QLD land tax changes – beware when buying, selling and leasing property

WHO SHOULD READ THIS

• Anyone who owns, buys or leases land in Queensland.

THINGS YOU NEED TO KNOW

• Recent legislative changes may increase certain land tax assessments, and therefore careful consideration should be given to any outgoings adjustment under a land sale contract or any recovery of outgoings under a lease.

WHAT YOU NEED TO DO

• Review land tax in any adjustments clause (for contracts) or outgoings clause (for leases) to ensure the best outcome.

Do you know how land tax is adjusted under your contract or lease?  Does it deal with foreign resident surcharges and delays in assessments issuing?  Make sure you’re aware of these points in any new or continuing contracts or leases in Queensland.

The 2019 Queensland Budget introduced a number of changes to land tax.  Firstly, the land tax rates for companies and trusts with aggregate landholdings above $5 million and $10 million were increased by 0.25% respectively, and the absentee surcharge rate was increased from 1.5% to 2%.  However, the biggest change was the extension of the absentee surcharge to foreign corporations and trustees of foreign trusts, where it previously only applied to foreign individuals. 

When you get down to the numbers, this can have potentially significant impacts on the holding costs associated with property in Queensland – for example, a foreign company with aggregate landholdings having an unimproved value of $20 million could see an increase in land tax of over $480,000 per annum.

Now more than ever it is important parties ensure that leases and contracts to purchase property in Queensland appropriately address liability for land tax, particularly where the landholder is foreign (or suspected to be).  In contracts for sale, the contract typically requires an adjustment at settlement for land tax (except in residential sales).  In leases, land tax may form part of the outgoings that are recoverable from a tenant (except in residential or retail leases). 

It is open to the parties to negotiate how land tax liability will be apportioned, which could be:

• not adjusting or re-allocating land tax liability at all (more common in residential property sales, and mandated in retail leases – this favours the buyer or tenant);
• on the amount actually assessed, including any surcharge (this favours the seller or landlord); or
• on some notional or deemed assessment, which could be determined based on some combination of the below criteria (each of which favours the buyer or tenant):
  • as if the seller or landlord was a natural person (reducing the rates to the individual rates);
  • as if the seller or landlord was resident in Queensland (avoiding any absentee surcharge); and
  • as if the land was the seller or landlord’s only land (avoiding aggregation).

Given the significant impact of the absentee surcharge changes, the Office of State Revenue is currently delaying issuing assessments to foreign companies and trusts, while it considers potential concessions or relief.  While this has been welcomed by the industry, one impact is that it is not possible currently to definitively determine the total land tax if an adjustment is being done based on the assessed amount inclusive of surcharge.  Where a contract is due to settle soon (or before the OSR issues those assessments), alternative arrangements such as retentions may need to be set up to cater for potential liability.

Parties currently negotiating contracts or leases should give very careful consideration to how the land tax adjustments or allocations are intended to operate and ensure the documents reflect that.  If you are a party to an existing contract or lease, you should review the relevant adjustment or outgoings clauses to ensure that they operate appropriately (or look to renegotiate the terms, if there is scope to do so).

For further information on any of the issues raised in this alert please contact our below team.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.