Land tax changes in Queensland – will they affect the property market?

When I was talking to my colleagues Shelly and Julian about the images for this blog, Shelly commented on how picturesque Queensland was. That was a good reminder to take a break from looking at the data and get outdoors from time to time!

When we initially looked at the changes in these tax laws, our immediate thought was that there would be a risk of widespread capital flight from Queensland as investors looked to dump the Queensland properties to avoid the risk of increased taxes. But looking more closely, it probably won’t have too much of an effect.

From the 30th of June 2023, when the Queensland government assesses your land tax, it will consider your entire taxable land holdings in Australia, not just the properties that you own in Queensland. The increased land tax payable in Queensland doesn’t exempt you from any taxes payable in other States and Territories. The landholders that will be affected will be investors. Your primary place of residence continues to be exempt from land taxes.

Let’s have a look at an example:

The current tax-free threshold in Queensland is $600,000. Consider the example of an individual who owns property in Queensland with a taxable component of $745,000 and property in New South Wales with a statutory value of $1,000,000. The current tax-free threshold in New South Wales is $822,000.

Under the current arrangement, this individual would pay $1,950 in land tax in Queensland along with $2,948 in New South Wales.

The new calculation is done in two steps:

  1. Work out the tax payable on the total value of land held (in this case, $1,745,000) using the applicable rate for Queensland. In this case, it would be $16,792.
  2. Then take this amount and apply it to the Queensland proportion of the total Australian land value.

Ie. The tax liability would be ($745,000/$1,745,000) x $16,792 = $7169

As we can see from the example, it only has an effect on investors with a large proportion of their land holdings in Queensland and with a significant portfolio size.

There are a few factors we have to think about though – this has the potential to disincentivise developers from building in Queensland. Developers depend almost entirely on presales for construction finance. This could exacerbate the supply shortage.

With vacancy rates in Queensland already below 1%, this can only mean an upward squeeze on rents. In the event this new tax law creates a disaster with unintended consequences (like the abolition of negative gearing in 1985), then we can expect the law to be wound back pretty quickly.

For most property investors, however the changes in land tax will have no immediate impact.

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