Hot on the heals of capital gains withholding, removal of the CGT exemption on the primary residence, Australian expats are now being hit with substantial increases in land tax. We investigate who is impacted and how much it could cost you. For an $800,000 property portfolio you could be up for an additional $12,000 in land tax every year you live overseas.
What is Land Tax?
Land tax is an annual tax on land levied by the relevant State Government. It is generally based on land owned on 30 June and is calculated on the unimproved value of the land which is determined by the State Valuer-General. For example, land tax for the year 1 July 2017 to 30 June 2018, would be based on the land value as at 30 June 2017.
Land tax usually applies to the total unimproved value of all land held by the same owners in one State. For example, if you own two properties in one State, valued at $500,000 each, land tax in that State would be determined based on the total aggregated land value of $1,000,000. If you owned two properties valued at $500,000 each in two different states, then your land tax liability in each State will be determined based on an aggregate land value of $500,000 for each State.
Land Tax Rates & How Australian Expats May Be Impacted
A different rate of land tax is payable depending on the aggregate value of your land holdings (on a State by State basis), and each State applies different rates of land tax.
The tax rate that applies may also depend on the type of owner you are (individual, company, foreign owner, absentee owner) and if any exemptions apply. The most common exemption to land tax is if it is the home you are living in.
A critical change has happened over the past few years whereby governments in Victoria, New South Wales, and Queensland (and potentially other States soon) have made increases in land tax rates specifically targeting foreign owners of property. Unfortunately there is no uniformity in the definitions of who is liable for these increased rates of taxation.
State By State Analysis of Land Tax
My analysis of the situation as at February 2018 with respect to land tax is :
- NSW : A 0.75% land tax surcharge is payable by “foreign persons”. A foreign person is someone who is not “ordinarily resident in Australia” but does not include Australian citizens. As such people with permanent resident visas may be liable, unless they meet the “ordinarily resident in Australia” criteria. More information is found here.
- Victoria : A 1.5% “Absentee Owner Surcharge” is payable by an “absentee individual”. An absentee individual is someone who does not ordinarily reside in Australia, and who was absent from Austraila on 31 December of the year prior (or for more than six months in total in the prior calendar year), but does not include Australian citizens or permanent residents. More information here.
- Queensland : Absentee owners will pay higher rates of land tax, have a lower tax free threshold, and are also subject to a surcharge of 1.5% of their property value (above $350,000). This does impact Australian citizens that are no residing in Australia. More information here.
Per the above, at the moment Australian expats are most at risk of significant increases in land tax liabilities in Queensland. If you are an Australian permanent resident but living overseas, then you may also be at risk if you hold property in New South Wales. We’ll now look more closely at the Queensland land tax situation for Australian Expats.
Analysis of Queensland Land Tax For Australian Expats
Queensland Land tax rate for an Individual Owner (Resident in Australia)
Here are the land tax rates as at February 2018 that apply to an individual owner of land in Queensland (who resides in Australia). Should you own less than $600,000 of land, then land tax will not apply.
|Total taxable value||Rate of tax|
|$600,000–$999,999||$500 plus 1 cent for each $1 more than $600,000|
|$1,000,000–$2,999,999||$4,500 plus 1.65 cents for each $1 more than $1,000,000|
|$3,000,000–$4,999,999||$37,500 plus 1.25 cents for each $1 more than $3,000,000|
|$5,000,000 and over||$62,500 plus 1.75 cents for each $1 more than $5,000,000|
Source : Queensland Government
Queensland land tax rate for an Absentee Owner
An Absentee Owner is someone who mainly resided outside of Australia in the previous year. If you have lived outside of Australia during the financial year, the Queensland Government says it will consider several factors to determine if you usually live in Australia, such as the reason for your absence and the time spent in and out of the country. If they are not satisfied that you mainly resided in Australia, you will be an absentee if you:
- were away from Australia at 30 June or
- have been away from Australia for more than 6 months in total during the financial year before 30 June.
In limited cases, the land tax rates for individuals will continue to apply to you if you work overseas. For this to apply, you must:
- be a public officer of the Commonwealth or of a state, who is absent in the performance of your duties or
- have been working for your employer in Australia for at least 1 continuous year before you go overseas, and are directed by that employer to continue working for them overseas for a period less than 5 years. If the period is longer, you will be reassessed as an absentee for the whole time you are overseas.
If you believe these arrangements apply to you, complete and submit an absentee/resident status declaration (Form LT16), including copies of your Australian and overseas employment contracts.
Similarly, if you have received the benefit of the above arrangements, and your situation changes, you will need to notify the Queensland Government.
The following land tax rates apply to Absentee Owners in Queensland (as at Feb 2018). In addition to the land tax rates below, if you are considered an Absentee Owner at 30 June, a land tax surcharge will apply. The surcharge is calculated by subtracting $349,999 from your Total Taxable value (aggregate land value), and then multiplying it by 1.5%. That is Surcharge Land Tax = (Taxable value – $349,999) × 1.5%.
|Total taxable value||Rate of tax|
|$350,000–$2,249,999||$1,450 plus 1.7 cents for each $1 more than $350,000|
|$2,250,000–$4,999,999||$33,750 plus 1.5 cents for each $1 more than $2,250,000|
|$5,000,000 and over||$75,000 plus 2.0 cents for each $1 more than $5,000,000|
Source : Queensland Government
You will note, that Absentee owners of property in Queensland are hit three times :
- Lower land value threshold,
- Higher rate of land tax payable
- Absentee land tax surcharge.
A calculation of how Queensland Land Tax could impact Australian expats.
1st Example : Total Taxable Value $400,000
If you own property with a total taxable value in Queensland of $400,000, and you satisfied the criteria of being a resident in Queensland and subject to the normal individual land tax rates, then you would have no annual land tax liability (as there is a $600,000 tax free threshold).
If you move overseas and are subject to the Absentee land tax rates, then you would need to start paying land tax (by virtue of the lower tax free threshold of $350,000, and you will be liable for the land tax surcharge. These can be calculated as follows
Land Tax (from table above) : $1450 + 0.017 x ($400,000 minus $350,000) = $2300
Land Tax Surcharge : 0.015 x ($400,000 minus $350,000) = $750
Total Land Tax Liability : $3050
CONCLUSION : Absentee Owner pays an additional $3050 per annum in land tax over an Individual owner residing in Australia
1st Example : Total Taxable Value $800,000
If you own property with a total taxable value in Queensland of $800,000, and you satisfied the criteria of being a resident in Queensland and subject to the normal individual land tax rates, then you would be liable for land tax on the incremental land value over $600,000 (the tax free threshold). Based on the tables above, you would have a land tax liability of $500 + 0.01 x ($800,000 minus $600,000) = $2500.
If you move overseas then you will be subject to higher land tax rates, lower tax free threshold, and you will be liable for the land tax surcharge. These can be calculated as follows
Land Tax (from table above) : $1450 + 0.017 x ($800,000 minus $350,000) = $9100
Land Tax Surcharge : 0.015 x ($800,000 minus $350,000) = $6750
Total Land Tax Liability : $15,850
CONCLUSION : Absentee Owner pays an additional $13,350 per annum in land tax over an Individual owner residing in Australia
Summary of the cost of being an Absentee Owner in Queensland
|Total Taxable Value||$400,000||$800,000|
|Individual Resident in Australia||Nil||$2,500|
|Incremental Land Tax||$3050||$13,350|
Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions. To the extent permitted by law, we exclude all liability for any loss or damage arising in any way.