How Queensland Land Tax Changes Affect a Property Portfolio

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What changed with Queensland land tax?

Unlike stamp duty, which is paid once at settlement when purchasing a property, land tax is an ongoing tax levied each year by the state government where your asset is based.

Effective from 30 June 2023, the Queensland Government is changing the way it calculates land tax. From this date, it will use the aggregate value of all non-exempt Australian land owned by an entity to establish the rate of tax to apply to non-exempt land in Queensland.

This adjusted rate will then be applied to your Queensland land value to determine your land tax.

The assessment does not include exempt land, such as the land under a Principal Place of Residence. Up to 2 hectares is generally exempt. Initially, the change will only apply to land held in the same entity as the Queensland holdings. This important to consider for your property portfolio.

How does the land tax threshold work in Queensland?

Although this change will impact current properties owned and future acquisitions, there are general exceptions to the rule, such as the land tax threshold.

The current land tax threshold in Queensland is $600,000. Under the new legislation, it will remain unchanged. This means that if you own individual or multiple properties in Queensland, land tax is only payable if the combined statutory value of those holdings is above $600,000.

However, under the new legislation, land tax will be payable if the total statutory value of all Australian land exceeds the $600,000 threshold. Below is an overview of the land tax rates in the state.

How could the change affect investors with properties in more than one state?

Example 1: Australian land holdings

To best explain how this land tax change will affect investors with diverse holdings after 30 June 2023, take into consideration the following example.

James owns land in Queensland worth $590,000 and has recently purchased land in Victoria valued at $410,000. Both properties are owned in his personal name.

Currently, James would not have a land tax liability in Queensland, as he is under the threshold.

However, as of 1 July 2023, James will be assessed on the total taxable value of land he owns across Australia, which is $1,000,000. Both properties are investments, not a principal place of residence.

Therefore, his Queensland land tax liability will be calculated as follows:

= $500 + 1 cent x $400,000
= $500 + $4,000
= $4,500

This amount will be multiplied by the Queensland portion or percentage of James’ land to determine the final tax value.

= $600,000 ÷ $1,000,000
= 0.6 x $4,500
= $2,700

The new laws would mean James would be paying an additional $2,700 compared with what he would pay when only his Queensland land was assessed.

He would also need to pay $575 in Victorian land tax on the portion of Victorian land owned over the threshold, which is currently $300,000 at the time of writing.

What could this mean for a $5 million investment portfolio?

Example 2: $5 million portfolio

To better illustrate what this could look like for many investors with diversified holdings, we have prepared the following example comparison based on a portfolio with $5 million of taxable investment landholdings.

Refer to Example 2.1 to get an overview of the Australian land holdings for this portfolio.

Example 2.2: 2022 land tax liability on a portfolio with $5 million land value

Example 2.3: 2023 land tax liability on a portfolio with $5 million land value

Why does this matter for investors managing multiple properties?

The inclusion of interstate land when calculating land tax inevitably creates issues for entities with large property holdings that include a Queensland asset.

The increased costs due to the updated land tax regime may deter investors, as it can result in assets being negatively geared and affect the cash flow of the property. This makes property portfolio management more important when assessing whether to hold, acquire or restructure investment assets.

In addition, the lack of uniformity between other states and territories and their jurisdictions on land tax would mean the Queensland Government would have to make considerable changes to the existing laws in order to make the proposed amendments work fluidly.

While the changes have been said to be in place to avoid loopholes in the state’s land tax laws, they appear likely to increase the tax burden for some investors. The obvious answer to avoid paying any tax at all is to purchase properties outside Queensland where land values remain under the various state thresholds. However, those wanting to build out a large property portfolio may find this a difficult roadblock, especially if other states or territories follow suit.

Should investors sell Queensland property because of land tax?

Rents are already increasing due to rising interest rates and record low vacancies. With the Queensland Government increasing land tax for investors, we expect to see landlords increasing rents even further across their holdings in Queensland and other states to offset the increased running costs.

A question we are commonly asked by clients with properties in Queensland is: should I sell?

From an investment standpoint, if the income and capital growth generated from Queensland assets continue to increase, then the increased land tax alone is unlikely to be reason enough to sell. This is especially true for clients in higher income tax brackets, as they will likely be able to claim a tax deduction in their tax return.

Although these rules will not come into effect until mid-2023, we recommend taking into consideration the implications you may have when acquiring an asset in Queensland, or if you already currently own land in the state as part of a bigger portfolio.

How can investors respond to the land tax change?

The information in this article is general and does not take individual circumstances into account. Our position is that every client needs to review how this decision will affect them based on their portfolio and their individual situation.

We caution anyone looking to sell, as the property value could rise quicker than the increased land tax liability.

If you own investment properties in Queensland, you should organise a time to meet with a Performance Property advisor and have your portfolio reviewed, or any potential future acquisitions assessed. Strategic real estate portfolio management can help investors assess whether there are better options than making an impulse asset management decision to sell.

Speaking with your accountant regarding the structuring of your portfolio and tax is also essential to ensure that you can continue to make informed investment decisions based on your personal circumstances. This is especially important where portfolio property management decisions may affect cash flow, tax outcomes and future acquisition plans.

For investors with a larger property portfolio, the key is to consider the tax impact alongside income, capital growth, debt structure and long-term acquisition plans before making a decision.

References

QLD government website: https://www.qld.gov.au/environment/land/tax/interstate