Queensland has announced a significant change to the way that Land Tax will be calculated from 30 June 2023. If you own multiple properties across Australia in different states and territories, including Queensland, this change could have a significant impact on your resulting tax bill.
The change was recently announced as an amendment to the Land Tax Act 2010 (Qld), and means that Land Tax will be calculated based on the total assessable land value across Australia per taxpayer, rather than just in Queensland.
In this important update, we’re going to explore what the current rules are, what the changes announced have been, how they will compare with the current set of rules with a simple case study, and what you may want to consider if you’re going to be impacted by these changes.
Firstly, what are the current rules when it comes to Land Tax in Queensland?
Under the current rules, the total value of your assessable land is calculated at midnight on 30 June each year, and used to determine your Land Tax bill for that particular financial year. It’s important to recognise that there are some key exemptions here, which typically include farming land in certain situations, and of course your Principal Place of Residence (PPoR).
It’s also critical to note that there are Land Tax free thresholds that apply in Queensland, which are as follows:
- Individuals (other than absentees): A$600,000
- Companies / Trustees / Absentees: A$350,000
In simple terms, this means that if you own a residential investment property in your own name in Queensland, with an assessable land value of A$550,000, as you were below the tax-free threshold, your tax bill would have been zero.
Now what are the new rules and key changes that were announced?
The critical change that was announced is that now instead of just the value of your Queensland assessable land value being used to determine your Land Tax, the total value of your Australian land would be used, and it will operate in three steps:
- 1: Calculate the total value of Australian land owned by the particular taxpayer.
- 2: Calculate the Land Tax that would apply as if all of that land were in Queensland.
- 3: Apportion the total Land Tax amount to the Queensland land based on its relevant value to the total Australian assessable value.
If your investment property or properties are only in Queensland, then when it comes to your Land Tax bill, this will not have any impact on you. However, if you own properties across multiple states / territories, including Queensland, then this could inflate your holding costs quite quickly.
Let’s have a look at a simple case study
John owns two properties, one in Melbourne and the other in Queensland. Both are residential investment properties and the Queensland property has an assessable land value of $600,000, while the Melbourne property has an assessable land value of $1 million.
Under the current scenario, as John is at the tax-free threshold, he would currently have a Land Tax bill of zero. If the value of John’s land in Queensland increases over time, he would gradually enter the first band and start paying Land Tax.
However, under the new rules, John will be hit with a Land Tax bill, and this would be calculated as follows:
The total assessable land value for John is now A$1.6M across his two properties. This changes the 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
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
John just went from a Land Tax bill or $0 to $5,400 with this recently announced change. Not only this, but John now also needs to report the total Australian assessable land value to Queensland each financial year by the deadline, adding to the administrative burden of completing his taxes.
What can John and other property owners consider?
When it comes to existing properties, there is usually not a great deal that can be done to mitigate the Land Tax bill, as it is typically prohibitively expensive to consider changing the ownership structure of existing properties given Capital Gains Tax (CGT) and Stamp Duty that could apply. It is usually going to be sensible to ensure that you’re prepared for this expense and consider any tax benefits of this additional tax deduction each year.
If you’re concerned about the impact this will have on your annual running costs, you may want to consider:
- Extending your loan term: You could consider refinancing your loan to extend your loan term and reduce your ongoing repayments. This would increase the amount of interest paid given the extension, however it may result in less of a cash-flow burden for the short-term.
- Refinance to a lower rate: You may also want to consider refinancing to another lender with a lower interest rate which allows you to reduce your ongoing expenses by paying less interest.
- Access some of your equity: Finally, you may want to consider utilising some of the lazy equity in your property, which could be utilised to cover the Land Tax bill.
There are a few options for you to consider when it comes to your existing properties, but please ensure that you consult with an experienced investment-savvy mortgage broker to explore your options here.
When it comes to your new purchases, you could consider different ownership structures such as Trusts and Companies, as well as joint compared to individual ownership depending on your overall goals. While this Land Tax change may be significant for some, it simply requires more planning and professional advice to ensure that you’re on the right track when it comes to your property investment journey.
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