Tax Tip 368: Land Tax in QLD – A Individual v Trust

Tax Tip 368: Land Tax in QLD – A Individual v Trust


If you are contemplating the purchase of a property in QLD and are interested in considering whether to hold it directly or via a discretionary trust, this post gives some brief comparisons of the land tax differences between holding as trustee and holding as an individual. The QLD land tax will only be based on land that you hold in QLD. Land held in other states does not get added when working out land holdings for land tax purposes.

The rates for individual non absent owners holding land in QLD is

$500 plus 1cent for each $1 more than $600,000 up to $1mil

See Schedule 1 of the Land Tax Act 2010 (QLD)

LAND TAX ACT 2010 - SCHEDULE 1


The rates for trustees holding land in QLD is

$1,450 pus 1.7cents for each $1 more than $350,000 up to $2,250,000

See Schedule 2 of the Land Tax Act 2010 (QLD)

LAND TAX ACT 2010 - SCHEDULE 2

Example 1

Homer has 2 properties in his own name in QLD and the land value is $600,000

He is looking at a new property with land value of $350,000

If he were to buy in his own name the land tax would be $500 plus ($350,000 x 1%) = $4,000

This would mean $4,000 per year in land tax in the first year with this rising over time.



But if Homer set up a discretionary trust to hold the property the land tax would be nil in the first year.

That is a $4,000 saving in year 1.

Note that it is likely that the land value will increase and as the thresholds are static, there will be land tax payable in the following year for the trust as well. But this should still be much lower than the individual.


Example 2

Bart has no property yet. He is tossing up whether to buy the new one in a trust or not and will seek legal advice. But if the land is $350,000 or less, he would pay no land tax either way.

If the land was worth say $500,000 then it would be different

- Still $0 in his own name

- $4,000 if held by a trust



Example 3

Lisa has 1 QLD investment property with a land content of $400,000

She wants to buy a second QLD property worth approx. the same value.

In her own name this would take her over the land tax threshold of $600,000 so she would pay $2,500 in land tax.

If she were to use a trust to hold the property it will also be over the trust land tax threshold of $350,000 by $50,000 so the land tax for a trust would be $1,950 in the first year.


Note that the QLD land tax thresholds are static and don’t increase each year with inflation like NSW land tax. So, what you buy now might be under the threshold this year but could be over the threshold next year.

Also note that Land Tax is but one thing to consider when considering the ownership structure of a property and there is much more to it than land tax. Please seek your own legal advice when entering a contract, especially in QLD as double stamp duty would generally apply if a different entity settles to that entering the contract.

 

Big fan of your work @Terry_w

Need to petition to lobby this BS static land tax of QLD.
It's been like this for 20 years. What a joke!

 

Thats how they designed their system. Each state varies. QLD also allows each trust its own threshold that no other state does. NSW doesnt even give one in most cases. QLDs is simple and as land prices rise so does tax as there is no indexing the threshold. . Thats a pretty simple tax system. Unlike say NSW where the threshold is indexed so as value rises the amount of tax doesnt necessarily increase in a linear manner with change of value. Vic has a different system altogether. Low thresholds with progressive rates....Taxes more properties but for single holdings its not so dramatic but when you have several it bites.

Given QLD system has been static so long buyers should be quite aware of the issue prior to buying. QLD has a very generous threhold for indviduals as a representation of land value. $600K....That s a lot. Where in NSW its $755k which when we compare Bris v Sydney makes land tax in Sydney very high. $600K buys a lot of land but $755K gets you nothing in Sydney. That said the rate is initially a flat 1.6% in NSW where it is 1% in QLD.

Managing land tax is a planning issue before you buy. Many will spread ownership and consider name/s and plan it. Some dont and jump in and regret it later.

 

On this topic I called QLD OSR today and the person informed me that if you have investment property with say 800k land value but its joint tenants you wont be liable for land tax as they split it into 400k each for the 2 owners.

I have heard contrary views on this as well so just reconfirming this information is correct?

 

joint tenants are treated as tenant in common owners in equal shares.
Each persons interest in a property is assessed separately to other owners. see section 22(1) Land tax act

 

Thank you to Terry_w for this thread.
Just received another large bill for QLD land tax (in the name of trust) for 2021-22 (for land owned at midnight 30 June 2021). We are about to put our property for sale on the market. This land tax bill has to be paid by 13 Dec 2021 - which we will need to pay.
Questions: Do we get any rebate / refund on the land tax paid for, say 1 Jul 2021 to the settlement of the sale of the property? Or, will the land tax paid be an (income) tax deductible to the trust as part of the rental return? The property has been rented from 1 Jul 2021 to end of August 2021.

 

no

 

Maybe not going forward...

The land tax system in Queensland is one of the most generous in the nation, including principal places of residence being exempt from land tax, a tax-free threshold that is higher than the median-valued parcel of
residential land, and a rate structure that ensures that smaller landholders are subject to lower marginal rates of tax.
The framework recognises that individuals and entities with more substantial taxable landholdings of commercial
or investment properties have a greater capacity to pay.
As land tax is administered by state governments, some interstate landholders exploit tax-free thresholds in
different jurisdictions to minimise their tax obligations. Landholders with all of their land holdings in Queensland
end up paying more land tax than their interstate counterparts despite Queensland’s generous system.
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.
This inequity, or loophole, will be addressed by amending the current land tax arrangements to account for the
value of land held interstate when assessing taxpayers’ land tax liability.
A total national taxable land value will be established for each Queensland landholder, which will continue to exclude exempt land such as principal place of residence. The national taxable value will determine the appropriate tax rate that will then be applied to the Queensland proportion of the value of the individual or entity’s landholdings.
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.
Landholders who only own land in Queensland will not be affected by this change. Landholders will continue to be
able to access all available exemptions, such as the principal place of residence and primary production
exemptions.
Additional land tax will only apply to the taxable Queensland landholdings of individuals who own land in multiple
jurisdictions.
The timing of commencement of this reform will be subject to the passage of appropriate legislative amendments.

https://s3.treasury.qld.gov.au/files/2021-22_Budget-Update_web.pdf

 

No state counts land held in other states so it would be a first. Other states might then follow.

if NSW followed suit that would mean $2,948 in land tax in NSW too as added together they are over the threshold. Would they get a credit for land tax paid in one state, if not they would essentially be taxed twice.

 

It would be crazy if every state will follow the same and no credit. Imagine if you have properties in 5 states and pay the tax in all of them for the whole holdings so will be like 5 times!! Then you have different rules for individual vs trust in different states too right?

 

Each state would trigger a land tax war with other states as QLD may have just announced. If they seek to apply interstate holdings this could eliminate the apparent thershold focrcing up the tax costs. However this could also work the other way with NSW seeking now to tax QLD property in the same way. If they seek to "tax"interstate land then that may be a constitutional issue.

Each state is more likley to amend its own taxes through rate and thresholds on state property as its a direct matter they can estimate and manage.

The bad news for most states is thesholds havent changed in a LONG time. NSW is an exception with a indexed threshold. So thresholds are a less probable tax change. Rates however have remained fairly constant since this makes the tax self-indexing. As value rises so does the tax. The higher risk for a rate change is NSW as the indexed threshold acts to unwind the benefit of SOME inflation in value.

The one that I see as a risk is QLD. Their taxing law allows EACH TRUST a threshold. Its a common strategy for some to hold three properties in three trusts and none pay land tax. This is very different to all other states. Its would be very easy for QLD to modify its taxing to aggregate like other states and this would mean people who have two or three trusts face a potential 1.7% x the value of each additional thereshold. For each additional trust that would mean a extra $3500 per annum. Alternatively, but less likely, QLD could adopt the method used in Vic and NSW which doesnt offer any thershold to a trust (or much of one in the Vic example). This would act in a similar way but across EACH trust. So a person owning 3 properties in three trusts could potentially face a similar outcome but rather than based on additional trusts it would be a multiple of all trusts. The danger if QLD does this is people may want to change their trusts etc. QLD stamp duty laws doesnt look on this favourably and so then stamp duty is a potential trigger.

What stops a state from making that change ? Rental affordability is a continued issue for governments. If they raise taxes on owners especially land tax which is very costly in cashflow terms then people sell property. Capital then flows to a different state. Prices may be impacted and the supply fo rental property may fall as less investors are motivated to buy. Perhaps not immediately. But slowly and so supply of rental housing gradually falls. Rents rise and the Govt gets blamed. And in QLD land developers etc have a loud voice. It also affects builders...Schemes which exempt "new builds" are common to address construction jobs etc. However, its a easy media sell to tax "wealthy property investors"and this appeals to the majority who dont own investment property.

 

Can someone check my calculations under the new rules?
The assumption is you are buying a 500k property in Qld and you own 1mil outside of Qld as an individual (referring to land component)

Trust assessment would be:
1450 + (500k - 350k)* 1.7%=4,000

Individual assesment would be:
4500 + (500k)*1.65%=12,750

Correct or not?
Or is it 12,750/ 3?

 

http://amun.osr.qld.gov.au/sap/osrqld/wd_ltax_calc#'

 

The details of the QLD Proposal (subject to laws)
https://budget.qld.gov.au/files/2021-22_Budget Update.pdf
Page 25

A fairer land tax system (Ahem, cough cough. Spicy cough)

The land tax system in Queensland is one of the most generous in the nation, including principal places of residence being exempt from land tax, a tax-free threshold that is higher than the median-valued parcel of residential land, and a rate structure that ensures that smaller landholders are subject to lower marginal rates of tax.

The framework recognises that individuals and entities with more substantial taxable landholdings of commercial or investment properties have a greater capacity to pay. As land tax is administered by state governments, some interstate landholders exploit tax-free thresholds in different jurisdictions to minimise their tax obligations. Landholders with all of their land holdings in Queensland end up paying more land tax than their interstate counterparts despite Queensland’s generous system. 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. This inequity, or loophole, will be addressed by amending the current land tax arrangements to account for the value of land held interstate when assessing taxpayers’ land tax liability. A total national taxable land value will be established for each Queensland landholder, which will continue to exclude exempt land such as principal place of residence. The national taxable value will determine the appropriate tax rate that will then be applied to the Queensland proportion of the value of the individual or entity’s landholdings. 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. Landholders who only own land in Queensland will not be affected by this change. Landholders will continue to be able to access all available exemptions, such as the principal place of residence and primary production exemptions. Additional land tax will only apply to the taxable Queensland landholdings of individuals who own land in multiple jurisdictions. The timing of commencement of this reform will be subject to the passage of appropriate legislative amendments.

Summary in plain english
QLD seeks to tax people who own interstate property especially those that reside in NSW if we consider the examples. Anna has over described the exceptionally generous tax regime in QLD which exempts the family home. Hope she doesnt seek to see that as a "loophole" next !!

The apparent tax regime seek to merely adjust the tax free threshold to recognise interstate taxable land. This has the intended potential to strip the threshold so QLD investors face a potential tax increase of up to $3500 pa PER taxable entity perhaps. Tax will remain only assessed on QLD land however the threshold adjustment acts akin to tax on the exempt interstate land. However trusts may not face this tax increase since QLDs threshold is presently MORE generous than interstate thresholds so no additional tax may occur. Hoiwever, this certainly make sthe multiple threshold for trusts a very high risk of future change to address that ävoidance"to use the words of the Treasurer.

I question how the QLD Govt intendeds to access the private tax affairs of interstate persons ? I cant imagine NSW will be willing to surrendur the use of its residents tax free thersholds.

Also there is a potential here for DOUBLE taxation. This arises with the difference between a June land tax year in QLD and December in other jursidictions. Hence....Has a threshold been applied at that date ? Perhaps not. Land tax is a tax ON a specific date. So a threshold is given ON that date.

Whats next - A vistors tax ?

Note the Residential tenancy rules that prevent land tax being applied to rent changes may be ineffective for this issue. eg Raise the NSW rents to cover the QLD tax increase. It may put upward pressure on rent increases.

 

The cost of implementing a tax on 'multiple trusts' assessed as one would be enormous.

 

Not really. The cost would be borne by the affected taxpayers. In other states when land tax rules change they often advise all trusts (to use that example) of the need to opt in / out prior to the assessment dates likley by grouping several land tax registrations as one. This came up with the non-resident beneficiary issue in NSW. Everyone assumed it would be complex. It was complex and costly for any that ignored it.

eg Two questions for all trust owners prior to assessment...
1. If this trust part of a "trust group" Yes / No
2. If any owners dont reply to 1. in the affirmative then they get no threshold.

lets hope they dont do it. BUT it is a major tax saver that is a loophole in the words of the QLD Treasurer v other states.

 

I'm crossing my fingers this doesn't get approved and passed as legislation. This is just a money grab imho.

Are you able to shed some light on the figures and how they came up with it?

"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."

I'm not good with numbers how did they get $2700? I'm looking at the QLD land lax rates and it doesnt line up.

 

They could simply remove the threshold for trustees so that it is like nsw

 

1mil total land (600k in Qld and 400k NSW)

Assessment is $500 plus 0.1*(1,000,000 - 600,000)
Equals $4500
Then it's pro rata based on the Qld land
600k / 1000k =60%
$4500 * 60% is $2700

Having the 600k property In a trust would lead to a $5700 assessment.