What are the proposed changes?
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).
How is land tax currently determined?
Land tax is a state-administered tax that taxes property owners on their total unimproved value of Queensland landholdings as at 30 June each year. Exemptions exist for properties that are used as the taxpayer’s principal place of residence (subject to satisfaction of the criteria) and primary production land.
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 the 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.
- 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).
Potential ways of mitigating this
- Have each investment property held by a separate structure – there is a myriad of other benefits including asset protection and risk management.
- Currently, the Queensland aggregation rules as between different entities are not complex , and investors can possibly structure ownership of landholdings in different investment entities to utilise the land tax free for each property
Should you wish to enquire further on this topic, please do not hesitate to contact the writer.