How will Queensland’s land tax grab affect the property market?

For many property owners, the recent assent of the Revenue Legislation Amendment Act 2022 (Qld) (Revenue Amendment Act) has raised a range of concerns regarding increases to land tax come 30 June, 2023. While those investors who have invested in Queensland alone will remain under the same tax structure, there is much angst among those who own assets across the country, spreading their risk and minimising their land tax obligations in their investment structure.

How will this affect my residential investment?

Queensland has been long associated with investment by interstate buyers, attraction to coastal areas in readiness for retirement, off the plan apartment sales has resulted in many investors capitalising on affordable housing products for investment. This has grown further during the COVID-19 period with high migration into the state highlighting the safe haven Queensland’s economy is to invest in. As a result we have seen many buyers grow their housing portfolio capitalising on low interest rates and in some markets the lower barrier of entry. This is particularly attractive for residential assets during a time where residential vacancies are at historic lows encouraging future rental growth.

For those investors who own property across the country, their Queensland land tax burden is now larger than ever before. Consideration of the total Australian portfolio value in order to calculate land tax before then apportioning the Queensland land holding will see all investors (who own interstate assets) grow their land tax liability. Land tax, however, still remains unpayable for principal place of residence and exempt assets while the ownership structure also attracts different thresholds.

With owners now faced with an increased tax bill next year, concern turns to the already overheated residential rental market. With a lack of rental accommodation in the market and the slow completion of new stock to meet the population movements, rental increases are tipped to continue to move upward, particularly as investors look to recover what they can from their new or significantly higher land tax bill. This could conversely see investment assets exit the market as owners look to restructure their portfolios and shelter from this high outgoing. Furthermore, this will be a major hindrance in attracting investment into the state with buyers favouring other locations where their statutory liabilities will be less.

Will commercial property also be impacted?

Commercial assets get taxed using the same method. Over the last two years, we have seen a significant increase in first time commercial investors make their first foray into non-residential investment with Queensland being the location of choice. Being one of the states limited by lockdowns and enjoying strong gains in population, growing the need for commercial assets. Many interstate buyers were quick to identify this market as “safe haven” resulting in a strong uptick in transaction volumes, number of sales and a rapid reduction in investment yields.

Many investors during this time have been cautious to diversify asset types and location in order to spread risk and limit their statutory obligations including land tax. However, for many commercial owners, this change in land tax will not hold the same burden as residential investors. With many commercial leases ensuring the recovery of land tax outgoings as part of their lease (with the exception of retail leases), tenants will be the losers from the Queensland Government’s tax grab as small businesses will likely foot the bill from their landlords. Already pressuring businesses who have been impacted by interrupted trade during COVID-19, struggled through changing regulations regarding masks and vaccinations pressuring their customer and staffing levels, as well as those small businesses which were borne out of the pandemic by individuals who looked to survive during a time where job losses and reduced hours were a feature.

The grab for land tax will impact a range of investors but also occupiers alike.Consideration for small businesses who bear the land tax obligations for their commercial landlords or residential tenants who have the threat of not finding a rental property if rents increase to recover this new or increased outgoing has not been made.There may be some assets come to market or investors revisit their ownership structures in response to the changes in legislation. Others ponder why they should invest into a state where their national investment holdings, which were made to spread risks and liabilities, should impact them in the calculation of a state-based tax.