But I’ve never paid Land Tax!
If you have never paid Land Tax, you are not going to enjoy your first Land Tax bill! It’s understandable that you might not pay much attention to Land Tax – until you receive the first bill. However if you own real estate other than the property you live in, you may have to pay Land Tax in the future.
You may become liable to pay Land Tax for the first time where the value of your existing properties increase, or you buy another property, or you receive property from a family members estate when they pass away.
It would not be any surprise if the Queensland Government increased its reliance on Land Tax in the future – by lowering thresholds or increasing the tax rates.
Capital Gains Tax v Land Tax
You only pay Capital Gains Tax once – to the Commonwealth Government – when you sell a property for a profit.
Land Tax is paid every year – to the Queensland Government – where the total value of your properties reaches the threshold. Once this situation arises, to avoid this tax, you have to sell one or more of your properties until the total value of your properties falls below the threshold.
The flippant comment is that the Commonwealth Government charges you a tax when you cease to be the property owner; and the Queensland Government charges you a tax if you remain the property owner.
An example of a possible future
Mary owns 3 properties in her own name: her family home and 2 investment properties. The family home isn’t relevant for Land Tax, but it’s an important property to Mary, and therefore it’s included in her list of properties.
The second column in the table below lists the 2018 Market Value of the 3 properties. The third column lists the 2018 Unimproved Capital Value (UCV) of these 3 properties.
On 30 June 2018, the total UCV of the 2 taxable properties is $570,000 – which is below the $600,000 threshold. Therefore no Land Tax is payable.
Mary is not concerned about Land Tax because as she has never had to pay it, she hasn’t paid any attention to it.
In 2019, Mary’s mother passes away and her house is left to Mary. Mary becomes the owner in June 2019. Mary now owns 3 taxable properties.
On 30 June 2019, the total UCV of the 3 taxable properties is $990,000 – above the $600,000 threshold. Therefore, her first Land Tax bill will be $4,400.
Mary is now concerned about Land Tax! Where the property values continue to increase, as shown in the last 2 columns, the amount of tax paid each year increases.
|Property||Market Value||UCV – 2018||UCV – 2019||UCV – 2020||UCV – 2021|
|1. Family Home||$600,000||$360,000||$390,000||$420,000||$450,000|
|2. House – Investment||$500,000||$280,000||$300,000||$320,000||$340,000|
|3. House – Investment||$500,000||$290,000||$310,000||$330,000||$350,000|
|4. House – Mother (2019)||$380,000||$400,000||$420,000|
|Total UCV Assessable||$570,000||$990,000||$1,050,000||$1,110,000|
|Land Tax Payable||Nil||$4,400||$5,325||$6,315|
Once the total UCV reaches $3.0 m, the annual Land Tax is $37,500.
Could Mary have reduced this Land Tax?
When Mary was buying her investment properties, she could have taken steps to avoid paying Land Tax initially. However, as property values increase – Land Tax eventually becomes payable.
Australians need to take a multi-generational approach to asset protection, estate planning, income tax planning and land tax planning. For example, Mary’s mother Will could have left her property to Mary in a trust – which potentially offers Mary multiple benefits.
Before buying a property, you need to review your personal and family circumstances to determine which options are most suitable for you. There are pros and cons with different approaches – and therefore decisions are made based on what issues are more important for you.
As this example shows, there are more issues to consider than just Land Tax – including Asset Protection, Estate Planning, Income Tax and Capital Gains Tax.