RSM Australia

Queensland foreign owner land tax surcharge: Ex gratia relief guidelines

Tax Insights

In last year’s State Budget, the Queensland Government unexpectedly announced an immediate 2% surcharge on the Queensland land tax liabilities of foreign companies and trustees of foreign trusts (collectively, “foreign owners”).

After much lobbying by the property industry and other stakeholders, the Queensland Government agreed to allow foreign owners to apply for ex gratia relief from the surcharge but had not, until now, released the guidelines which will underpin how the Commissioner of State Revenue (the Commissioner) will administer the relief. 

As the Queensland Government waived the surcharge for the 2019-20 land tax year due to COVID-19, these guidelines (available here) will be relevant for the 2020-21 land tax year, assessments for which are expected to be issued within weeks.In last year’s State Budget, the Queensland Government unexpectedly announced an immediate 2% surcharge on the Queensland land tax liabilities of foreign companies and trustees of foreign trusts (collectively, “foreign owners”).

Although foreign owners can apply for relief retrospectively, the more prudent approach would be for such owners to apply for relief on a prospective basis, provided (of course) that they can satisfy the eligibility conditions.


Application of the guidelines

First and foremost, it is necessary to consider who these guidelines will apply to – in other words, who is a foreign owner?

The overarching observation is that the foreign owner net is cast extremely broadly and many owners who may not appear to be foreign are caught by the broad rules. Essentially:

A foreign company is a corporation where one or more foreign persons, or related persons of foreign persons, are together in a position to:

  • control at least 50% of the voting power, or potential voting power, in the corporation; or
  • together have an interest in at least 50% of the issued shares in the corporation.

A foreign trust is:The overarching observation is that the foreign owner net for land tax is cast extremely broadly and many owners who may not appear to be foreign are caught by the broad rules.

  • in relation to a unit trust, a trust where one or more foreign persons, or related persons of foreign persons, have at least 50% of the interests in the trust.
  • in relation to a discretionary trust, a trust where its default beneficiaries are foreign persons (or related persons of foreign persons).

 

The guidelines outline the following four conditions that a foreign owner must satisfy in order for ex gratia relief from the land tax surcharge to apply:

 

(1) The foreign owner must be “Australian-based”.  A non-exhaustive list of factors that indicate an entity is Australian-based include:

  • the location of its head office or principal place of business is Australia;
  • a significant physical presence and the presence of significant management staff;
  • the employment of Australian citizens and residents;
  • the carrying on a business in Australia;
  • a considerable level of Australian participation in commercial decisions; and
  • more than 50% of the value for goods and services goes to Australian contractors and suppliers.

(2) The foreign owner must have complied with all Foreign Investment Review Board (FIRB) requirements. 

(3) The foreign owner meets all other regulatory requirements such as corporations law and tax.

(4) The foreign owner conducts commercial activities that make a “significant contribution” to the Queensland economy and community.

In considering this condition, the Commissioner will have regard to the size of the entity’s commercial activities, The guidelines outline the following four conditions that a foreign owner must satisfy in order for ex gratia relief from the land tax surcharge to apply.the number of local workers engaged and whether the entity holds the land for the active purpose of property development or for more passive purposes of leasing or property investment.


Important points to note

While the guidelines will go some way to removing the uncertainty for foreign owners since the land tax surcharge was first announced, there are still some gaps in the guidelines worth noting:

  • The guidelines do not make any allowances or provide any carve-outs on account of the current removal of many FIRB thresholds due to COVID-19.

​Therefore, the FIRB conditions in the guidelines may be relevant to practically all foreign owners until the earlier FIRB thresholds are reinstated by the Federal Government (assuming they are in the near future).

  • There is no specific exemption provided for foreign owners of commercial properties, even during the COVID-19 pandemic.

Many commercial leases allow foreign owners to pass on outgoings such as land tax to tenants, which may effectively mean that many commercial tenants could bear the economic burden of any land tax surcharge. One silver lining in the guidelines is an acknowledgement by the Commissioner that a foreign owner can make a single submission for ex gratia relief from both the land tax surcharge and any additional foreign acquirer duty in respect of the acquisition of the land.At a time when the Federal and State Governments are taking measures such as requiring landlords and tenants to negotiate rent relief in good faith and providing land tax relief for eligible landlords, imposing additional land tax at this time seems inconsistent with existing relief measures.

  • Despite sustained pressure from the property industry, there is no blanket exemption provided to widely held or public trusts.
  • There is no proportionality involved in the surcharge. Even if a corporation or a trust is 50% foreign owned, the entirety of the 2% surcharge will apply.

One silver lining in the guidelines is an acknowledgement by the Commissioner that a foreign owner can make a single submission for ex gratia relief from both the land tax surcharge and any additional foreign acquirer duty in respect of the acquisition of the land.

Previously, it was unclear whether separate submissions may have been necessary, which could have raised the possibility of inconsistent positions being taken for land tax and additional foreign acquirer duty purposes.


How can RSM help?

Given the Queensland land tax surcharge is now in operation, please contact your local RSM adviser if you require assistance in considering your eligibility for Queensland land tax surcharge relief.

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