Excuse me while I adjust my… Land Tax?

When purchasing property, there are a number of potential taxes, fees and charges which must be accounted for before you hand over your “hard-earned”. 

Land Tax is one of the more perplexing adjustments which should be made. In theory, adjusting for Land Tax (whether paid or unpaid) should be no more complex than adjusting for rates or water charges or any other amount.

The confusion actually arises out of the way Land Tax is calculated by the Office of State Revenue. In Queensland, Land Tax is calculated differently for individuals as opposed to companies and trusts. This is further complicated by the fact that the Office of State Revenue calculates Land Tax based on the value of all of a person’s land holdings (not just the property being sold). The end result is that the assessment in respect of a particular property which is received by one person may be different to the assessment received by another.

This can cause confusion when it comes to making an adjustment for Land Tax (particularly when using the Real Estate Institute of Queensland’s Standard Terms of Sale). 

How the REIQ handles Land Tax

The way the Real Estate Institute of Queensland, in its infinite wisdom, deals with the potential disparity is by treating all sellers (for adjustment purposes) as if they were “one natural person resident in Queensland and the Lot was the Seller’s only Land”. 

Let’s consider clause 15.5 of the REIQ Standard Conditions of Sale for Commercial Land and Buildings which states: 

15.5 Land tax shall be apportioned

(a)   on the assessment that the Office of State Revenue would issue for the land tax year current at the Settlement Date if the Seller was one natural person resident in Queensland and the Land was the Seller’s only land; or

(b)   If there is no separate Site Value for the Land, on a notional Site Value equal to: 

Site Value of the parcel x Area of the Land

               Area of the parcel

Now, where both parties are in fact individuals, this is not inappropriate. 

But for obvious reasons, application of clause 15.5 may achieve an inappropriate result (chiefly because it is not uncommon in commercial transactions that both parties would be corporate or trustee entities).

Land Tax for companies compared to individuals

Now, if you’re a company purchasing commercial property, this probably achieves a slightly more favourable result (because the rate of Land Tax paid by individuals is lower than that paid by a company). 

For a seller however, this can achieve a somewhat unsatisfactory result (because the rate of tax that the buyer would pay is more than the adjustment rate). 

In those circumstances (i.e. where both buyer and seller are companies), there seems to be no good reason why the seller should be treated as a natural person for adjustment purposes.

The solution is simple. By removing the offensive words (i.e. “the Seller was one natural person resident in Queensland and”) the standard terms of sale become much more palatable.

Obviously from a buyer’s perspective, this will mean Land Tax is adjusted on the rate actually paid by the seller (rather than the, presumably lower, individual assessment). 

So, in closing, if you’re a seller’s lawyer remove (by insertion of a special condition amending the standard terms of sale) the words “the Seller was one natural person resident in Queensland and”. 

And if you’re a buyer? Do nothing and hope the seller doesn’t read this blog…

For information and advice about Land Tax, talk to MDL

If you require advice or assistance in respect of your commercial property transaction or assessment of Land Tax, call the experienced Business Law team at McCarthy Durie Lawyers today on 3370 5100 or fill out the contact form here.