Strong market mutes impact of Qld land tax on foreigners

Liz Wells, February 24, 2021

Codenwarra West is an established producer of cotton on the outskirts of Emerald and sold last year to Queensland Cotton parent Olam International. Photo: Ray White Rural

THE Queensland Government’s new tax on foreign companies owning unimproved land is having minimal impact on the agricultural market as family farmers and Australian investment funds provide healthy demand for large-scale properties coming to market.

However, the surcharge coming into effect in the current financial year could limit prices achieved by vendors if domestic demand for farming and grazing land abates.

Unless exemptions are granted, the tax of 2 per cent on unimproved capital value will be payable on freehold land on top of the standard Queensland land tax of up to 2.75pc per annum.

“The market from June 2019 onward has been heavily competed for primarily by family operators seeking additional area, or Australian-based capital investment,” Toowoomba-based agribusiness valuer with Herron Todd White Stephen Cameron said.

“The implications of the state government’s foreign investment tax has been in the mindset of existing foreign land ownership, which may impact on future buyer decisions in Queensland.

“However, at this point in time there is little evidence to state any real impact in the market.”

Local demand masks impact

Colliers agent Phillip Kelly sees the impact of the tax as limited for now, as family farmers already established in Queensland look to expand, and southerners look to relocate or diversify north of the border.

“There’s huge demand for quite diverse properties,” Mr Kelly said.

“We’re getting interstate inquiry for the Inner Downs, and people on the Downs are looking to expand.

“With strength in the cattle market, and sheep and goats as well, that’s spreading north and west.”

Mr Kelly said foreign investors were still actively looking in Queensland, and returns from enterprises were so strong across sectors that they could potentially absorb the 2pc tax.

“When they invest, they invest in the premium end of the market, and on larger properties, so the returns that are achievable can absorb that 2pc with the market the way it is.

“I wouldn’t see it as an inhibitor.”

Mr Kelly said the biggest hurdle for international investors was the six months required to obtain Foreign Investment Review Board (FIRB) approval, and that was a national issue.

“Particularly for foreign investors who are already established in Australia, and that’s most of them that are looking, it’s something we’d like to see sped up.

“We act on behalf of our vendors, and sometimes it’s foreign investors that are offering the best price.”

Fitful start

The 2pc tax on foreign companies was announced in Queensland’s 2019 State Budget.

“We will…bring the land tax absentee surcharge adjustment in line with NSW and Victoria,” then Treasurer Jackie Trad said in her 2019 Budget Speech.

“This will see an increase in the surcharge from 1.5pc to 2pc, along with a widening of the definition to include foreign companies and trusts.”

A reprieve on 2019-20 payments of the foreign surcharge was granted under the Queensland Government’s coronavirus land-tax relief package.

The market is therefore yet to see the full impact of the tax, and where agriculture fits in terms of gaining exemptions.

McCullough Robertson partner and chair of the Queensland Law Society’s revenue committee Duncan Bedford said the legislation has addressed an inconsistency in Queensland, where foreign individuals were subject to a surcharge on land tax, but foreign companies and trusts were not.

Mr Bedford said its very short lead-in time from announcement to proposed implementation drew submissions from Agforce and others, who felt agricultural investors were being hardest hit as the volume owners of unimproved land.

“It disproportionately affects agriculture because of the large areas of unimproved land,” he said.

“Developments owned by foreign entities like the building of apartment blocks or commercial real estate don’t have that kind of exposure.”

If the company or trust holding title is 50pc or more foreign owned, then the surcharge applies to all of the entity’s land.

If land ownership is split between local and foreign interests, the surcharge applies only to the foreign-owned percentage.

“We act for agricultural investment funds, and if they are 50pc or more foreign owned, they might just pull out of Queensland.

“It’s a fetter on investment.”

Mr Bedford said investors were aiming for an annual 5-6pc return on investment, so paying an extra 2pc on unimproved land value changed the investment proposition.

“Those that were in the black are suddenly in the red.

“We had investors looking for farms in Queensland who reran the numbers based on 4.75pc land tax instead of 2.75pc, and said ‘it doesn’t meet our investment criteria’.”

Exemption criteria unclear

From 2020–21, the Queensland Government has said it would consider ex-gratia relief from the surcharge if foreign entities satisfied a number of conditions.

They include: significant contribution to the Queensland economy and community; having an active office in Australia, and employing and contracting primarily Australians.

“We’re waiting to see how the Office of State Revenue (OSR) applies this exemption in the ag context.”

The example given by the OSR in its guidance on the exemption suggests that 75 full-time employees would be a “significant contribution”, but they also acknowledge that region and industry will be taken into account.

“It is still not clear where they will draw the line for the exemption.

“If they say 15 employees is significant in, for example, a regional cotton-growing area, then a foreign entity might still get the exemption.”

The Queensland Government has also stated foreign entities can apply for in-principle pre-approval of an exemption if, for example, they are entering into a transaction to acquire land.

Property Central records indicate Codenwarra West at Emerald was the only large-scale Queensland agricultural property to sell last year to foreign interests.

It sold to Queensland Cotton parent Olam International for a rumoured $18 million via Ray White Rural, and includes 1077 hectares of irrigation in the 3443ha spread.

Queensland Cotton is a major employer, producer and processor in Australian cotton with a strong local presence, and may therefore be eligible for an exemption.

Uncertainty for JVs

The Property Central database shows Queensland has few entirely foreign-owned large-scale grazing or cropping properties.

However, Queensland has several joint ventures with foreign-investment partners.

They include Palgrove and the New Zealand Superannuation fund , and Australia’s biggest cotton farm, Cubbie Station, which is 51pc owned by China’s Shandong Ruyi.

Hewitt Cattle Company, with Canada’s Public Sector Pension Investments (PSP) as its partner, is another.

PSP is also a joint-venture partner with Warakirri Asset Management in Daybreak Cropping, which owns the 9192ha Kinbeachie Farms west of Goondiwindi.

Hewitt Cattle Company, Olam, Palgrove and Warakirri were all contacted by Grain Central and were unavailable, or declined to comment.




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