Changes to the calculation of Queensland land tax liability, taking into account the value of interstate landholdings, will impact landowners from 30 June 2023. Lawyer Luke Hefferan explains what property investors should do now.
In our previous article, Queensland property tax hits interstate investors, we flagged the Queensland Treasurer’s announcement that Queensland land tax laws would be changed to include the land valuations of interstate properties owned by investors when calculating the land tax liability for the investor’s Queensland land.
The Revenue Legislation Amendment Bill has now received royal assent with these changes to commence on 1 January 2023 to enable implementation of the land tax reform from the 2023/24 financial year (ie for land tax liabilities arising from 30 June 2023 onwards).
Previously, investors with multi-state land portfolios could minimise or avoid a land tax liability based on the various land tax liability thresholds in each state or territory. In Queensland these are $600,000 for individuals other than absentees and $350,000 for companies, trustees and absentees.
From the 2023/24 financial year, the Queensland Revenue Office (QRO) will begin including the land value of interstate land when assessing an owner’s liability. If the interstate land value pushes the owner’s total land value over the Queensland thresholds, the owner will be assessed a land tax liability (as a percentage of their Queensland land value), notwithstanding the value of the Queensland land itself may be under the threshold.
Averaging of Queensland land values will still continue (ie calculating an average value of the land based on the current and previous two financial years’ valuations). However, this averaging will not be applied to interstate land. Therefore, the land valuation for interstate land for the current financial year (as determined by the relevant state’s valuer general) will be considered the interstate land’s value when the QRO is calculating the total value of all Australian land owned by a particular entity.
Most, but not all, exemptions will continue to apply in respect of the interstate land allowing, for example, an investor to exclude the value of any interstate land they own as their primary place of residence when determining their Queensland land tax liability. The Queensland government has indicated more information on the application of this will be made available after 30 June 2023.
However, developers should note the subdivider discount will not apply in relation to interstate land. Specifically, a discount is available for undeveloped (Queensland) subdivided land that meets certain requirements, known as the ‘subdivider discount’. The new changes to the legislation state the subdivider discount will not apply to interstate land. This means any subdivided interstate land owned by a developer for future development will be included in the QRO’s assessment of the developer’s total land value (at the full statutory value of that land).
Under the legislative changes, the QRO may disregard the valuation determined by the relevant interstate valuer general and decide the land value is the amount determined by the QRO based on the information available to them. It is yet to be seen to what extent the QRO will exercise this power (and owners would be able to challenge this assessment through the existing dispute mechanisms). However, it is a concerning aspect of the changes which could result in uncertainty for owners and potential buyers of interstate land when trying to pre-determine their future land tax liability.
The QRO will search publicly available interstate registers, such as title registry and land valuation information, to determine whether an owner of Queensland land also owns land in other jurisdictions and issue an assessment to the relevant owners which will calculate the owner’s land tax liability.
In addition, all owners will be required to notify the QRO of particular information about their interstate land. They will be required to notify the QRO of the interstate land they own, the extent of their interest in the interstate land, and its value, either by confirming the information in the QRO’s assessment or by amending or updating it. Failure to comply with the new notification obligation will be an offence.
Generally speaking, Queensland land tax is calculated at the owner entity level. This means where a person owns land in the name of various entities, for example as an individual, as a trustee of a trust and/or in the name of a company with that person being a director and sole shareholder, then when the value of the land owned by each entity reaches the relevant threshold the QRO will issue an assessment notice charging a land tax liability.
Investors should consider their land ownership structuring (but also give thought to duty and other tax implications as a result of restructuring) before the QRO review of interstate ownership is conducted on 30 June 2023 to potentially minimise the impact of these changes by restructuring the ownership arrangements of their investment properties.
Although it may not be financially practical to conduct restructuring of existing investment properties, these new legislative changes highlight the increased importance now in ensuring the most advantageous ownership structures are in place in respect of any future land investments, not only in Queensland but in all states and territories of Australia.
Our Real Estate lawyers can answer your questions about the impacts of these increases to land tax and assist in considering restructuring arrangements both for existing and proposed new land investments.