Tax Tip 184: An Example of the Unfairness of QLD Land Tax to Non-Resident Citizens

An Example of the Unfairness of QLD Land Tax to Non-Resident Citizens

There are recent amendments to the laws relating to land tax on properties located in QLD and they can oppressively burden Australian citizens living overseas.

Many Aussies have invested in property in QLD and then gone and lived overseas for lifestyle and or living costs hoping to enjoy their retirement by living in their rental incomes. But they are now being taxed so high that many will either need to come back to Australia or sell their properties.

QLD is the only state that taxes Australian Citizens like this.

The issue is that there are different land tax rates for ‘absentees’. Australian citizens who are outside of Australian for more than 6 months can fall into the definition on ‘absentee’. The absentee doesn’t get the $600,000 threshold like non-absentees – their threshold is just $350,000. Plus, the rate they pay is higher too. On land worth $1mil the absented rate is 1.7%but the non-absentee individual rate is just 1%.

Now there is also an ‘absentee surcharge’ that goes on top of the absentee rate. For land valued at more than $350,000 the rate is 1.5%.

This means on land worth $1mil the land tax rate would be 3.2% – every year.

Here is an example of how harsh in can be:

John is retired and has a property worth $800,000 with a land value of $500,000 in QLD.

He is getting $500 pw rent, or $400pw after costs. It is fully paid off and this would be John’s only source of income when he quits his job.

John goes and lives in Myanmar where it is cheap to live as he can live like a king on $400 per week.

Poor John didn’t factor in land tax.

Before leaving Australia there was no land tax payable.

Now, since he is living overseas he will be classed as an ‘absentee’ owner as he is not ordinarily residing in Australian.

Section 31 Land Tax Act 2010 QLD.

LAND TAX ACT 2010 - SECT 31 Meaning of absentee

Because John is an ‘absentee’ Schedule 3 of the Land Tax Act applies to determine the rate of land tax John will pay.

Part 1 is the general rate and it is charged at $1,450 plus 1.7 cents for each $1 in value more than $350,000.

This equates to $4,000

Ouch!

But it gets worse, because Schedule 3 has a Part 2 which imposes a Surcharge Rate.

Therefore, there is an additional 1.5 cents payable for each $1 in value more than $349,999.

In John’s situation this will be $2,250.

John’s total land tax went from $0 to $6,250 per year.

Poor John is now living on $280 per week. His income has been cut in half almost.

And this is before we even consider the Commonwealth tax issues of him living overseas and possibly being a non-resident for income tax. This could leave John was extra income tax of about $4,728 per year.

This would mean his annual post tax income has gone from around $20,000 to $9,821 or $188 per week.

Next year there could be a jump in values which may result in even more land tax (but possibly no increase in rents).

Poor *******!

Originally posted on the structuring website
An Example of the Unfairness of QLD Land Tax to Non-Resident Citizens – The Structuring Blog

 

It's similar to how QLD taxes properties held in companies (including trusts with a corporate trustee).

On top of that, the Brisbane City Council charges investors extra in the council rates and investors may have to pay some of the tenants water usage! Let's not worry about management fees being amongst the highest in the country.

<rant over>

 

The general rate is the same, but the surcharge is extra.

 

Add to that, he may not qualify for full/part the pension as he is single and exceeds the assets threshold.

 

Correct but that is what the law is. That like saying NSW land tax is highly costly v's NT land tax where it doesnt exist. The OP example above compares a owner occupied v investor (absentee) whichis a little biased as a means to compare as my example of NT v NSW. Many argue NSW land tax for disc trusts is harsh too. It taxes every singe $ without a threshold.

Property owners need to appreciate that many groups will be harmed (since nobody is suggesting incentives !!) in different ways by current and future govt policies and changes at state and commonwealth levels. eg Borrowers, non-citizens, non-residents, temp residents and even people who are here as tax residents but without true nation residency. Affects income tax, CGT, land tax, surcharges, duties and more.

In 2015 and 2016 media screamed from ways to limit "foreign ownership" forcing up costs as well as investors ramping up prices at auction. The states and Commonwealth met and agreed that a consequence of unified (but different) changes to assist this goal. This included lending reforms and more. They even agreed it may see a release of stock being sold by these owners will increase supply.

The lack of uniformity to many laws and policy (like other nations) makes it a complex and problematic process. And a risk for any owner.

 

Rules change. Usually just a money grab.

Many fully self-funded retirees will lose many thousands when/if Bill Shorten abolished franking credit refunds.
Marg

 

Geez, add into this a cyclical downturn in property, credit tightening and the probability of Labor’s NG / CGT changes it’s not looking pretty. Glad I sold our final IP last year. Also lack of liquidity makes it bloody hard to make changes incrementally or in a timely manner.

Whether it be shares or property It seems like the current Gov’t federal / state and Labor opposition are intent on making Australia an unatttactive place to invest in.

 

There is an announcement in the latest QLD Budget which may be of interest:

Australian citizens and Australian permanent residents living overseas to be assessed as resident individuals From 30 June 2019, Australian citizens and Australian permanent residents holding permanent visas living, working or travelling overseas for an extended period will no longer be assessed as absentees. This means for land tax assessed from the 2019-20 financial year onwards, they will benefit from the higher tax-free threshold and lower rates of tax that currently only apply to resident individuals. They will also not have to pay the absentee surcharge. This change brings Queensland into line with other major Australian States.

https://budget.qld.gov.au/files/19-004_Budget 2019-20 Budget Statements - LANDTAX_3.pdf

 

Oh, that's interesting. I moved back to Australia because my land tax bill in Qld went from $5000 to $20,000. As it turns out, I moved back here for nothing. Fun to deal with- those Australian governments.