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Queensland government to impose new tax rules for interstate landholders: how will these changes impact property investors?

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The Queensland government is set to close a land tax loophole to stop investors and interstate landholders from exploiting tax-free thresholds.  Attwood Marshall Lawyers Property and Commercial Lawyer Raphaelle Worrall explains the latest government changes and what investors need to consider when buying property in Queensland.

Queensland Government changes aim to evoke a fairer land tax system

The Queensland government announced on 16 December 2021 that it will be changing land tax to help improve affordability.  When announced in the state’s budget update in December, Treasurer and Minister for Trade and Investment Cameron Dick explained that currently interstate property holders can claim the tax-free threshold and benefit from lower land tax rates in multiple states.

The changes will result in interstate property investors with multiple landholdings across various states having their annual land tax assessed on the cumulative worth of all properties, rather than just the value of their property located in Queensland. 

The new tax thresholds identify that individuals and entities with more considerable taxable landholdings have more capacity to pay tax. Land tax is driven by state governments, which means some interstate landholders have previously been able to exploit tax-free thresholds in different states and territories to minimise their tax requirements. Historically, this has meant for Queenslanders who own land only in Queensland, they can end up paying more land tax than their interstate counterparts, despite the state’s generous system.

Primary places of residents will remain exempt.  There will be no changes in land tax for Queensland residents who only own land within the state. The government said it would now tweak the current land tax arrangements to account for the value of land held interstate when assessing taxpayers’ land tax liability and to close the land tax loophole (subject to the passage of appropriate legislative amendments).  The land tax tax-free threshold in Queensland is limited to $600,000 per person.  It needs to be noted that if a couple owns multiple properties together then each person in that couple has a $600,000 limit.

Previously, an individual with taxable landholdings of $1 million in Queensland would have paid $4500 in land tax or an average of 0.45 percent.

If an individual landholder owned $600,000 in taxable land in Queensland and $400,000 in NSW, they would pay only $500 in land tax in Queensland and no land tax in NSW, at current thresholds.

A total national taxable land value will be established for each Queensland landholder, excluding exempt land such as principal place of residence.  The national taxable value will determine the appropriate tax rate that will apply to the Queensland proportion of the individual or entity’s landholdings value.

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

This change will not affect landholders who only own land in Queensland.  Landholders will continue 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.

It is expected that this land tax adjustment will generate $20 million a year.

However, not everyone sees the benefit these new land taxes aim to provide.  The announcement caught the property sector off guard and invoked immediate anger.  Noting the changes, the Real Estate Institute of Queensland (REIQ) said it was “a slap in the face to the very sector that is propping up the economy” and was “the wrong move at the wrong time.”

Real Estate Institute of Queensland CEO Antonia Mercorella explained that this treatment of property investors as an endless money pit is outrageous.  First, the government is raking in a considerable stamp duty windfall, then relying on private investors to provide the majority share of housing supply, and now they’re slapping investors yet again with new taxes.

“All this is doing is deterring people from investing in Queensland and, instead, opting to invest where no multi-jurisdictional land tax applies,” she said.  The property industry was not consulted on the new interstate investor land tax.  Those property investors who remain will likely pass on the additional cost to tenants in the form of higher rents.

The Liberal-National Party in Queensland also criticized the proposal, dubbing it a “tax on investment” that will hurt renters.

Renters have already been significantly impacted by the pandemic with rental prices steadily increasing in Queensland and availability dropping as more Australians relocated to the state throughout 2020 and 2021.

“Make no mistake – this is a new tax, and Queensland renters will bear the brunt of it,” Opposition Treasury Spokesman David Janetzki said.

“It’s the 10th tax on the property industry in the last five years.  This decision says that Queensland is closed for business and will ultimately reduce housing supply.”

How we can assist investors in the buying process

The property industry is a significant contributor to Australia’s economy.  Investor demand has been a critical driver of growth in the residential property market.  At the same time, the upturn in retail and non-retail commercial real estate continues to thrive due to low-interest rates and a strong investor appetite.  As a leading property law firm, we have assisted hundreds of investors during the pandemic and helped them navigate the ever-changing property market. We have seen firsthand just how much desire there is for people to invest in Queensland property during the pandemic, and although the introduction of new land tax thresholds may impact some, we do not foresee this drastically changing buyer appetite in the state.

There is a lot to consider when investing in property and it is crucial that investors get trusted legal and financial advice before they commit to buying to ensure that a property will meet their expectations and financial goals, as well as to ensure that they have a comprehensive understanding of cost implications that they may face when buying in Queensland.

Guiding investors through the conveyancing process

As part of the conveyancing process, an investor should obtain pre-signing advice, do their due diligence, discuss special conditions with their property lawyer and ensure these are included in the Contract of Sale, conduct research on the property, and attend to due dates in line with the Contract and special conditions to ensure settlement proceeds smoothly.

The Contract is negotiable while in the draft stage, so there’s often some back and forth before both parties are happy to sign. It is important that both parties to the agreement engage their own independent lawyer to review and draft any special conditions that they wish to include in the Contract.  As with all Contracts, they can be difficult to fully understand, and it is integral to ensure both a buyer and seller understand their rights and obligations under the Contract to avoid disputes or disappointment down the track.

There is also the decision of whether to purchase a property in your name or the name of an alternative entity such as your spouse, a trust, or a Self-Managed Superannuation Fund (SMSF). This can have significant ramifications.  It will affect land tax, capital gains tax, stamp duty, tax deductions, and asset protection.  If you become the subject of legal proceedings, you want to be confident that your investment property is not exposed. It is important to discuss who’s name the property will be in with an experienced property lawyer so that they can give you advice about your unique situation and ensure that the correct entity is listed on the Contract.

Structures for asset protection

Once you have accumulated assets, it is essential to begin putting the necessary structures to protect them.  This may seem unnecessary if your financial position is secure, but you must remember that circumstances may change.  Losing assets through litigation can occur if they are not adequately protected.  If all your assets are owned in your name, you may be particularly vulnerable to asset loss.  An experienced property and commercial lawyer can assist investors in asset protection by providing advice on trusts, business structures, estate planning, binding financial agreements, and more. At Attwood Marshall Lawyers, we take a holistic approach when investors come to see us about their property portfolio. We ensure that not only are they making a sound investment, but they are structuring and protecting their assets in a way that protects their best interests.

Advice about strata laws

With over 7 million Australians choosing to live in a strata property, they have proven to be a valuable asset to many investors.

A strata scheme is a system of multiple ownership of a building or buildings.  The multiple ownerships are combined in a legal entity called the owner’s corporation — or body corporate, strata company, or community titles scheme.  The role of an owner’s corporation is essentially the same in every state and territory. 

Certain obligations come with owning a lot in a community titles scheme beyond owning a detached house.  Investors, and property owners alike, should consider in detail whether living or investing in a community titles scheme is suited to their lifestyle and fiscal needs.  When purchasing a lot in a community titles scheme, you are automatically a body corporate member.

The Body Corporate and Community Management Act 1997 is the legislation that regulates most bodies corporates in Queensland.  It communicates the rights and responsibilities of people involved with body corporates.  A conveyancing lawyer can ensure buyers understand the regulations that apply to their scheme.

Advice about property development such as planning and environmental law issues

Environmental laws regulate the effect human activities have on the environment.  They relate to mining and extractive industries, planning and property development, waste management, land contamination, and a range of other matters.

In this context, failure to navigate appropriately through relevant legislation can have severe consequences for a project, or the environment, or both.  Therefore, a careful and stringent approach to legal advice is not only smart but will also protect all relevant interests.

Selling an investment property.

Selling an investment property can be just as complex and stressful as buying an investment property.

Deciding to sell investment property isn’t easy and timing can be everything.  First, you want to make sure that you’re selling at a time when you’ll reap the highest profits from the sale, and that comes down to having extensive knowledge of the property market.  If you do decide selling is right for you at this time, it’s essential to orchestrate a beneficial exit strategy so you can save on taxes and ensure a smooth sales process.

Attwood Marshall Lawyers – helping property investors grow and protect their wealth

Attwood Marshall Lawyers have been supporting property investors to achieve their real estate goals for over 75 years. Our team takes great pride in explaining all the considerations that should be given to property transactions to ensure buyers and sellers protect their wealth.

As a PEXA certified law firm, we strive to ensure settlements proceed smoothly and happen on time, without any surprises along the way.

Our offices are conveniently located at CoolangattaKingscliffRobina Town CentreBrisbaneSydney, and Melbourne, so you can visit a lawyer at a location near you.  Our Robina Town Centre office is also open Thursday night until 9 pm and Saturday morning until 12noon.

To get professional and prompt advice, contact Property and Commercial Department Manager Jess Kimpton on direct line 07 5506 8214, email jkimpton@attwoodmarshall.com.au or call our 24/7 phone line on 1800 621 071.

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