WHO SHOULD READ THIS
- People, companies, and trusts that own land or are considering purchasing land in Queensland, employers and employees with businesses located in Queensland, and petroleum royalty payers.
THINGS YOU NEED TO KNOW
- The rate of land tax for companies and trusts, and the rate of the absentee surcharge is increasing, and the scope of its application is changing.
- The payroll tax regime is changing, including the payroll tax exemption thresholds and the payroll tax rate, with specific concessions for businesses in regional Queensland.
- The rate for petroleum royalty payers is increasing, and the Government intends to review the royalty regime further.
Yesterday, Jackie Trad handed down her second budget as Queensland Treasurer. While the Budget seeks to highlight the Government's focus on investment in education, health care, the justice system, and the regions, it also proposes to finance such investment (in part) through changes to the current tax regime in Queensland.
The Queensland Budget for 2019-20 will have significant impacts for various industries across Queensland. The Budget sees an injection of additional funding in the education and health care sector, and the provision of financial assistance in various forms across regional Queensland. The Queensland Government is also seeking to make significant changes to:
- the land tax regime;
- the royalty rates payable for petroleum; and
- the payroll tax regime.
Changes to land tax
The Government is proposing that, from the assessment year of 2019-20, the land tax rates for companies and trusts with aggregate landholdings of $5 million or more will be increased by:
- 0.25 cents to 2.25 cents for each dollar above $5 million;
- 0.25 cents to 2.75 cents for each dollar above $10 million.
This follows the introduction of the new higher rate of land tax of 2.5% for landholdings over $10 million last year.
The Queensland land tax regime currently requires absentee owners (i.e. individuals who are not permanently resident in Australia) to pay a 1.5% land tax surcharge, in addition to their standard land tax liability. The Government is now proposing to:
- increase the surcharge rate from 1.5% to 2.0% from 2019-20; and
- charge the new surcharge rate to foreign corporations and trustees of foreign trusts, as well as absentee individuals.
While the increased surcharge rate is simply a tax hike, the extension of the surcharge to companies and trusts is a rational reform, as previously there seemed to be no genuine policy reason for absentee individuals to pay higher rates of land tax as an individual investor, as opposed to investing via a company or trust.
In fact, the position will improve for certain individuals who are currently subject to the absentee surcharge, as the Government proposes to amend the definition of absentee to exclude Australian citizens and permanent residents. Again, this appears to be a sensible reform of the existing rules.
Helpfully (for advisors at least), the new land tax rules have sought to adopt the same definitions and concepts as are currently used in the 'additional foreign acquirer duty' (AFAD) provisions in the Duties Act 2001 (Qld) (Duties Act). It is hoped that some of the concessions developed for AFAD — for example, ex gratia relief for particular foreign property developers that bring capital investment, employment, and an increase in the housing stock to Queensland — may also be extended to these new land tax rules.
Payroll tax reform
While the rhetoric of the Budget focuses on job growth and improving employment rates in Queensland, there is nevertheless an increase to the payroll tax rate for large businesses.
- The payroll tax rate for businesses for a payroll up to and including $6.5 million will remain at 4.75%.
- The payroll tax rate for large businesses with a payroll above $6.5 million will have a new rate of 4.95% (an increase of 0.2%).
With that said, there is a package of payroll tax reforms directed particularly at regional Queensland that will benefit small, medium, and growing businesses. Notably, the reforms include:
- a higher payroll tax exemption threshold for all businesses – an increase from $1.1 million to $1.3 million;
- reduced payroll tax rates for regional businesses (i.e. where the registered business address is in regional Queensland and where 85% of the employees reside in regional Queensland) – a reduction for both medium and large regional businesses of 1%, bringing the payroll tax rates down to 3.75% and 3.95% respectively;
- changes to the payroll tax rebates, by:
- extending the 50% rebate available on an employer's payroll tax amount in relation to apprentices and trainee wages by two years;
- offering rebates for Queensland employers where the number of employees increases (capped at $20,000 per employer); and
- providing support payments of up to $20,000 for eligible employers that employ particular unemployed jobseekers.
These reforms are to be partially funded by the increase to the payroll tax rate applicable to large businesses with annual taxable wages in excess of $6.5 million. However, the reforms are still expected to reduce revenue over the next four years (ending 2022-23) by approximately $341 million. Overall, that has to be acknowledged as a genuine tax cut, although with focused benefit.
Changes to petroleum royalty regime
The petroleum royalty rate in Queensland is to increase by 2.5% (from 10% to 12.5%) from 2019-20. This is considered necessary to bring the regime into alignment with various other international jurisdictions, such as the USA and Canada where royalty rates are significantly higher. It is expected that the reform will increase revenue by $476 million over the next four years.
The Queensland Government has also announced its intention to review the design of its current petroleum royalty regime, with the hope of simplifying the regime and providing greater certainty and equity for all parties (including by reviewing specific royalty arrangements that have previously been agreed with certain producers).
The Government is also looking to complement measures already taken in the gas sector to ensure greater certainty of domestic gas supply (for example, through release of gas tenures specifically to supply domestic gas), by using this regime review to 'identify further opportunities to strengthen domestic supply through the royalty regime settings'. This could indicate an intention for the Government, in the future, to offer concessional royalty arrangements for tenures that are supplying gas to the domestic market.
Although not specifically noted in the Budget, additional changes have been proposed to the Duties Act (through the Revenue and Other Legislation Amendment Bill 2018 (Qld) released on the same day as the Budget) to address the Victorian Court of Appeal decision in the case of Danvest Pty Ltd & Anor v Commissioner of State Revenue  VSCA 382. This case has become authority for the position that a partner does not hold a proprietary interest in the landholdings of the partnership. As such, it suggested that for the purposes of Queensland landholder duty, any land held by a company in partnership is not a landholding of that company.
The proposed changes to the Duties Act not only seek to address this issue, but goes one step further to deem that 100% of land held by a company for a partnership is considered landholdings of that company, regardless of the interest that company has in the partnership.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.