Article:

BDO's analysis of the 2022-23 Queensland State Budget

21 June 2022

Leisa Rafter, Partner, Tax |

The QLD State Budget 2022-23 was handed-down on Tuesday, 21 June 2022. This year’s budget was characterised by tax changes, healthcare and infrastructure. Our team has summarised the key measures to help you understand what they mean for you or your organisation.

Payroll tax changes

The Queensland Government has announced several payroll tax changes which, overall, are predicted to increase the payroll tax revenue during the next four financial years by around $1.16 billion. The additional payroll tax will be paid by Queensland’s top 1% of employers through a mental health levy, while small and medium businesses will find themselves paying less payroll tax because of a change in how deductions are calculated.

Mental health levy

From 1 January 2023, a mental health levy will apply to large employers (or groups of employers) in Queensland that pay Australia-wide wages in excess of $10 million annually. The mental health levy will be imposed at 0.25% on Australia-wide wages more than $10 million, plus an additional 0.5% on Australia-wide wages over $100 million. The levy means the maximum payroll tax rate in Queensland is now 5.7% for employers above the $100 million threshold.

This measure is expected to generate more than $1.4 billion in additional revenue across FY23 to FY26. As the name suggests, the mental health levy is being rolled out to provide additional funding for Queensland’s mental health system. It follows in the footsteps of last year’s announcement by the Victorian Government to introduce a mental health and wellbeing surcharge of 0.5% to 1% for large employers.

Change in deduction calculation

Small to medium employers with Queensland wages of up to $10.4 million will now be entitled to a larger payroll tax deduction under the extended deduction phase out announced as part of the Budget.

From 1 January 2023, payroll tax deduction will be available for employers with Australia-wide wages of up to $10.4 million, increased from $6.5 million. This means the phase out of the deduction will be increased to $1 for every $7 of taxable wages, instead of the current $1 for every $4. This is expected to benefit more than 12,000 Queensland businesses and will cost the Government $210 million across the next four years.

Extended apprentice and trainee rebate

The Queensland Government announced a one-year extension to the 50% payroll tax rebate on exempt apprentice and trainee wages. The rebate, which was set to end on 30 June 2022, will now be available until 30 June 2023. The extension will cost the Queensland Government $32.2 million in lost payroll tax revenue.

Small to medium employers will welcome the increase in the payroll tax deduction threshold, which will mean more Queensland employers are eligible for a payroll tax deduction and will pay less payroll tax. On the other hand, the announcement of the mental health levy may be a disincentive to large employers who are already subject to a higher payroll tax rate in Queensland for wages in excess of $6.5 million (4.95% as compared to 4.75%). A further increase to the payroll tax liabilities of large employers is starting to make Queensland appear unfriendly to big businesses.

With a slew of different payroll tax rates, levies, and discounts now potentially applying in Queensland, there is added complexity for employers in determining the correct rate. Payroll tax rates in Queensland now vary from 3.75% for small employers in regional areas to 5.7% for large employers in metropolitan areas (and various combinations in between).

Exemption from surcharge duty for some temporary visa holders

The Queensland Government has announced that holders of retirement visas (subclass 405 and 410 visa-holders) will now be exempt from additional foreign acquirer duty (AFAD) where they purchase property to use as their principal place of residence.

AFAD is levied on acquisitions of residential land by foreign persons at a current rate of 7%. It is payable in addition to the primary base duty, which is levied at rates up to 5.75%. For individuals, a person will be foreign unless they are an Australian citizen or permanent resident.

Subclass 405 and 410 visas are temporary visas and were previously available to retirees who were seeking to live in Australia during their retirement years. Despite being eligible to stay in Australia for periods of up to 10 years in some circumstances, for AFAD purposes these visa-holders were treated as temporary residents and subject to the additional 7% tax.

Under the reforms, holders of these visas will now only be subject to duty at the standard concessional rates applicable to eligible home purchases. This will also apply to subclass 103 (parent) and subclass 143 (contributory parent) visa holders who previously held a 405 or 410 visa, and whose applications have not yet been decided. Eligible persons will be required to satisfy the home requirements, or risk reassessment of the AFAD exemption. These changes are expected to commence on 1 January 2023 subject to passing of the amendments through parliament.

We do not expect this change to impact many taxpayers as both these classes of visa are closed to new applicants. In particular, the changes are only estimated as a cost to revenue of $1.05M over the forward estimates period.

BDO welcomes this change as it enables retirees who intend to live in Australia to purchase their own homes. This also reduces harsh tax outcomes where those retirees are seeking to reside in Australia long-term following the 2018 changes that created permanent residency pathways for these visa-holders.

Significant Queensland land tax changes

Queensland includes interstate landholdings in land tax bill introduced today

As foreshadowed by the Queensland Government’s Mid-Year Economic and Fiscal Outlook announcement in late 2021, the Queensland Treasury has released draft legislation in respect of the interstate land tax model.

Currently, where a taxpayer owns land in Queensland, the amount of land tax payable is calculated solely on the value of taxable Queensland land. This means any land owned in any interstate location would not affect a person’s land tax bill.

Described as a “fairer land tax system”, under the new land tax measures (Interstate Measures), Queensland liabilities will now be calculated based on a taxpayer’s total Australian landholdings. Under the new provisions, a taxpayer’s land tax will be quantified based on the notional land tax of all Australian non-exempt landholdings as at midnight on 30 June 2022. Land tax will then be calculated as the taxpayer’s notional land tax, multiplied by the taxpayer’s Queensland landholdings as a proportion of their Australia-wide landholdings.

Taxpayers who own interstate land must notify the Queensland Revenue Office of their interstate landholdings and their respective values:

  • Where a land tax assessment notice is issued before 30 September 2023 – within 30 days of the date of the assessment notice, and
  • Where a land tax assessment notice is used after 30 September 2023 – on or before 31 October 2023.

Failure to notify the Commissioner of interstate land tax landholdings is an offence, which is subject to civil penalties of up to $14,375. Despite these notification requirements, the Commissioner may decide that an alternative interstate value for calculation of a taxpayer’s liability is appropriate. For example, this may be based on current information available to the Commissioner when the assessment is issued.

Certain other amendments have also been made to the land tax legislation to ensure consistent treatment between Queensland and interstate landholdings. Particularly, these relate to availability of Queensland exemptions to interstate land.

These changes take effect from 1 January 2023, and will affect land tax liabilities for the 2023-24 land tax year onwards.

Despite Treasury’s intentions to introduce a new land tax model that provides a more harmonised land tax liability on all Queensland taxpayers, BDO determined that these amendments fail to reflect the differences in land tax rules between states. This change will result in more land tax being paid for many taxpayers who own taxable land in Queensland.

By introducing a model that accounts for a taxpayer’s Australian-wide landholdings, BDO considers that taxpayers will be subject to higher land tax liabilities where they own small amounts of land in Queensland, but have large landholdings located interstate.

As each state/territory’s land tax provisions do not align with the land tax model in Queensland, we anticipate that taxpayers will incur increased compliance costs associated with:

  • Determining whether a property located interstate is exempt for Queensland land tax purposes
  • Confirming the interstate valuations adopted in Queensland are consistent or correct with values received.

Taxpayers who own interstate land should be mindful that land in other states will now affect their liabilities in Queensland. As objections to assessments based on excessive valuations are prohibited, taxpayers must be increasingly aware of any changes in their statutory valuations.

We expect flow on effects as landholders attempt to recoup their liabilities through increased rent and/or increasing the price of their goods/services to consumers.

BDO strongly encourages the various states and territories to come together to discuss harmonisation of the land tax laws to reduce adverse impacts to taxpayers.

Changes to funding of racing industry

A new funding model has been announced to ensure ongoing sustainable funding for Queensland’s racing industry.

This includes imposing a 5% racing levy to betting taxes and making previously free bets subject to tax.

Racing Queensland is estimated to receive 80% of betting tax revenue, being $280 million during the forward estimates period. The details of the funding model are yet to be announced and are expected to take effect from 1 December 2022.

We understand the changes represent Queensland’s ongoing commitment to supporting the racing industry, which is a significant contributor to the state’s economy.

New rates for the coal sector

On 30 June 2022, financial benefits previously enjoyed by multinational coal companies as a result of the historical freeze on coal royalties will cease. Specifically, three progressive royalty tiers will be introduced per tonne of coal from 1 July 2022 onwards.

Value per tonne

Rate

$176 -$225 per tonne

20%

$226 - $300 per tonne

20% for the value of the first $225

30% for the value of the balance

More than $300 per tonne

20% for the value of the first $225

30% for the value of the next $75

40% for the value of the balance

Despite the changes proposed, the Queensland government confirmed that each new tier will only apply based on the appropriate margin. For example, where the price of coal is $302 per tonne, the newly proposed 40% will only apply to the remaining $2. This aligns with the structure of the current tiered rates as implemented by the Queensland government 10 years ago.

Furthermore, the Queensland Government confirmed the implementation of these new rates will not apply to the rates currently in place. Therefore, the current tiers will continue to apply where the price of coal is $175 or less per tonne.

This is forecasted to result in the mining sector remitting an extra $1.2 billion or more in royalties to the Queensland Government in 2021-22.

During the past 18 months the thermal coal price for Queensland mines has increased uncharacteristically because of unique geopolitical circumstances (Ukraine/Russia) and resulting constrained supply. This has pushed up the price per tonne to more than USD$400, but analysts predict this will be short-lived and the price will reduce and stabilise at USD$110. This appears to be a short term ‘windfall gains tax’ for the Queensland Government, however it will not take into account the additional costs and risks coal miners may be prepared to incur to earn these higher prices.

Small business duty exemption

Leisa Rafter
Partner, Tax
Brisbane

The small business restructure duty exemption was announced in September 2020 as an administrative arrangement, with further changes announced in June 2021. Since then, the terms of the exemption have been set out in Public Ruling DA000.16.

Proposed amendments to the Duties Act 2001 now give legislative effect to the arrangement, with retrospective effect from 7 September 2020 and 28 June 2021.

The legislative changes are in line with the public ruling.

Whilst we do not expect the legislative changes will operate differently to the public ruling, we are pleased to see the administrative arrangement will be brought into law. The main impact of this is that objection and review rights that apply under the Duties Act 2001 and Taxation Administration Act 2001 will now be available for taxpayers seeking to rely on the exemption.

Economy

The Queensland budget focuses on large scale investment in healthcare and coalmining royalties

Ally Flint
Partner, Project & Infrastructure Advisory
Brisbane

The Queensland government has announced the state would unexpectedly record a $1.9 billion surplus in 2021-22 and a small deficit for the new financial year. The centrepiece is an increase of $1.2 billion investment in healthcare including three new hospitals and more than 9,000 workers. Small businesses are also to benefit in the form of a payroll tax cut.

Queenslanders will be better off with the government recognising cost of living pressures and introducing a rebate for each household’s next power bill. Moreover, coal mining royalty rates have been increased, meaning Queenslanders will now get a bigger share of the pie with coking coal prices continuing to surge.

The Queensland Budget will give a strong boost to the economy following the pandemic and flooding. The increased healthcare spending will provide a strong boost to jobs, while the cost-of-living rebate will help the state deal with inflation distress.

Small businesses are likely to be a big winner in this budget with the payroll tax cut expected to provide benefits of up to $26,000 per year for more than 12,000 SME’s. Mental health is to receive a big investment with funding being put towards improved wellbeing and combatting substance abuse. Gambling firms are receiving a bigger tax on bets placed along with coalmining royalties helping the Budget’s bottom line.

Healthcare

Record healthcare budget

Joe Occhino
Associate Director, People Advisory
Brisbane

The Queensland Government’s $23.6 billion investment in health is the State’s largest ever health budget.

With a focus on resources, technology and infrastructure, the Government is aiming to equip the department with what it needs to build a sustainable and resilient health system. Investment in infrastructure and Queensland Health’s frontline workforce to meet the increasing demands on the network will be a priority.

This is a landmark budget for Queensland’s healthcare sector. Investing to ensure the system can build the capability and capacity needed to deliver high quality care across the entire State, now and into the future, is vital for growth. The forecasted increase in bed numbers and frontline staff will, over time, relieve pressure on the system, while also fostering innovation in healthcare delivery.

Infrastructure

Investment in hospitals and transport to position the state for growth

Darren Black
National Leader, Project & Infrastructure Advisory
Brisbane

The 2022-23 Queensland State Budget delivers continued significant infrastructure spending with notable increases in the health portfolio and ongoing commitments in transport and main roads.

The Government has firmed up its promise to add additional capacity in the Queensland Health network through the addition of $9.785 billion for the Queensland Health Capacity Expansion Program. This program will deliver around 2,200 additional overnight beds in six years (2022-23 to 2027-2028).

Significantly, this includes new hospitals in Bundaberg, Toowoomba and Coomera as well as a new Queensland Cancer Centre. It also includes expansions to hospitals in Cairns, Townsville, Robina, Mackay, Redcliffe, Ipswich and Hervey Bay, as well as to the Princess Alexandra, QEII and The Prince Charles hospitals, and further expansion of Logan Hospital.

BDO has assisted on a number of the business cases for these new developments and expansions and looks forward to working closely with the State to progress them to delivery.

In the transport space the Government has made significant final commitments to major projects such as extending the Gold Coast Light Rail (Stage 3) from Broadbeach South to Burleigh Head ($270.2 million), $265 million towards constructing the Coomera Connector (Stage 1) between Coomera and Nerang, and $184.9 million towards constructing new rollingstock in Maryborough, at a total estimated cost of $600 million.

These are final investments of projects that have been ongoing for some years and will provide significant economic benefits to the state for years to come.

Overall, the Budget positions the state for continued population growth and develops a firm foundation for the infrastructure that will be required leading up to 2032.

Manufacturing

Boosts to mining, health and renewable energy manufacturing

Suzy Munt
Associate Director, Business Services and Family Business
Brisbane

This year’s budget included a number of initiatives that will benefit the manufacturing sector, particularly in regional Queensland. The Queensland Resources Industry Development Plan will provide funding for key initiatives such as the Resources Centre of Excellence in Mackay, the Future Skills Program, and support specifically for renewable energy manufacturers such as battery manufacturers.

Alongside these, the Government is also establishing a manufacturing hub program, expanding the Made in Queensland Grant and providing additional funding for the Translational Research Institute.

These policies will build new facilities, provide jobs and create opportunities for the manufacturing sector, in particular mining, health and renewable energy manufacturing.

BDO welcomes the significant investment into the sector, which is in line with the Government’s 10 year plan for manufacturing growth in Queensland. By building new hubs and facilities, the Government is helping to secure jobs, not just in the construction of the facilities but into the future. It demonstrates the Government has strong confidence in the manufacturing industry and creates less reliance on overseas manufacturers and less pressure on the supply chain, in particular, logistics.

With the creation of jobs, however, given the current job market, the Government will need to source workers from overseas to fill vacancies.

The initiatives also aid in creating a strong market presence for the start-up ecosystem, giving medical and environmental startups a real boost. With the availability of the Federal Government’s R&D grant program, this will also put more federal funds into the Queensland start-up eco-system.

Given the continued focus on renewable energy and emissions, investing into the future of renewable energy technologies is a win-win.

More resources

Property & Construction

$200 million for essential infrastructure in South East Queensland

Hung Tran
Partner, Business Services
Brisbane

Chris Catanzaro
Partner, Corporate Finance
Brisbane

The Queensland government has pledged to invest $200 million to assist with unlocking the housing supply.

The funds will be directed through two funds investing in infrastructure in South East Queensland. $50 million to go into a new Growth Acceleration Fund and $150 million to The Catalyst Infrastructure Fund (CIF).

The Growth Acceleration Fund will support the delivery of priority trunk infrastructure needed to develop new communities like Caboolture West. It is set to address the infrastructure needs of growth areas such as Sunshine Coast, Moreton Bay, Brisbane, Redlands, and Gold Coast.

The second fund, CIF, will receive $150 million in equity funding for the major infrastructure needed to continue the delivery of new communities such as Ripley Valley and Greater Flagstone.

The funding will be supplemented by contributions from property developers who will be required to make a co-investment of at least 20% towards the cost of the major infrastructure going into their project.

It is great to see the State Government’s continued investment in helping support the growth of new communities and upgrading the infrastructure to keep Queenslanders safe.