Queensland land tax goes national but is it even enforceable?

A month on from the introduction of a controversial Queensland cross-border land tax that could hit property investors around the country there is still no indication of how it will be enforced.

Due to take effect from 30 June 2023, state land tax will now be calculated using the total value of a property owner’s Australian land.

In an Australian first among state tax regimes, the tax is not limited to Queensland residents and will use the same parameters for non-Queensland residents who have invested in property within the state. 

Queensland Treasurer Cameron Dick told an Estimates hearing that the new tax would be administered by “around nine full-time staff” but confirmed there was no access to property ownership records or similar information from the other states.

This raised the question of whether the new tax would be enforceable.

Queensland Under Treasurer Leon Allen said there are no arrangements in place with other state registries to access the interstate property ownership information that forms the basis of the tax.

“At the moment we note that that is highly dependent on how much information sharing we can get from other jurisdictions,” Mr Allen said.

“It is reliant on us utilising available information, as opposed to any direct feeds from other state revenue offices.”

Mr Dick added to the Under Treasurer’s admission, saying, “it should be noted that Treasury will have alternative mechanisms to access relevant information concerning property valuations from other state authorities, including third-party providers.”

Asked if the tax would be enforceable, Real Estate Institute of Queensland CEO Antonia Mercorella told API Magazine it was at risk of being based on some kind of honour system.

“The Government’s comments don’t speak to a well-oiled plan in our view,” she said.

“From a practical standpoint, it’s difficult to understand how they are actually going to police this effectively and whether it will end up relying on an honesty system.

“It may be that the cost of administering, policing, and enforcing this policy is greater than any actual financial gain.”

The Government has yet to forecast how much extra revenue the land tax will generate.

Mr Allen told Estimates the revenue would be highly dependent information sharing from other states, despite there being no such agreements in place.

“Our estimations are very tentative at this point,” he admitted.

Investment impact

Whether the new tax is seen as an investment deterrent or renters’ saviour, a tax grab or justified revenue, depends on who you talk to.

Mr Dick said the government’s tax reform was aimed easing the affordability crisis by reducing competition from interstate investors.

“When an interstate speculator sells their property in Queensland, the property stays in Queensland and it becomes available for another person to own and lease or own and occupy.

“That is the object of our reform; it means young families in places like Logan or Toowoomba will no longer face unfair competition from speculators in Sydney who are flipping properties around the country at a furious rate.

“Treasury expects the impact on investment to be negligible, I am advised.”

Despite Treasury's intentions to introduce the new land tax model to provide a ‘fairer and more equitable’ land tax liability on all Queensland taxpayers, the risk is that the increase in land tax will be primarily felt by tenants in Queensland, as landlords passed the expense on to tenants.

As to whether the tax would affect the investment landscape, George Kafantaris, Director of CBS Property Group in Brisbane, said the tax was just one of many variables investors weighed up but it could have an impact.

“A question arising from all this is will it force existing investors to sell some of their portfolio and the quick answer is that that is more than likely, as when the investors made the initial decision to invest, this was not one of the variables factored into their cash flow affordability,” Mr Kafantaris said.

Rental debate

As to whether it would deter interstate investors from buying in Queensland, Mr Kafantaris said there may be an early reaction.

“It's my opinion that investors do not make decisions whether to invest or not based solely on one change, albeit this is a major one.

“The tax may be an early deterrent but investors do look at other issues, such as interest rates, rent, property price movements, depreciation rules and cash flow,” he said.

REIQ’s Ms Mercorella was particularly forthright.

“Property investors are tired of being the ATM for the state,” she said.

“This is likely to have a detrimental impact on the appeal of investing in Queensland, especially when you consider the cumulative effect of all the legislative reform investors are being hit with.

“The timing is also incredibly unfortunate given it’s come when property investors are critically important, with Queenslanders experiencing some of the tightest vacancy rates we’ve ever seen in most regions across our state.

“We simply can’t afford to lose investors from Queensland at this time.”

She added that the argument renters would benefit was too simplistic.

“There’s an assumption that if we got rid of investors it would immediately open the doors to enable more to people to buy, but that argument fails to consider that there’s always a proportion of the community who choose to rent or prefer to rent.

“Similarly, some renters may not meet the criteria required to secure a mortgage.”

Currently, 36 percent of Queenslanders rent with most rental properties provided by investors, while social housing backed by the state government accounts for just three percent of the supply.

Further, investors contribute significantly to government coffers, including higher stamp duty fees and land tax (state-level), council rates (council-level), and capital gains tax upon sale (federal).

“It’s the cumulative effect of these things that we’re concerned about; there’s more money that you’re forking out, in addition to mortgage repayments and other rates and bills associated with holding a property,” Ms Mercorella said.

“The reality is that the extra costs an owner incurs will inevitably be passed on to tenants.”

How it works

Prior to the changes, land tax in Queensland has been calculated on the value of landholdings owned within Queensland if the value of those landholdings exceeds the tax-free threshold ($600,000 for individuals and $350,000 for companies, trustees, and absentees).

Under the new framework, land tax will now be calculated on the total value of all land owned by that taxpayer throughout Australia.

Those who only own land in Queensland will not be affected by this change. Those who own land in Queensland and in another state or territory will need to declare their interstate landholdings.

As an example, if a person were to own $300,000 worth of Queensland property, they would be exempt from tax prior to 1 July. However, under the updated laws, if the same individual were to own $1 million worth of property in another city, they would be considered to own $1.3 million worth of taxable property — rather than the Queensland portion of $300,000, and subsequently taxed as such.