Significant Queensland land tax increases for 2019-20

4 mins 26.07.2019 Craig Bowie, James Hamblin, Alexander Horton

The Revenue and Other Legislation Amendment Act 2019 (Qld), which followed the Queensland State Budget for 2019-20, contains many important changes to Queensland's state taxes. Our update sets out the key land tax changes effected by the Amendment Act.

The Revenue and Other Legislation Amendment Act 2019 (Qld) (the Amendment Act), which followed the Queensland State Budget for 2019-20 and received Royal Assent on 17 June 2019, contains numerous important changes to Queensland's state taxes. These include land tax, stamp duty, petroleum royalties and payroll tax. Our comments below focus on the key land tax changes effected by the Amendment Act.

For the 2019-20 year onward:
- Queensland land tax rates for both Australian and foreign companies / trusts have been increased by 0.25% for each dollar of taxable Queensland land above $5 million.
- In the absence of any potential exemptions, 'foreign companies' and 'foreign trusts' will also generally pay a 2% 'absentee owner' land tax surcharge (AOS) for each dollar of taxable Queensland land above $349,999. Importantly, this measure applies to all types of land (i.e. residential, commercial, industrial or otherwise) unless that land is exempt from land tax (e.g. primary production land).
Importantly, given that the Queensland Land Tax Act definitions of 'foreign company' and 'foreign trust' have regard to ultimate ownership and control, an Australian-incorporated company or Australian trust may be classified as 'foreign' for AOS purposes.
These land tax increases will have a material impact on landowners. For example, the after-tax rental yields of landlords will be impacted, particularly those of 'foreign' landlords. Landlords and tenants will need to revisit their leasing arrangements in order to determine who will bear the burden of these increases.
We are working with the Property Council of Australia (PCA) as part of an urgent lobbying effort to reduce the impact of these changes. In particular, exemptions are being sought for listed groups, and also for businesses that contribute significantly to the Queensland economy. We expect that the Queensland Office of State Revenue (OSR) will announce a position on this in the coming weeks, and note that the OSR has put the issue of some 2019-20 land tax assessments on hold pending this.

Queensland land tax increases in detail

Queensland land tax rates for both Australian and foreign companies / trusts have been increased by 0.25% for each dollar of taxable Queensland land above $5 million. This change is effective for the 2019–2020 land tax year onwards (noting that Queensland's land tax year runs from 1 July to 30 June).

Further, the AOS, previously only applicable to persons who do not ordinarily reside in Australia, will now apply to landowners that are ‘foreign companies’ or trustees of ‘foreign trusts’. For the 2019-20 land tax year, this rate will be 2% for each dollar of taxable Queensland land above $349,999.
This means that 'foreign companies' and trustees of 'foreign trusts' with aggregated landholdings in excess of $5 million will now face both a general 0.25% increase in their land tax rates as well as the AOS of 2%. This results in a potential top land tax rate of 4.75% for foreign companies and foreign trusts.

The proposed definitions of 'foreign company' and 'foreign trust' are extremely broad:

A corporation will be a 'foreign company' if one or more foreign persons, or related persons of foreign persons, are together in a position to control at least 50% of the voting power (or potential voting power) in the corporation, or together have an interest in at least 50% of the issued shares in the corporation.
Similarly, a unit trust will be a ‘foreign trust’ if one or more foreign persons, or related persons of foreign persons, have at least 50% of the interests in the trust. A discretionary trust will generally be a 'foreign trust' if its default beneficiaries are foreign persons (or related persons of foreign persons).

Importantly, all interests held by foreign investors in a corporation or unit trust (together with interests held by their related persons, Australian or foreign) will be aggregated for the purpose of determining whether the relevant 50% threshold is met.

The Amendment Act does not provide any specific concessions or exemptions in respect of the AOS. However, we are working with the PCA as part of an urgent lobbying effort to reduce the impact of these changes (e.g. for listed groups, and also for businesses that contribute significantly to the Queensland economy).
We understand that the OSR is planning to announce its position on potential exemptions in the coming weeks, and note that the OSR has put the issue of some 2019-20 land tax assessments on hold pending this. We also expect that the OSR will put in place a process by which relevant landowners must notify the OSR of their foreign status.

Please contact us if you have any questions regarding how the below changes might impact you, your business or your investments. We can help you understand the impact of the changes on your business – and put in place measures to ensure you are well prepared for these state tax developments.