422.37 for Andy’s Queensland Land Tax. This is a significant difference to the previous QLD amount of $1950 (more than 4 times higher). Andy will also still have to pay the Victorian Land Tax to the Victorian Government.
As you might imagine, there was a huge uproar with this change to legislation.
I’m pleased to announce that it appears the Premier will be dumping the proposed land tax.
Below is an excerpt from an article published in the Financial Review
(Source: https://www.afr.com/politics/palaszczuk-scraps-controversial-qld-land-tax-change-20220930-p5bm82)
Palaszczuk dumps land tax after revolt at The Lodge
Queensland Premier Annastacia Palaszczuk has been forced to dump a controversial land tax after weeks of damaging headlines culminated in her being abandoned by her fellow state and territory leaders at a dinner at the Lodge on Thursday night.
To work effectively the tax, which would have applied to thousands of interstate landlords who owned investment property in Queensland, needed other states to share the personal data of their citizens with the Queensland government.
But at the dinner before Friday’s national cabinet meeting in Canberra, NSW Premier Dominic Perrottet, who has been a vocal opponent of the tax, said his state would not cooperate.
Other state leaders, including Victorian Labor Premier Dan Andrews, made it clear they were not happy about being asked to help lift taxes on their own constituents so that Queensland could balance its budget. Mr Andrews faces an election in November.
In a major win for interstate investors who own thousands of properties in places such as the Gold Coast, on Friday morning Ms Palaszczuk announced she would scrap the tax her government passed into law in June.
“Her mind was made up after talking to other premiers,” a government source said.
Last December, Queensland Treasurer Cameron Dick announced the changes to land tax to include interstate land holdings, asserting that some interstate investors “exploited tax-free thresholds in different jurisdictions to minimise their tax obligations”.
Required the goodwill of other states
In an Australian-first, landholders would have to voluntarily disclose their interstate holdings in other states before being taxed for their Queensland holdings. This would add thousands of extra dollars to their land tax bills each year.
After the national cabinet meeting on Friday, Ms Palaszczuk said the land tax change required the “goodwill of other states” to work.
“If we can’t get that additional information, I will put that aside,” she said.
Mr Perrottet backed Ms Palaszczuk’s decision to abandon the tax.
“I applaud the decision, it was the right one,” he said.
The decision to scrap the change, which was due to raise only $20 million a year and would affect 10,000 landholders, was welcomed by investors who described it as a “victory for common sense.
But it came after weeks of headlines about the change turning investors away from Queensland, pushing up rents and exacerbating the state’s housing crisis.
At The Australian Financial Review property summit last week, Dexus chief executive Darren Steinberg described the tax as “a great way of reallocating capital down to the southern states”.
In the end it appears that common sense may have prevailed, and we’re hopeful to see the legislation repealed shortly.
Please reach out to your Pure Commercial Asset Specialist if we can be of any further help.