Queensland offers ex gratia relief from Land Tax Foreign Surcharge

The Queensland Commissioner of State Revenue has released its long-awaited public ruling setting out the circumstances in which it will offer foreign entities relief from the 2 per cent Land Tax Foreign Surcharge (being Public Ruling LTA000.4.1) (Public Ruling). 

To re-cap on the situation:

• in 2019, the Revenue and Other Legislation Amendment Act 2019 was passed which imposed a surcharge of 2 per cent on top of the ordinary land tax liability of foreign companies and foreign trusts (Foreign Surcharge)
• the Foreign Surcharge is an additional amount of Land Tax payable in Queensland, equal to 2 per cent of that portion of the taxable value of land equal to and over $350,000
• as an example, a foreign corporation that owns an office building portfolio in Queensland with a taxable value of $15 million, will pay an extra $293,000 annually on account of the Foreign Surcharge
• since its introduction, the Foreign Surcharge has been heavily criticised in the property industry, with the Queensland chapter of the Property Council leading the way in submissions to the Government. These submissions have centred on establishing a regime for ex gratia relief for certain foreign corporations and trusts, including those which make a significant contribution to the State and certain investment vehicles which may technically be classed as “foreign” but are backed by Australian investors. Ex gratia relief, in differing forms, exists in other States. 

What does the Public Ruling say?  

The general theme of the Public Ruling is that relief will be granted in “exceptional” circumstances and on a case-by-case basis. All of the following four conditions must be satisfied for relief to apply.

1. The foreign entity must be “Australian based”

A non-exhaustive list of factors include:

• the entity has a head office or principal place of business in Australia
• the entity has significant management staff and office presence in Australia
• there is considerable level of Australian participation in the foreign entity, such as where decisions relating to commercial activities that make a significant contribution to the Queensland economy are made by management or employees based in Australia
• the entity primarily contracts for services and materials of Australian contractors and suppliers (being more than 50 per cent of the value paid for goods and services).

2. The foreign entity has complied with all Foreign Investment Review Board (FIRB) requirements

Where FIRB approval was required in relation to the acquisition of land for which ex gratia relief is sought, the foreign entity has complied with all FIRB requirements.

3. The foreign entity meets regulatory requirements

Such regulatory requirements include compliance with the Corporations Act 2001 and the extent to which the foreign entity complies with Queensland taxation laws and whether it has any outstanding liabilities under those laws. 

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

It is likely that many foreign entities that satisfy the above three conditions will ultimately fail to satisfy this condition, as the first three conditions can be met by both active and passive foreign entities. This fourth condition however, is targeted to ensure that only commercially active entities receive the ex gratia relief.

Whether the foreign entity makes a significant contribution to the Queensland economy and community will depend on the extent to which it conducts commercial activities in Queensland, engages local labour and utilises local materials and services.

The Public Ruling provides for regard to be had to the following circumstances:

• the size of the entity’s commercial activities relative to its landholdings. Where a foreign entity owns a substantial amount of land (in terms of size or value) but carries on a modest commercial activity, this factor will weigh against a “significant contribution”
• the number of local workers engaged. An entity that employs 75 or more full-time employees (not labour hire or contractors) in Queensland would generally be considered to make a “significant contribution” 
• the amount expended on local resources. An entity that demonstrates expenditure in Queensland of more than $20 million annually, comprising payroll tax and land tax, expenditure on Queensland goods and services, and wages to Queensland residents, would generally be considered to make a “significant contribution” 
• where the commercial activities involve property development, the entity may be considered to make a significant contribution while those activities are being undertaken. However, once the development is complete, the entity will generally be considered to be a foreign investor and will no longer be entitled to relief
• where there is a wholly owned subsidiary and a parent entity, the commercial activities of both may be considered in determining if the land owner is making a significant contribution. For example, where a foreign entity owns the land and the commercial activities on the land are undertaken by a wholly owned subsidiary, these activities may be taken into account in determining of the owner of the land is making  a significant contribution
• a foreign entity that essentially holds land passively as a landlord, is not considered to be making a significant contribution
• special consideration may be given as to whether the commercial activities are significant to the particular region and/or industry in which they are undertaken 
• if an entity’s current commercial activities do not make a significant contribution on the date that land tax liability arises, the entity’s committed future commercial activities over a 12 month period from the liability date may be considered. 

What does the Pubic Ruling not say?

The Property Council had advocated that the relief should match the equivalent Victorian guidelines, which automatically exclude from the surcharge publicly listed and widely held trusts. Despite initial commitments from the Government, relief for these entities has not been included. Instead, the Queensland relief is solely focused on the “significant contribution” test. 

Based on the examples given in the Public Ruling, in practice, the only foreign entities that will be able to avoid the surcharge are large institutions which are undertaking significant commercial activities beyond merely holding and leasing property. A foreign entity which leases an office tower would not, without more, be entitled to relief, whereas a foreign entity which is in the process of constructing an office tower would likely be entitled to relief. 

Victoria is the only other State to impose such a broad ranging foreign entity surcharge. This raises the concern that Queensland will lag behind other Australian jurisdictions in terms of attracting foreign investment. Further advocacy can be expected. 

Additional one-off COVID-19 relief

As a result of the COVID-19 pandemic, the Government chose to waive the surcharge for all foreign entities for the 2019-2020 land tax year. For relevant foreign entities, the surcharge will appear on their assessments for the 2020-2021 and subsequent land tax years. 

How does a foreign entity apply for the relief?

Relief can be applied for on a retrospective or prospective basis, provided that the foreign entity can demonstrate it has met, or will meet, the conditions of the guideline as at the date the liability arises (i.e., as at midnight on 30 June in the relevant assessment period). The Office of State Revenue has published a statutory declaration which needs to be completed by the foreign entity claiming the relief. Evidence of the matters asserted in the statutory declaration must also be included in the application. 

The details contained in this article only represent a summary of the seven-page Public Ruling. There may be other matters specified in the document which are relevant to particular taxpayers or situations which are not mentioned here. Please contact us to discuss your particular circumstances and eligibility for relief. 

Author: Robert Lyons

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Robert Lyons

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