WHO SHOULD READ THIS
- Anyone who owns, buys or leases land in Queensland.
WHAT YOU NEED TO KNOW
- Land tax changes may increase the land tax assessed on land that you own, or the amount you are required to pay under a contract or lease.
WHAT YOU NEED TO DO
- If you own land in Queensland – determine if you are foreign and if so, seek advice on the land tax implications;
- If you are a buyer of land under a contract – ensure that you will not be liable for additional land tax if the seller is foreign; and
- If you are a tenant – review the terms of your lease to ensure you are not paying more because your landlord is foreign.
The government announced a number of State tax measures in their budget on 11 June 2019. These were swiftly introduced into law with the relevant legislation passing on 17 June 2019. One of these measures was an amendment to the land tax rules, which came into effect almost immediately (i.e. the changes applied to land owned as at midnight on 30 June 2019), giving landowners, buyers and tenants little time to plan appropriately.
Firstly, the land tax rates for companies and trusts with aggregate landholdings of $5 million or more were increased by:
- 0.25 cents to 2.25 cents for each dollar above $5 million; and
- 0.25 cents to 2.75 cents for each dollar above $10 million.
This follows the introduction last year of the new higher rate of land tax of 2.5% for landholdings over $10 million.
Of even greater impact is the introduction of a new 2% land tax surcharge on foreign companies and trusts.
Foreign company or unit trust – A company or unit trust will be 'foreign' if foreign persons hold an interest (together with associates) of 50% or more.
Foreign discretionary trust – A discretionary trust will be foreign if the default beneficiaries that are entitled to a distribution of 50% or more of the income or capital of the trust are foreign persons.
Absentee individual – an absentee individual is also subject to the land tax surcharge (although this is not a new rule – the surcharge for absentee individuals has increased from 1.5% to 2%). A person is an absentee if they are not ordinarily resident in Australia, but the recent changes to the rules now ensure that Australian citizens and permanent resident visa holders are not absentees for land tax purposes.
When you get down to the numbers, this can have potentially significant impacts on the holding costs associated with property in Queensland – for example, a foreign company with aggregate landholdings having an unimproved value of $20 million could see an increase in land tax of over $480,000 per annum.
Following these changes, it is more important than ever to ensure that the ownership structure is properly identified so that the appropriate amount of land tax is being paid.
For buyers and tenants, any contract or lease for property in Queensland should appropriately address liability for land tax, particularly where the landholder is foreign (or suspected to be). In contracts for sale, the contract typically (except in residential sales) requires an adjustment at settlement for land tax. In leases, land tax may form part of the outgoings that are recoverable from a tenant (except in residential or retail leases). It is open to the parties to negotiate how land tax liability will be apportioned, which could be:
- not adjusting or re-allocating land tax liability at all (more common in residential property sales, and mandated in retail leases – this favours the buyer or tenant);
- on the amount actually assessed, including any surcharge (this favours the seller or landlord); or
- on some notional or deemed assessment, which could be determined based on some combination of the below criteria (each of which favours the buyer or tenant):
- as if the seller or landlord was a natural person (reducing the rates to the individual rates);
- as if the seller or landlord was resident in Queensland (avoiding any absentee surcharge); and
- as if the land was the seller or landlord's only land (avoiding aggregation).
The Office of State Revenue (OSR) is currently contacting all landholders asking that they confirm their status (i.e. whether they are foreign or not). It is important to ensure that this question is answered correctly, as it could have significant implications.
It is also interesting to note that the OSR is still trying to finalise its guidance on what circumstances (if any) will qualify for relief from these surcharges. It is expected that any concessions will take the form of ex gratia relief (similar to the process introduced for additional foreign acquirer duty) however, no details are currently available.
Given this uncertainty about possible concessions, the OSR is currently delaying issuing assessments to foreign companies and trusts, while it finalises its position internally. While this has generally been welcomed by the industry, one side effect is that it will not be possible currently to definitively determine the total land tax if an adjustment under a purchase contract is being completed based on the assessed amount inclusive of surcharge. Where a contract is due to settle soon (or before the OSR issues those assessments), alternative arrangements such as retentions may need to be set up to cater for potential liability.
Parties currently negotiating contracts or leases should give very careful consideration to how the land tax adjustments or allocation are intended to operate and ensure that the documents reflect that. If you are a party to an existing contract or lease, you should review the relevant adjustment or outgoings clauses to ensure that they operate appropriately (or look to renegotiate the terms, if there is scope to do so).
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.