Queensland Property Tax Hikes

 

Queensland Government property tax hikes, scheduled to take effect from 1 July 2018, will INCREASE THE COST OF DOING BUSINESS, DAMAGE QUEENSLAND’S ECONOMIC COMPETITIVENESS and IMPACT ON EVERY QUEENSLANDER.  

As the Government prepares the 2018/19 State Budget, the Property Council has ramped up efforts to highlight the hidden effects of the planned tax hikes. The full economic impact of the increases may include:

  • Higher occupancy costs for Queensland businesses,
  • An erosion of Queensland’s tax competitiveness,
  • Up to a $1,000 increase to the cost of a new home, and
  • The devaluing of Queensland property assets by over $1 billion.

At a time when Queensland is seeking to leverage the Commonwealth Games to attract new investment, the State Government’s property tax hikes threaten to wipe us off the investment map. 

The Property Council is calling for the Government to abandon the tax increases, and commit to review and modernise Queensland’s property tax framework.

THE TAX HIKES

Election campaign costings, released in the days prior to the November 2017 State Election, revealed the Government’s intention to introduce new land tax thresholds for aggregated land holdings with an unimproved value above $10 million.

Individuals, companies and trusts who are within this new threshold will be subjected to a 25% increase in the rate of land tax from 1 July 2018. This revenue measure was confirmed in the Government’s Mid-Year Economic and Fiscal Review in December 2017, with $227 million expected to be collected over the forward estimates. 

An increase in the Government’s Additional Foreign Acquirer Duty from 3% to 7% of the dutiable value of the property will also apply for 1 July 2018. This measure aims to raise $99 million over three years.

THE HIDDEN EFFECTS

HIGHER OCCUPANCY COSTS FOR QUEENSLAND BUSINESSES

The State Government’s planned tax hikes will impact on occupancy costs, increasing the price of doing business in Queensland.

Many Queensland businesses lease their premises from larger landholders that will be liable to pay increased land tax from 1 July. Ultimately any costs that are incurred by these building owners, have to be passed onto the tenant in order for the building to deliver a return for its owners. 

In some cases taxes are built into an overall ‘gross rent’. So, the tenant doesn’t have visibility for their share of tax burden. In these circumstances the land tax increase will need to be carried by the owner until such time as the lease is renegotiated. 

In other cases, the lease specifically states that the tenant will be responsible for their share of any tax, and therefore will be required to directly pay the increase immediately.  

With electricity, water, local government rates and other running costs rising dramatically, these tax increases have come at an acute time for the State’s business community.

The impact of the increase for a tenant in the Brisbane CBD depends on a building’s valuation, but could range from $1.50 to $8.50/m2 per year. Based on a conservative estimate of $3/m2, the increase will add $1,500 to an average 500m2 tenant – a small to medium sized business.

* Leases subject to the Retail Shop Leases Act 1994 cannot require a lessee to reimburse the lessor for land tax. However, land tax increases will erode the net income of these properties and contribute to long-term cost pressures.

AN EROSION OF QUEENSLAND’S TAX COMPETITIVENESS

The Government’s proposed increases to land tax will place Queensland’s rates far higher than NSW and Victoria, eroding the state’s investment competitiveness. 

Companies weighing up the merits of investing in a significant property asset will face a new tax equation, which will see the land tax bill for a commercial asset in Queensland 13% higher than a similar asset in NSW, and 4% higher than Victoria. 

When compared directly on a per square metre of floorspace basis, Queensland commercial and retail properties already a pay a higher rate of land tax.

  1. Average current land tax on office: Brisbane $21.39/m2 vs Melbourne $18.05/m2. This equates to a 18% higher rate in Brisbane.
  2. Average current land tax on retail: Queensland $14.39/m2 vs Victoria $13.01/m2. This equates to a 10% higher rate in Queensland.

The increases slated for 1 July, will only make this equation less attractive for Queensland. 

The proposed increase to the Additional Foreign Acquirer Duty will also erode Queensland’s investment competitiveness.

Between 2007-2016 there was $16.5 billion in direct foreign investment in commercial real estate into Queensland. Foreign investment increases the amount of capital available for investment in construction, creating employment and economic growth. A higher tax rate for these investors will only serve as an economic obstacle to Queensland’s growth. 

Once considered the 'low tax state', Queensland has relinquished this title, making it harder to lure investment in new job-creating projects to Queensland.

INCREASE TO THE COST OF A NEW HOME

Land tax is a significant holding cost for developers. While they seek council/state development approvals, construct the project and hold the subdivided lots for sale, they pay land tax to the State Government. 

Holding costs need to be thought of in the same way as the cost of materials such as concrete and bricks. Ultimately, they are baked into the cost of the final house because the developer/builder must cover their costs for the project to be viable.  

Greenfield residential developers have estimated that the additional land tax they will pay during development will translate into an additional $800-$1000 cost for new home buyers.   

THE DEVALUING OF QUEENSLAND PROPERTY ASSETS BY OVER $1 BILLION

The investments and super savings of thousands of Queenslanders will be affected by the land tax rate increase, which will result in a significant devaluation of commercial assets.

The market value of commercial properties is not determined the same way as residential properties. The primary driver of a commercial property’s market value is its net income. Any increase in tax for these properties will result in less net income, and therefore a lower asset value. Property Council analysis, based off the Government’s revenue estimate of $227m, has determined that between $1 billion to $1.25 billion could be wiped off commercial property values in Queensland.

Australian super and investment funds are heavily invested in Queensland commercial properties, and this reduction will have a flow-on impact for ‘mum and dad’ investors and everyday superfund savers.

This devaluation of Queensland assets will be a significant hit to investor confidence, placing future major investments at risk.

OUR SOLUTION

The Property Council is calling for the Government to abandon the tax increases, and commit to review and modernise Queensland’s property tax framework.

Current land tax thresholds for both individuals, and companies, trusts and absentees have been in existence since the 2009/2010 financial year. This has led to more landholders being captured, or progressing to a higher threshold, as land values have increased significantly during this period. 

Unlike NSW, which has annual valuations and annual reviews of thresholds, Queensland has been subjected to a decade of bracket creep. Additional thresholds and surcharges will only serve to increase the complexity of the system. A best practice model would see a gradual collapsing of the many thresholds that exist, and a transition to a more broad-based approach.

An all-encompassing review of Queensland’s out-dated thresholds and property tax rates needs to be undertaken to put Queensland back on the investment map.