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Investment in Queensland farms is being stifled by a land tax anomaly
Queensland’s agricultural sector is missing out on crucial capital investment that could enhance productivity and efficiency due to a land tax system that is deterring potential investors.
McCullough Robertson Lawyers Partner, Duncan Bedford, said the current land tax provisions were impacting potential investment from large players like superannuation funds and driving investors across the border into New South Wales.
Land tax is a state-based tax on the value of unimproved land holdings.
Most farmers don’t pay land tax because there is a primary production land tax exemption in pretty much every jurisdiction,” Mr Bedford said.
“The exemption in each jurisdiction is slightly different but basically if you use the land solely or predominantly for primary production purposes you don’t pay land tax.”
However, in Queensland you do not qualify for the exemption if you are a corporation or trust in which a foreign individual or corporation holds any interest.
This means that Australian industry superannuation funds, who are large potential investors in primary production, cannot claim the exemption unless they can guarantee none of their members are foreign, which is generally not possible to do.
Mr Bedford, a specialist in tax law and the head of McR’s Food and Agribusiness team, says the situation is particularly noticeable because NSW also has a primary production land tax exemption, and this is available to organisations with overseas shareholders.
Compounding the issue is Queensland’s extra three percent surcharge land tax, which also applies to primary production land in cases where the entity is more than 50 percent foreign owned. NSW does not have this surcharge.
“The exact same investor can own one farm just this side of the border and they pay land tax and have a farm on the NSW side that doesn’t trigger land tax,” Mr Bedford said.
“It is a huge disincentive to invest in Queensland primary production.
“We’ve got examples of clients who, when the surcharges were introduced, were on a buying trip (in Queensland) and they turned around and went to NSW instead.”
Mr Bedford said the disproportionate effect of the Queensland land tax regime on farming businesses was mostly because land tax was applied on the unimproved value of land.
For an investor owning a $20 million building in the city, for example, the building may be worth $18 million while the underlying land could be worth about $2 million. That person would pay around $30,000 in land tax a year.
For a farmer owning a property valued at $20 million, the improvements may be worth $2 million, with the remaining $18 million attributed to the land itself. This would result in a tax liability exceeding $400,000 annually if the property has any foreign ownership
If the property was also liable for the three percent land tax surcharge, the annual land tax would be close to $1 million.
“If you put $1 million a year of land tax as an annual cost, many of these farms don’t produce that much,” Mr Bedford said.
“That makes it an unprofitable business compared to the farmer next door who happens not to be foreign and who doesn’t pay any land tax.
“When (foreign) investors run the numbers, investing in these (Queensland) farms just doesn’t add up.”
Mr. Bedford pointed out that the problem is substantial, as many advancements in primary production productivity stem from large companies investing in technology and infrastructure
“While there is sometimes a backlash against the idea of big corporate farmers, many of the advances in efficiency as well as access to new markets have come through this type of investment,” he said.
“It is very hard for family farmers to be able to achieve the same large-scale investment and capital expenditure on things like water infrastructure.”
Mr Bedford said, while governments had the right to set tax requirements as they saw fit, this was an example of tax law that did not seem to achieve any identifiable policy outcome.
He mentioned that although this issue has been ongoing for many years, it has recently gained significant attention. He had supported various groups in submitting requests to the State Government for a review of the matter.