From the 2019-20 financial year, s32(1)(b) of the Land Tax Act 2010 (Qld) (LTA) imposes a 2% foreign surcharge in addition to the general rate of land tax – the ‘land tax foreign surcharge’ (LTFS).
On 3 July 2020, the QLD Commissioner of State Revenue issued guidelines setting out when ex gratia relief from the LTFS will be available to foreign taxpayers (copy here) (Guidelines).
OSR has previously advised that the 2% LTFS for foreign entities will be waived for the 2019-20 assessment year. OSR has advised that the waiver will be applied by them automatically when the land tax assessments for the 2019-20 assessment year are issued. If land tax assessments have already been issued which included the surcharge, OSR will issue reassessments to provide the waiver and will provide a refund where the assessment amount has already been paid. Accordingly, unless the waiver is revoked by OSR, the LTFS will not be payable for the 2019-20 land tax year (calculated as at 30 June 2019). However, given that the Guidelines have now issued, we anticipate that the LTFS will be payable in respect of the 2020-21 land tax year (calculated as at 30 June 2020).
Under the Guidelines, the key criteria for the exemption are:
- whether the foreign entity that owns the land is ‘Australian-based’;
- whether the foreign entity has complied with all FIRB requirements in relation to the acquisition of the land;
- whether the foreign entity meets regulatory requirements, including under the Corporations Act 2001 (Cth) and Queensland taxation laws; and
- whether the foreign entity conducts commercial activities that make a significant contribution to the Queensland economy and community (for example, by engaging local labour and utilising local materials and services).
The criteria listed in 1 – 3 above are almost identical to those applied by QLD OSR in assessing eligibility for ex gratia relief from additional foreign acquirer’s duty (AFAD). Accordingly, we expect that these criteria will be applied in a similar fashion in the land tax context.
The criteria listed in item 4 above appears to have been modelled on a combination of the Queensland AFAD criteria, and the Victorian absentee owner surcharge land tax relief criteria. The Commissioner will have regard to the following factors in determining whether the foreign entity ‘makes a significant contribution’ to the Queensland economy and community:
- the size of the foreign entity’s commercial activities relative to their landholdings (owning substantial land but carrying on only modest commercial activities – for example, land banking – weighs against the entity);
- the number of local workers engaged (75 or more full time employees in QLD is considered significant);
- the amount expended on local resources such as materials and services (expenditure in Queensland of more than $20million annually is considered significant);
- where the foreign entity’s activities involve property development, a significant contribution may be made while development activities are being undertaken (eligibility issues may arise if the entity continues to hold the land as a passive investor after the development is complete);
- if the foreign entity is wholly owned, the commercial activities of the parent entity, and any entity that is 100% owned by the same parent, may be counted;
- foreign entities holding land passively as a landlord or property investor are not considered to be undertaking activities that make a significant contribution; and
- special regard may be had to whether the commercial activities are significant to a particular region (for example, a smaller development in regional Qld may be significant for that region).
If an entity’s current commercial activities do not make a significant contribution on the date liability for land tax arises (ie. 30 June each year), the entity’s committed future commercial activities over a 12 month period from the liability date may be considered in determining whether the entity makes a significant contribution.
Ex gratia relief from the LTFS can be applied for on a retrospective or prospective basis, provided the foreign entity can demonstrate it has met or will meet the conditions at the time that liability for the surcharge arises.
An application must be submitted in the approved form, together with supporting evidence including a statutory declaration made by an authorised representative of the foreign entity. We anticipate that the evidentiary requirements and review process will be similar to the process currently employed by QLD OSR in assessing transactions for ex gratia relief from AFAD. OSR has also indicated that a streamlined process will be available, whereby an entity can apply for AFAD relief and LTFS relief at the same time where an acquisition is made.
Ex gratia relief from the LTFS is provided to an entity on an ongoing basis. Where a foreign entity satisfies the conditions for relief, relief will apply to all land owned by the entity in Queensland. The relief will apply for as long as the entity continues to satisfy the conditions. Accordingly, once relief is in place for a particular entity, it will remain in place until the entity fails to meet the criteria. The foreign entity will be required to confirm at the beginning of each land tax year that it satisfies the conditions under the guidelines for that land tax year. This will be done by providing the Commissioner with a statutory declaration. This ongoing confirmation process does not require lengthy submissions or supporting documents to be submitted every year, however, the Commissioner may request supporting information on a case by case basis.
Our QLD state taxation team has specialist experience in preparing applications for AFAD relief, and excellent track record in obtaining relief for our clients. This experience will be directly relevant in the context of the LTFS.
If you are a foreign entity holding land in Queensland, we recommend that you contact us as soon as possible to discuss your land tax obligations under the new LTFS regime, and your eligibility for relief.
This article was written by John Caravousanos, Partner and Hayley Di Bella, Associate.