UPDATE! In late September 2022, the Queensland government shelved these changes to land tax.
The Queensland Government says they’re ‘closing a loophole’ but property investors around the country are calling it a tax grab. Whatever you think of the new land tax changes, they’re coming into effect from 30 June 2023, so keep reading to find out what it all means.
Understand the What and the Why of Queensland Land Tax Changes
Australian state governments borrowed heavily during the depths of COVID-19 and they’re now looking for ways to reduce budget deficits. Queensland’s bold move will see the value of land owned in another Australian state or territory potentially included when determining the rate of land tax payable in the Sunshine State.
The current rules state that land tax is assessed on the value of all non-exempt landholding in Queensland at midnight on 30 June each year. Various thresholds and rates apply based on if a taxpayer is an individual, corporation, trustee or absentee. Exemptions may apply to some land used for farming, and an individual’s primary place of residence, and these exemptions will remain in place.
Under the new rules, taxpayers will still only be taxed on the value of their Queensland landholdings, but in determining the ‘rate’ of land tax payable , many who own property in Queensland and other states will be pushed into a higher land tax bracket.
Know the Impacts for the Property Market and Renters
With over a third of Queenslanders renting and 90% of these homes being owned by investors, it’s possible that landlords will increase rents to offset their land tax costs. However, only investors with properties in states other than Queensland will face bigger tax bills, so it remains to be seen how significant and widespread any rise in rents will be.
As for the price of dwellings, BlueRock Finance Managing Director Jamie King said, “Property investors with an investment property portfolio will boycott QLD as an investment destination – given the proposed changes in land tax regulation.” Jamie believes, “This will certainly have an effect on the property market in QLD – especially the tourist destinations of Gold Coast Noosa and Cairns.” This is because holiday homes are also included in the total land tax calculations, even if they’re not rented out to earn an income, so the cost to hold the asset will increase. If investors turn their backs on the Queensland market, there’s a good chance property prices will come off the boil more so than they already have in recent months.
Calculate, But Don’t Expect to Minimise, Your Exposure
For property investors likely to be impacted by the changes, we asked BlueRock Law Director Richard Skopal to explain what you can expect and if there’s anything you can do to minimise your exposure.
Richard said, “What the Queensland Government is doing is taking the aggregated value of all Australian land holdings as the total value for assessing land tax payable on Queensland-held properties. This means the total value of your Australian land will be used to determine whether the tax-free threshold has been exceeded and, if so, calculate the rate of land tax payable by the property owner.”
Here’s how the land tax works:
- Calculate the total value of Australian land owned by the taxpayer
- Calculate the land tax on that as if all of that land is in Queensland
- Determine what land tax bracket the total land value would put you in
- Calculate land tax payable by apportioning the tax rate to the total of Queensland land only.
Richard tells us that, “aggregation principles for multiple land holdings have been around for years where the more property you own, the higher the rate of land tax you pay - but they have never before crossed State borders.” He believes this change will likely see a significant holding cost increase to investors with Queensland property within their portfolio. One example given saw an increase from $1,000 to $26,000 on a Gold Coast apartment worth $755,000!
Impacts will be different for each affected property owner, depending on their circumstances. For example, only non-exempt land owned outside of Queensland will be included. So if you have your Principal Place of Residence in Victoria and one holiday apartment on the Sunshine Coast there should be no change to your Queensland land tax bill.
As for any avenues to avoid exposure to the new tax rules, Richard says that, “with careful planning there are structuring options available to property owners to minimise their potential exposure, but the risk is that other states will follow Queensland’s lead.”
Considerations for SMSF Property Investors
The Queensland land tax changes could also have an impact on trustees of self-managed super funds who have property investments. George Karavias, BlueRock Accounting Director (Private Clients & SMSF) said that, while the Queensland land tax changes won’t cause SMSF fees and compliance costs to rise, “SMSFs that have property in Queensland and other states will need to be aware of the potential increase in land tax levied by the state of Queensland.” Just like regular property investors who may shy away from investing in the state, or consider selling off their Queensland properties, those investing in property through their SMSF might want to reconsider their strategy or look to buy property in other jurisdictions.
Concerned About Your Next Queensland Land Tax Bill? BlueRock Can Help
The Queensland Revenue Office requires landholders to declare all their interstate landholdings by 31 October each year, or within 30 days of a land tax assessment being issued. Many from the property investment field are concerned about this tight turnaround and what it will mean for smaller investors.
If you’re concerned about your property portfolio being impacted or need more information specific to your individual circumstances, such as accounting, legal or financial advice, off the back of these new tax rules, get in touch with one of our investment advisors today.
