As the economy tightens, it is unlikely that your business is unaffected. As no one knows where the economy is heading in the foreseeable future, we all need to look for avenues to reduce expenditure.
Land tax is payable every financial year and is usually a considerable expense for developers and those with substantial land holdings.
To recap, the current situation with land tax is as follows:
- It is calculated based on the average of the relevant unimproved values (as valued by the State government) of all an entity's land holdings for the last 3 years.
- Despite valuing properties around the peak of the market in 2007, the State government refuses to revalue properties in the declining 2008 market, despite lobbying by property industry bodies. Assessments for the next few years will be affected by the higher 2007 valuations – meaning payment of a higher amount in land tax (and rates) for years to come.
- In December 2008 the State government announced its intention to impose an additional 0.5% surcharge on those who hold more than $5 million of property. The Queensland Treasurer estimates the surcharge will raise an additional $93 million next financial year.
- The law currently prohibits owners from passing on the cost of land tax to a tenant, when the property is leased. However, proposed amendments to the legislation announced in December 2008 remove the prohibition (although the restrictions will remain for residential premises regulated by the Residential Tenancies Act, and retail premises regulated by the Retail Shop Leases Act).
- Changes are also in the pipeline for the Land Tax Act 1915 (Qld) (LTA) which change a taxpayer's rights of objection and appeal against an assessment.
So what can you do to try and minimise your land tax bills?
1. Ascertain whether any of the exemptions or deductions under the LTA apply to you
We have successfully challenged determinations by the Office of State Revenue on the boundaries of the exemption categories. In one moveable dwelling home park exemption, we saved our client their entire land tax assessment for the relevant year, and they currently enjoy a continued exemption from land tax.
We would be more than happy to discuss your circumstances with you to advise whether you would be eligible for an exemption or deduction under the LTA.
2. Consider an application under Section 46 of the LTA
Section 46 affords a taxpayer the right to apply to the Commissioner for relief (in whole or in part) from their assessment, if the Commissioner is satisfied that:
- serious hardship would be experienced if the full amount of the tax is to be paid; or
- returns from the land have been seriously impaired due to drought, adverse seasons, or other adverse conditions.
We believe that there is scope to argue that "other adverse conditions" extend beyond agricultural or pastoral pursuits which seem to be the focus of the other alternatives. These adverse conditions could extend to circumstances where a developer is prohibited from developing land due to unfavourable development conditions or constraints such as koala or environmental protection orders.
As part of the proposed changes to the LTA, it is proposed that section 46 be removed entirely from the LTA as from 30 June 2009 and that payment arrangements be dealt with by The Taxation Administration Act 2001 (Qld) (TAA). However, the TAA does not contain a similar hardship relief provision, and the only relief offered is to extend the timeframe for payment, but with interest accruing.
As it seems Section 46 has a limited lifespan, you should consider making an application while you are still able to do so.
What other changes are proposed to the LTA?
The draft Land Tax and Taxation Administration Amendment Bill 2009 (Qld) (Bill) proposes a number of amendments to the LTA whereby certain provisions of the LTA will be removed or amended, so the LTA is read in conjunction with the TAA. The public consultation period has recently closed.
Some of the amendments:
- apply the provisions of the TAA to land tax and remove all provisions in the LTA relating to the administration of land tax;
- allow landlords to pass on the cost of land tax to tenants (under new leases) for commercial and industrial properties (the prohibition will remain for residential and retail premises);
- change the process and administration of interest and penalty tax under the TAA, which will apply to duties, payroll tax and land tax;
- oblige landowners to notify the Commissioner of the following changes within 1 month of the change:
- where land which was previously granted an exemption is no longer exempt;
- where land which was previously entitled to a deduction is no longer entitled to the deduction;
- where land has been purchased and/or sold (unless a Form 24 is lodged in the Titles Office within 1 month of the settlement); and
- a change of address.
The Bill has not yet been introduced into Parliament. The amendments are proposed to take effect from 30 June 2009.
What is the impact of the proposed changes?
- The hardship relief provisions of the LTA will be abolished with no comparable replacement in the TAA.
- Landlords will be allowed to pass on the cost of land tax to tenants, however it is limited to recovery for certain types of properties, and only for leases entered into after 30 June 2009.
- Under the new notification requirements, if your financier (or settlement agent) fails to lodge the transfer and Form 24 with the Titles Office within 1 month of settlement, you will be in breach of your obligations under the proposed new requirements.
- Under the TAA, a landowner is obliged to advise the Commissioner if they have been underassessed.
- If proper notification is not given and a land tax reassessment is required which results in additional primary tax being payable, the Commissioner is entitled to charge penalty tax of 75% of the tax involved, and an additional 20% where the taxpayer failed to advise of an underassessment, or if the taxpayer hindered or prevented the Commissioner from becoming aware of the extent of their liability.
The State government announces changes to land valuations
The State government last week announced a three pronged initiative to provide relief to businesses and taxpayers to prop up employment in light of the global economic downturn.
One of the welcome initiatives is the decision to freeze valuations for residential and industrial land in 17 local government areas – Balonne, Banana, Bundaberg, Cassowary Coast, Charters Towers, Croydon, Dalby, Etheridge, Lockyer Valley, Moreton Bay, Mount Isa, Rockhampton, Redland City, South Burnett, Southern Downs, Townsville and Whitsunday These areas were last valued near the peak of the 2007 property market, before the global financial crisis had begun to significantly affect our economy. The Premier said that the recent valuations do not reflect the current economic reality, and so will not be issued.
The valuations saw an average increase of 69% for the affected areas, although one property in Redlands had increased 700%, and the average Mt Isa increase was 247%.
The State government's stated objective with this announcement is to sustain and create jobs, and somewhat ease the regulatory burden. The Premier also called on local governments not to unreasonably raise rates in response to the announcement.
This tax break is much needed after the State government's recent announcement of a 0.5% land tax surcharge will be imposed on property holdings over $5 million, and the slated amendments to the land tax regime by the proposed Land Tax and Taxation Administration Amendment Bill (discussed in the preceding article).
Despite the benefits which will be received as a result of the announcement, those benefits will not extend to all properties and all areas of Queensland. Owners of retail property will miss out on any land tax breaks and may receive an even higher land tax bill for the coming financial year as a result of the surcharge and higher average valuations.
The other initiatives announced by the State government last week were:
- a reduction in compliance reporting timeframes to annual reports for the Water Efficiency Management Plan (WEMP); and
- an amnesty on payroll tax penalty payments until 30 April 2009 for employers who have not included payments to contractors in their payroll tax returns.
Body corporate lot entitlements – submissions invited
The Attorney-General and Minster for Justice has asked for submissions and comment from any interested parties in relation to a paper circulated in December 2008 which addresses concerns relating to the current system of setting and adjusting lot entitlements.
The paper details concerns that have been raised by the community in respect to the appropriate use of lot entitlements (e.g. whether it is fair that 'penthouse' units pay higher contributions based on value or the practice of developers setting lower contribution lot entitlements for lots intended to be retained by them etc) and has asked for comment as to whether the current system should be adjusted.
The closing date for submissions is 28 February 2009.
A copy of the paper can be located at http://www.justice.qld.gov.au/509.htm
Land Appeals Court rules lessee may seek compensation for resumption of common areas
The Land Appeals Court has decided that a lessee may have enough of an interest in the common areas related to its lease, to support a claim for compensation from a resuming authority if parts of those common areas are resumed; this should be kept in mind by parties entering into a lease.
In LGM Enterprises Pty Ltd v Brisbane City Council  QLAC 214, the decision turned on the provisions of the lease, the operation of the Retail Shop Leases Act 1994, and evidence of the lessor's apparent consent to the lessee's use of the common areas. The area resumed was an area of garden through which customers of the lessee were in the habit of accessing the lessee's business; it was not the sole means of access to the business.
The lease did not specifically identify common areas, so the Court looked at the Retail Shop Leases Act 1994, which defines common areas to include walkways and gardens. The Court held that although the garden was not originally designed to include walkways, the lessor allowed the lessee's customers to walk through the garden and had even laid pavers to create walkways. By the time the lessee took the lease, the walkways were intended to be used for access and the court held that the lessee had an interest in those common areas.
The Court also held that the lessee had "a right or privilege in respect of the land resumed" and that as a result of the reduction of access to its shop, its "business had suffered in a way which can be measured monetarily".
What does this mean?
If all or part of the common areas are resumed, a lessee may be entitled to compensation where it can show that it has a right, power or privilege over those common areas, and that it has suffered loss as a result of the resumption. Depending on the facts of the particular case and the wording of the lease, it appears that an entitlement, even a de facto one, for a lessee's customers to access the leased premises via the common areas may be sufficient to show that right.
Termination of interest
It is common for leases to insert a break clause enabling a lessor to terminate a lease where the premises are resumed. If its lease is terminated, a lessee ceases to have an interest in land and may not be able to claim compensation from the resuming authority. Such clauses usually exclude any right of compensation against the lessor.
Although the lease in LGM Enterprises Pty Ltd v Brisbane City Council provided that the lessor could change the direction or flow of pedestrian access, it also provided that the lessor could only close common areas as reasonably necessary, and provided that it took reasonable steps to minimise interference with the lessee's business. The Court does not appear to have considered whether, if the lessor had exercised its rights under these clauses, the lessee would still be able to claim compensation.
Lessees should note that if a right to terminate arises before the actual taking occurs (marked by the Taking of Land Notice appearing in the Queensland Government Gazette), then a lessee is likely to be without remedy under the Acquisition of Land Act 1967. If the right to terminate arises on the actual resumption, then the lessee is likely to still have rights in accordance with the Act, because it is at that point in time that the right to claim compensation arises. However, it is likely that the quantum of compensation to be paid by the resuming authority will be in dispute, as the loss sustained by the lessee flows not only from the acquisition, but also from the act of the lessor exercising its contractual right to terminate the lease.
It is therefore necessary that such a clause is present in a lease, as it is in the lessee's interests to have the clause drafted so that the entitlement to terminate arises after the actual taking has occurred. If the right to terminate arises before the actual acquisition occurs, then the tenant may be without remedy.
Amendments to the Acquisition of Land Act 1967
The Acquisition of Land and Other Legislation Amendment Bill 2008, passed on 12 February 2009, has made a number of amendments to the Acquisition of Land Act 1967. These include a provision that an interest under a services contract for land (e.g. for provision of services on, to or in relation to land) is not sufficient to give a right to claim compensation and time limits of three years for making claims for compensation.
- From a management perspective, lessors may want to consider a break clause enabling the lessor to terminate a lease not only when the premises are resumed, but when resumption of other parts of the land in the lessor's reasonable opinion, affects the premises (e.g. where access is restricted or interrupted).
- Where there is a break clause, lessees should seek to have the lessor's right to terminate take effect after the actual resumption of the land occurs. If the right to terminate takes effect before, the lessee may be without remedy from the resuming authority.
- Leases should clearly set out what is to occur if any part of the land is resumed, and what rights the lessor has. Normally, any obligation upon the lessor to pay compensation to the lessee would be excluded.
- Lessees should ensure their leases expressly provide what will happen in the event of resumption and what compensation, if any, they will be entitled to seek from the resuming authority, (lessors would rarely contractually agree to pay compensation to the lessee in this situation).
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