An important change to the way Land Tax is calculated has been announced for Queensland and will come into effect from 30 June 2023. This is a very important one for both Australian residents and Australian expats to be aware of, particularly those who own or are considering purchasing properties in multiple states and territories.

In this update, we’re going to step through what the changes that have been announced are, how they compare to the way Land Tax is currently calculated, some case studies, and what you should consider if you already own property and if you’re considering buying in future.

What are the current rules?

The current Land Tax Act 2010 (Qld) means that the total value of your assessable land value in Queensland (not including elsewhere in Australia) is determined at midnight on June 30 each year, and this is the value that is utilised to calculate your Land Tax bill. There are different Land Tax-free thresholds that apply to different holding entities, which are currently as follows:

  • Individuals: $600,000 (other than absentees)
  • Companies / Trustee / Absentees: $350,000

In simple terms, this means that if your assessable land value at the deadline each financial year is below these thresholds in Queensland, your Land Tax bill would be nil. It’s important to note here also that there are some properties that are exempt from the Land Tax calculation, which includes your Principal Place of Residence (PPR), and any land used for farming in certain situations.

Under the current rules, if you own property in multiple states and territories across Australia, this was not included in determining your Land Tax bill in Queensland, and would instead only be counted towards your Land Tax assessment in that particular state or territory.

What are the new rules?

From 30 June 2023, to calculate your Land Tax bill, the total assessable land value of your Australian property will be included, not just in Queensland. Using the words from the legislation, the Queensland Revenue Office (QRO) will now use the total value of the taxpayer’s ‘Australian Land’, which will include ‘Taxable Land’ and ‘Relevant Interstate Land’.

In simple terms, the new rules will be applied in three steps, which are as follows:

  • Step 1: Calculate the total value of Australian land owned by the particular taxpayer.
  • Step 2: Calculate the Land Tax that would apply if all of that land were in Queensland (QLD).
  • Step 3: Apportion the total Land Tax amount to the Queensland land based on its relevant value to the total Australian assessable value.

If you only owned an investment property or multiple properties in Queensland, then this will not have any impact on you in terms of your Land Tax bill, however, if you own properties in multiple states and territories, the impact may be far more substantial.

Case study comparison

Let’s consider a scenario of an individual owning two properties, one in Queensland with an assessable land value of $600,000, and the second in Sydney, with an assessment land value of $1,000,000, giving us a total Australian assessable land value of $1.6M.

Existing Scenario

The current land tax-free threshold in Queensland is A$600,000, so under this current environment, if your assessable land value in QLD is A$600,000, then your land tax bill would be nil. It’s important to highlight here, that this is different for companies, trusts, and absentees with different limits applying.

New Scenario

As we outlined, our total assessable land value is now A$1.6M. This changes our tax bracket for land tax and the new calculation is as follows:

$4,500 + (1.65 cents for each $1 above $1M)

= $4,500 + $9,900

= $14,400

This is then apportioned based on the value of the QLD land relative to the overall value as follows:

$600,000 / $1,600,000 = 37.5%

The new tax bill becomes – 37.5% x $14,400 = $5,400

In summary, in this scenario of just two properties, the land tax bill went from $0 to $5,400. As you can see, this can have a meaningful difference in terms of your overall property expense.

What should you consider?

If you already own multiple properties across Australia and you’re going to be impacted by this change, you may want to consider the following:

  • Change of Ownership: This can be prohibitively expensive to do so both in terms of Stamp Duty and tax, however it may be worthy of consideration with your Accountant.
  • Tax Benefits: Land Tax is typically treated as a tax-deductible expense, so it’s important to consider its overall impact on your tax position.
  • Expense Preparation: Finally, it’s important to ensure that you’re prepared to cover the additional expense when it falls due each year if you are going to be impacted.

In terms of future acquisitions of properties, you may want to consider alternating holding structures and even creating new entities to hold your properties such as Trusts or Companies. While they do have lower Land Tax-free thresholds, they may provide you with some benefits when it comes to your ongoing holding expenses. Be sure to seek professional advice from your Financial (Tax) Adviser here, and ensure that you’re ready for these changes when they arise.

 

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General Advice Warning: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.