In December 2021, Queensland’s Treasurer handed down the mid-year budget update announcing a proposed change to the land tax regime to include the value of any land owned by an investor in all other states and territories when calculating the duty payable on the investor’s Queensland based property. Real Estate lawyer Luke Hefferan explains the impact of the proposed changes on interstate investors.

Key points

• The Queensland government has announced a new property tax which will impact interstate investors.
• The value of an investor’s real estate assets outside Queensland will be included in calculating the land tax liability on their Queensland investments.
• Key industry stakeholders have expressed significant concerns.
• The proposed changes require legislative amendments which are yet to be confirmed.

Current system

Currently, each state and territory has its own land tax regime, which operates separately from the regimes of the other states and territories. 

This means each regime has its own threshold minimum before land tax liability applies allowing investors with multi-state portfolios to either avoid land tax completely (if the land values of all properties they own stays below each state’s minimum) or have a lesser land tax liability than if they owned the same value of land, but it was concentrated in one state.

The practical example used in the Treasurer’s budget update was as follows:

• An individual who owns two investment properties, both in Queensland, with land valuations of $600,000 and $400,000 has a total land tax liability of $4,500.
• An individual who owns two investment properties, one in Queensland with a land valuation of $600,000 and the other in NSW with a land valuation of $400,000, has a total land tax liability of $500. This is due to the NSW property being under the minimum threshold for land tax in that state and the investor therefore only paying land tax in Queensland (as calculated on the land valuation of their Queensland land only).

Proposed new system

Using the second limb from the above example, under the proposed new system, the value of the NSW land would be included in calculating the land tax liability on the Queensland land. 

As indicated above, if both the investor’s properties (with a total valuation of $1,000,000) were based in Queensland, they would have a liability of $4,500 (or 0.45 percent). On this basis, the land tax liability for their Queensland property will be 0.45 percent of the valuation of the Queensland land (ie $600,000), leaving the investor with a liability of $2,700.

The examples used in the Treasurer’s budget update are fairly modest. However, the discrepancy becomes more pronounced where more significant interstate land holdings are introduced. For example, if the Queensland land value is $600,000 but the interstate land value is $2,400,000, then—

• an individual investor would have a land tax liability in Queensland of $7,500 (as opposed to $500), and
• a company or trustee investor would have a land tax liability in Queensland of $9,000 (as opposed to $5,700).

Comments from the Treasurer

When handing down the budget update the Treasurer stated, “At the moment, interstate property speculators can claim the tax-free threshold and take advantage of lower land tax rates in multiple states”. The Treasurer went on to claim, “young families in places like Logan and Ipswich face unfair competition from southern-based speculators who are flipping properties around the country at a furious rate”.

To be clear, the Treasurer’s proposed changes will not affect investors whose land holdings are solely in Queensland, nor will it affect a landholder’s ability to claim all available exemptions, such as the principal place of residence or primary rural production exemptions. 

Response from the industry

The industry response to these changes has been primarily negative.

REIQ chief executive Antonia Mercorella questioned the changes, “How can the government possibly justify slugging property investors with tax for land they own that isn’t even within our state borders? It’s utter nonsense that there’s a loop-hole to close”.

Jen Williams, Queensland Property Council executive director, was similarly pessimistic in her assessment of the proposal, “With the second highest land tax rates in the country and a penchant for finding new ways to tax the industry, Queensland faces the risk of detracting the core elements it needs to leverage the decade of opportunity ahead”.

Next steps?

The proposed changes to the land tax regime will require the passage of appropriate legislative amendments. At this stage, the government has not announced any proposed legislation, so a proposed commencement date for the changes has not been confirmed. However, we will continue to provide further updates on the proposal once draft legislation is released.

Our Real Estate lawyers can answer your questions about the impacts of these increases to land tax in Queensland.