Update: on 30/9/22 the Queensland government confirmed that it had decided to not implement the changes discussed below.
Queensland announced changes to land tax in its state budget in February 2022. On 12 July 2022, it released more detail regarding how these changes will be implemented (see here).
Queensland land tax to rise substantially for interstate investors
Essentially, when determining an investors land tax liability, the Queensland government will consider the value of landholdings in Australia (excluding principal residence), not just Queensland, and apportion the land tax liability accordingly.
This is best explained using an example
Situation: Gary owns an investment property in Queensland with a land value of $800k and an investment property in Victoria with a land value of $1m. Total Australian landholdings are therefore $1.8 million, excluding his primary residence.
Current land tax: Gary is only charged land tax on his Queensland property only at a rate of 1% for the amount above $600k plus $500 (individual land tax rates can be found here). So, Gary’s land tax liability is $2,500 p.a.
Proposed from 30 June 2023: The Queensland government will calculate the land tax payable on $1.8 million and multiple this amount by 44% (being the portion of Queensland land versus total land owned Australia wide i.e., $800k/$1.8m). Consequently, Gary’s land tax liability will increase from $2,500 p.a. to $7,866 p.a.! Yes, a 3-fold increase!!!
There are some practical challenges
If you own an investment property in Queensland and other states, you will have to declare the value of this land with the QRO within 30 days of receiving a land tax assessment or by 31 October 2023, whichever is earlier.
Whether Queensland is able to data match and audit these declarations, is unknown at this stage, but I suspect they will.
What impact will this change have?
These changes don’t begin until 30 June 2023 and a lot can happen between now and then. I expect the Queensland government will receive a lot of resistance and lobbying.
However, assuming these changes are implemented as proposed, this will have a big impact on investors returns and cash flow. Investors will either need to pass on some of these higher holding costs onto tenants in the form of higher rents or they will divest of their property/s, which potentially means fewer properties available to let. Either way, it will almost certainly result in a rental crisis, particularly in Brisbane.
I don’t think it will last
My feeling is that this land tax change will be like the Vendor Duty that NSW introduced in 2005. NSW demanded that Vendors pay a duty of 2.25% when they sold an investment property, in addition to the stamp duty that buyers paid. This ill-conceived tax was scrapped only a matter of months after it was introduced.
If the Queensland land tax changes do come into force on 30 June 2023 as proposed, I think the government will be forced to abolish them relatively quickly as the Brisbane market relies on interstate investors. Strong population growth means that Brisbane needs more accommodation, not less.
Therefore, at this stage, my advice to investors is to hold tight. Do not react to these changes just yet.
