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:
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:
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:
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
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.