QLD Consequence of proposed QLD land tax

I was playing with some numbers today, wondering what this might actually cost investors. I don't know if this is correct, I'd be interested to hear the thoughts of others.

A big of background. QLD government has proposed to use an investors Australia wide portfolio to calculate their land tax thresholds. Here's a thread:
Qld new land tax

Scenario: You own two investment properties, both in your name.
* One property in Melbourne's east, has a land value of $900k.
* Second property in Brisbane, has a land value of $400k.

For reference, you need to calculate land tax:

VIC:
Land tax current rates | State Revenue Office
Calculators | State Revenue Office Victoria

QLD:
Rates for individuals
http://amun.osr.qld.gov.au/sap/osrqld/wd_ltax_calc#

* Under today's rules in 2022 you'll pay land tax in Victoria of: $2,475.
* In Queensland your property is under the $600k threshold, so you don't pay any land tax.

Total bill: $2,475.

However if my understanding of how QLD is proposing to implement these rules, the figures would be as follows:

* No change in Victoria. Land tax calculated on a total value of $900k. The bill is still $2,475.
* In Queensland, they'll use the total land value of all investment properties to determine the threashold, which is $1.3M. My interpretation is they'll only tax you on the land value, within this threshold. My best guess is they'd tax you $4,500 + 1.65 cents for $300k. QLD bill becomes $4500 + ($300000 x 0.0165) = $9,4500.

Total bill: $11,925

Here's the best part, the QLD property probably gets about $550/wk. This represents over 5 months of your rental income, all of it going to the QLD state government, mostly because of the value of your Victorian property.

Please note: This is my interpretation of the proposed changes. I'm happy for someone to clarify any points I may have gotten incorrect.

 

Holy smokes!!

I was thinking about buying an IP in Brisbane and this definitely scared me off.

Are they planning similar in SA/WA?

 

If this is the case, I'm going to have reconsider the holding of my recently acquired Queensland property. We'll hopefully know more in the coming months, and which may coincide with a peak in prices allowing a modest gain to be made if the property was to be sold.

 

In the above scenario if you had a partner with joint ownership that would go down to $650k each.

There’s no talk of including people’s PPORs is there? Just IPs?

It’s still such early days anyway.

 

Will that mean that Qld will be charging apples & oranges? Victorian land tax is calculated on an improved capital value whereas other states it's unimproved values. So a $1m Sydney house, has a UCV of say $600k (below the NSW threshold), whereas you point out a $900k would be hit for it's ICV - so it then becomes a consideration as to where you invest or is it an attack on Victorians?

 

That would equate to an extra $9500 per year or $181 per week in land tax on a property worth about $1mil renting for say $600 pw.

Huge enough to scare many off I would think.

 

Over dinner I was contemplating what the social consequences of this are...

Based on the census figures I read, only about 30% of investors own 2 or more investment properties, but in that 30% of investors, they hold at least 60% of all investment properties. This would mean up to 60% of the QLD investment market is affected. That's a lot of properties.

Let's assume that about half decide to cash out. This means about 30% of QLD investor housing goes on the market within a year or two or three. It might only halt future growth, or it might cause a crash.

If it causes a crash, there will be a lot of happy people. Those who were saving a deposit just got a shortcut into the market. A lot of people aged 25-35 just got a nice boost.

A lot of retirees will realize that their plan to sell their home to fund aged care just lost a lot of value. It might mean they can't execute part of their retirement plan.

Most tenants don't have significant savings. Consider the single mum's, the pensioners, partially employed. A lot of people live from one pay to another, a very high proportion are renters. Probably 80% of the tenant population won't be in a position to take advantage of the crash, they'll just have to keep renting.

For these people, about half the landlords will be selling. As a result about half of the life long tenants will find themselves served with eviction notices as their landlords want to sell. Nothing they can do about it.

These people will be looking for new accommodation, but QLD will become off limits to investors as they're getting out, not in. Affordable rental properties will disappear as there is almost zero properties available. Of those that are available, the landlords will be trying to recover a lot of that extra tax, so the rents will go through the roof. The tenants whose landlords aren't selling will also find their rents skyrocketing. They'll never be able to save for a home of their own.

Then there's the wider consequences. Nobody is going to want to build an investment property in QLD. The building industry goes into a recession. This sends shock waves through the rest of the QLD economy.

The biggest beneficiary in the short term will be the QLD government from the extra tax collected. However with fewer investors and depressed land values, this won't be a golden goose that keeps giving. They'll probably be better off overall, but it won't be as much as they expect over the long term.

The other big beneficiary is the wealthy investors that own their properties through trusts. This is class of investor is already using multiple entities to manage land tax. As they're using multiple entities, they're not directly affected by the changes. They're also usually more wealthy than most so they are those most likely to be in a position to benefit from a market crash. They'll then benefit more from the increased rental yields.

The winners and losers are:

Winners: QLD government. Wealthy investors. Possibly other states as investors more their money elsewhere.

Losers: Tenants and pretty much everyone in the lower socioeconomic brackets. Construction industry, employment, leading to everyone else in QLD.

 

I can't see it working the way you have it. I think they're taking the total land value, applying land tax at the rate, then apportioning the QLD interest.

This statement for example in the AFR:

'Under the new system, the individual landholder with $600,000 in taxable land in Queensland and $400,000 in NSW would pay $2700 in land tax in Queensland, an average 0.45 per cent on their landholdings in the Sunshine State.'

The above appears to be calculated as land tax on $1m ($4,700) multiplied by 60% (the QLD portion of total land tax), which is $2,700.

So for your example figures, the outcome might be:

Total land value of $1.3m, which is $9,450 in land tax. Multiplied by QLD portion (400k/1.3m = 31%) means the QLD land tax is $2,907.

If the above is correct, then I can see it being more of an annoyance than resulting in a material decline in investors.

 

Hetty no PPORs are not factored in, IPs only.

Surely this tax would not apply retrospectively? It affects a minority of investors, those who own more than 1 IP, but applying it to IPs prior to its introduction would be pulling the rug out under your feet and controversial.

Edit: I had no idea it was anywhere near high as 30% as per Peter's post!

 

That would be grossly unfair as they would be effectively taxing on the non qld land element.

How about qld land tax is 1% of 100k and 1.65% of 300k ie $5950. This would be more defensible.

Rates for individuals

 

In this example person is paying double tax on the Victorian property. Does not seem like a fair way of calculating.

 

Well whatever the calc is, all I can say is
"Take your stinking paws off me you damn dirty ape"

 

This tax will never come into action just political stunt from politicians to divert attention

 

Next they’ll tax residents of other states who don’t even have a property in Qld.

 

He can talk!

 

I think: 400/1300 x (4500 + [300x0.0165]) = $2,907 would be the QLD land tax charge.

If you have high value holdings but a small QLD Investment currently under threshold (e.g. total land value $10.5m with $0.5m in QLD) then it will really hurt.

 

The details are here
https://budget.qld.gov.au/files/2021-22_Budget Update.pdf#page=25

"For example, an individual with taxable landholdings of $1 million in Queensland would pay $4,500 in land tax (or an average rate of 0.45 per cent). Another individual landholder with $600,000 in taxable land in Queensland and $400,000 in New South Wales, would only pay $500 in land tax in Queensland and no land tax in New South Wales at current thresholds."

Basically all land exept PPOR will have land tax.
In the above for a QLD resident 600k value in Vic + 400K in QLD.
A VIC resident would pay land tax on 400k and whatever the VIC rules are on the 600k property.

All states will tag on next couple years I reckon

 

Thankyou for that. Time to do some serious reading.

 

Oh Dear....

For example, an individual with taxable landholdings of $1 million in Queensland would pay $4,500 in land tax (or an average rate of 0.45 per cent). Another individual landholder with $600,000 in taxable land in Queensland and $400,000 in New South Wales, would only pay $500 in land tax in Queensland and no land tax in New South Wales at current thresholds.

Under this approach, an individual with $600,000 in taxable land in Queensland and $400,000 in New South Wales would pay $2,700 in land tax in Queensland, an average rate of 0.45 per cent on their Queensland landholdings, being the same rate as the landholder with all their landholding in Queensland.

 

Venezuela: WE WANT EQUALITY!

Also Venezuela: (lol equal suffering)