Queensland State Budget
The Palaszczuk Government’s 2019-20 State Budget has been tabled and our Tax team has delved into the detail of the Budget Papers and dug out the key things you need to know.
If you do business in Queensland, chances are you will be impacted by at least one of the budget measures announced today. If you are a small-to-medium business or employ regionally, you may be able to benefit from the Payroll Tax Relief Package. However, there are increases to Land Tax rates for companies and trusts, petroleum royalty rate hikes and potential land tax surcharge for foreign companies and trusts. Overall, we think that there is something to consider for every business.
Our analysis below covers the following topics:
Payroll Tax Relief Package
With an intention to make things easier for and increase employment within regional and small and medium sized businesses, the State Government has announced a series of payroll tax specific measures:
- Increase in the payroll tax threshold from $1,100,000 to $1,300,000. There will be a sliding scale deduction available where total Australian taxable wages are less than $6,500,000
- Increase in payroll tax rate for employers with taxable wages above $6,500,000, from 4.75% to 4.95%
- A 1% discount on the payroll tax rate to employers that have an ABN registered business address in regional areas and at least 85% of their taxable wages paid to employees located in Regional Queensland (Cairns, Central QLD, Darling Downs - Maranoa, Mackay - Isaac - Whitsunday, Queensland - outback, Townsville and Wide Bay). This will see payroll tax rates of 3.75% (for business with less than $6.5 million in total wages) or 3.95% (for businesses with more than $6.5 million in total wages) apply
- Payroll tax rebate of up to $20,000 per employer, per year for the 2019-20 and 2020-21 financial years, for net increase in full time employees. To be paid in FY21 and FY22
- Continuation of the 50% payroll tax rebate on wages of apprentices and trainees until 30 June 2021.
While these measures appear to be easy wins for many Queensland businesses, the practicalities of accessing the benefits could be the complete opposite. Consider the 1% payroll tax rate discount. It is based on ‘employer entities’, so BDO questions how many Queensland businesses currently have employee entities with a regional address. It appears that an employing entity based in a metropolitan location will not be able access the payroll tax discount. Will they need to restructure to be able to access the benefits?
We anticipate the increase in payroll tax rate for employers with more than $6,500,000 in taxable wages could impact a large number of businesses, including many of our clients. For a business of that size, a 0.25% increase in payroll taxes is not an insignificant amount and will need to be planned for. This also means Queensland no longer has the lowest payroll tax rate nationally.
Extension of landholder duty to partnership interests
In addition to the Budget announcements, the Government has also introduced changes to impose duty on landholdings held for a partnership.
A recent Victorian decision found that partners do not have a proprietary interest in specific property of a partnership. This means that entities who held property for a partnership could exclude this property from the landholder duty base.
Under the new changes, companies and listed unit trusts landholdings are now deemed to be entitled to those landholdings held for the partnership.
BDO’s initial view is that there is a risk that an entity who holds land as partnership property will be deemed to hold 100% of the landholdings of a partnership. Persons who make a relevant acquisition of a landholding partner may be required to pay duty on a higher landholding value, regardless of the landholder’s interest in the partnership.
Land tax increase for domestic corporations and trust
A 0.25% land tax increase was announced for domestic corporations and trusts with a combined land holding value of more than $5 million. Corporations and trustees with a combined land holding value of $10 million or more will be subject to a top effective rate of up to 2.75%. These changes are effective for land held as at midnight on 30 June 2019. These measures are expected to generate $238 million over a four year period.
It’s unlikely that landholding companies and trusts will welcome this change. This is in addition to the 0.5% increase introduced for these taxpayer’s under last year’s State Budget. It appears companies and trusts that hold land will be taxed further to fund the Government’s spending and relief offered small to medium businesses. Further, the result of these measures is that entities with landholdings with a combined value of more than $5 million have had their land tax rates increased by 0.75% over the past two years.
Foreign land tax surcharge increased to 2%
The additional foreign acquirer rate will increase from 1.5% to 2.0% from the 2019-20 land tax year. This will apply to absentees who hold land as at 30 June 2019. The increased rate and extension of this definition are expected to generate an additional $540 million over the next four years.
This is consistent with the pre-budget announcements that the Palaszczuk Government intended to raise revenue whilst seeking to limit the impact on Queensland taxpayers and households.
Foreign corporations and trusts now subject to land tax surcharge
The Palaszczuk Government is proposing to extend the land tax absentee surcharge to foreign corporations and trustees of foreign trusts. Previously, the absentee surcharge only applied to natural persons. Corporations and trustees are currently subject to a top effective rate of land tax of approximately 2.75% under the increased land tax rates. Under this change, foreign corporations and trustees of foreign trust will be subject to an effective top land tax rate of up to 4.75%.
This surcharge has far reaching implications. Notably, in Queensland the absentee surcharge is not restricted to residential land, but applies to all land held in fee simple at the liability date. This will apply in addition to the increase in the land tax rate applying to companies and trustees generally. Many trusts and companies that may be foreign and hold significant land in Queensland will need to urgently estimate their potential land tax liability and plan for this.
Land tax surcharge no longer to apply to Australian citizens and residents
The land tax surcharge will no longer apply to Australian citizens and resident individuals who reside overseas.
This brings Queensland’s legislation in line with other Australian states and will likely be welcomed by many because, to date, the surcharge was detrimental to Australian citizens living abroad. BDO is aware of Australian citizens that have been living abroad that have been assessed with surcharge duty, penalty tax and unpaid tax interest (over the past two years in accordance with the current law).
Petroleum royalty rate increase
The petroleum royalty rate will increase from 10% to 12.5% from 1 July 2019. This rate change is expected to increase revenue for the State by $476 million over the next four years. Royalty payers that lodge and pay on an annual basis ending 31 December 2019 will be covered by a one year transitional arrangement.
The Government also announced plans to review and simplify Queensland’s current petroleum royalty regime, while ensuring certainty and equity to all parties and providing appropriate return to Queenslanders.
This increase will likely be off-putting to oil and gas companies, given their contribution to Queensland state royalty revenue over the past year. BDO questions whether increased royalties could also impact regional jobs within these companies, which will be at odds with what the Queensland Government is attempting to achieve.
Revenue compliance program
Additional funding has been announced for the Government’s revenue compliance program. In an attempt to crack down on tax non-compliance, Treasury will use the additional funding to undertake targeted tax compliance activities to ensure all Queenslanders are paying their fair share of taxes. The program is expected to contribute $220 million in net revenue to the State across the 2020 to 2023 financial years.
The program will target key taxes, such as payroll tax, land tax, transfer duty and royalties. We have seen clients receiving bump letters and queries, and some have had audits and investigations commenced. Given this Budget announcement, we would expect this activity to continue through the financial years to come.
The Government increased funding for a number of programs that support businesses and innovation, including:
- Increased funding of $105million for the Government’s Advance Queensland initiative, including:
- An additional $45million for the Advance Queensland Industry Attraction Fund to encourage companies to relocate or establish new projects, reinvest or expand in Queensland areas
- $25million for the Research Infrastructure Co-Investment Funds, aiming to develop Queensland’s leading innovation and science proficiencies through promoting co-investment from Universities, research facilities and industry in relation to existing or planned operations
- $19million for the Queensland Hydrogen Industry Development Strategy to assist in developing the hydrogen industry in QLD, in line with the strategy’s initial release in May
- $5million over four years to support the Queensland Governments Biofutures initiative. This follows on from the $5million put towards the initial Waste to Biofutures Fund, which opened in May.
- A further $6million over two years for the Made In Queensland Program, which supports Queensland’s manufacturing sector in adopting innovative processes and technologies to increase global competitiveness. This follows on from the $20million funding allocated each year since the programs introduction in 2017.
- An additional $25million for the Jobs and Regional Growth Fund to support new projects, create new jobs and fuel economic opportunities outside South East Queensland.
With these announcements, the Government continues to support the growth of businesses, particularly in the hydrogen energy industry. However, it remains to be seen whether the relative decrease in funding for other areas such as the Made in Queensland Programme will sufficiently support existing contributors to Queensland’s economy.
If you have any questions in relation to our State Budget analysis, or would like to discuss how our findings may impact you or your business, please contact your BDO adviser.