Australia: Queensland land tax: Exemption from foreign surcharge

WHO SHOULD READ THIS

• Any company or trustee of a trust who owns land in Queensland.

THINGS YOU NEED TO KNOW

• The Queensland Government has finalised its framework for relief from the foreign land tax surcharge.

WHAT YOU NEED TO DO

• If you own land in Queensland and will be characterised as a foreign company or trust, consider lodging an application for ex gratia relief from surcharge land tax based on the framework set out in LTA000.4.1.

On 3 July 2020, the Queensland Government finally confirmed the exemption framework for ex gratia relief from surcharge land tax. As expected, the exemption will be available where a foreign trust or company is found to make a significant contribution to the Queensland economy and community.

In June 2019, the Queensland Government passed new laws that saw the introduction of a 2% land tax surcharge on foreign companies and trustees of foreign trusts from 30 June 2019. However, as a result of considerable debate surrounding the implementation of the surcharge, in December 2019 the Government announced its intention to provide an exemption in certain circumstances. We have been waiting since then for confirmation of the details of that exemption.

These plans were subsequently waylaid by the COVID-19 pandemic, and as part of the relief response to the crisis the Queensland Government decided to waive surcharge for the 2019-2020 year (refunding assessments where the surcharge had already been paid).

However, land tax for the 2020/21 year (which is calculated based on landholdings as at midnight 30 June 2020) will be assessed at the surcharge rate for all foreign companies and trusts unless an exemption is available. The conditions for the exemption have now been set out in Public Ruling LTA000.4.1 (Ruling), which can be accessed here. Broadly, the exemption will be available where:

Examples of what is likely to be considered a 'significant contribution' are set out in the Ruling and include employment of at least 75 full-time equivalent employees, or expenditure in Queensland of more than $20 million annually (including on capital expenditure, goods and services, wages and State taxes). However, the Ruling makes it clear that regard will be had to the size of the foreign entity's commercial activities relative to their landholdings and whether the contribution is significant having regard to the region or industry in which the landowner operates. It will be interesting to see where the Office of State Revenue (OSR) draws the line in terms of what is a 'significant contribution', particularly in regional Queensland.

The commercial activities of entities within the same corporate group as the landowner will also be taken into account in determining whether the significant contribution test is met. The OSR may also have regard to committed future commercial activity.

This exemption regime has been substantially based on the equivalent rules in Victoria, and consistent with the Victorian rules the Queensland OSR has confirmed that where a foreign entity holds land passively as a landlord or investor, it will not constitute a significant contribution to the Queensland economy or community. This means that property developers may qualify for the exemption during the construction phase, but may cease to qualify once the construction is completed.

The exemption will be applied by way of ex gratia relief and on a case-by-case basis. As ex gratia relief is discretionary in nature, so it provides the OSR with significant flexibility in administering this exemption, but that equally means that there is limited certainty on how the Ruling will be applied in practice. In the short term at least, it may well be worthwhile seeking an exemption even in circumstances that do not neatly fit within the examples set out in the Ruling. Applications for the relief can be made on both a retrospective and prospective basis. Once an exemption has been granted for a particular year, a full application need not be submitted for every subsequent land tax year. Instead, a statutory declaration must be lodged every 12 months to confirm that no circumstances have changed which would affect an entity's ability to access the exemption.

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.