Queensland’s New Land Tax May Be Unconstitutional

Commentary

From July 1, 2023, the method of calculating land tax in the state of Queensland will change. It will be calculated not only based on freehold land owned by taxpayers in Queensland but also on land owned by them in the other Australian States. But land valued at under $600,000 (around US$400,000) and a resident’s main residence remain tax-exempt.

For example, say a taxpayer owns land valued at $599,999 in Queensland and also owns land to the same value in New South Wales (NSW). The value of both lands will be added together, making it around $1.2 million, and, hence, the tax would be calculated based on $599,999, thereby wiping out Queensland’s tax-free threshold.

Although conceding that the tax would affect some Queenslanders who own land in other states, proponents of the changes nevertheless anticipate that the tax will mainly hit interstate investors who own land in Queensland.

If so, the law will disproportionally affect interstate investors, and the tax payable will depend on the combined values of their Queensland and interstate land.

There is disagreement about whether the scheme involves double taxation. It is true that interstate land is not taxed directly because the interstate landholdings of a Queensland taxpayer will only be used to calculate “the rate of Queensland land tax that will be applied to the Queensland proportion” of the value of these holdings.

However, this argument obfuscates the point that the increased rate at which land tax will be paid depends on the value of the land owned by the taxpayer in their state of residence. Thus, an NSW investor in land in Queensland will now effectively be subject to an increased tax on their property in Queensland.

Is it Discrimination Against Interstate Investors?

Of course, the effectiveness of the Queensland scheme depends on the willingness of the relevant interstate revenue offices to share their information about land ownership with the Queensland authorities.

This first multi-jurisdictional land tax in Australia might be challenged in the High Court. Specifically, the Queensland legislation is vulnerable to an attack based on section 117 of the Constitution, according to which “a subject of the Queen, resident in any state, shall not be subject in any other state to any disability or discrimination which would not be equally applicable to him if he were a subject of the Queen resident in such other state.”

The application of section 117 requires a comparison to be made between residents of different states. The focus is on ascertaining whether the out-of-state resident is subject to a disability or discrimination that they would not suffer if they were residents within the state.

So, if an interstate resident is worse off because he or she is not a resident of Queensland, then section 117 will protect the interstate resident by preventing the operation of the Queensland law to their detriment.

Subject to the validity of this point, how is section 117 applicable in the context under discussion? One could argue that the section does not apply because, from a formal point of view, a resident of, say, NSW and a resident of Queensland are treated equally because if they own land in Queensland, they would be equally subject to the new calculation of land tax.

However, if Queensland’s initial indication that the law aims at targeting those who take advantage of the land tax-free threshold in different states—mostly interstate investors—section 117 could become a formidable obstacle to its implementation.

If focusing on the implementation, practical effects, and impact of the law rather than on its form, it becomes clear that the law disproportionally affects interstate investors, section 117 may be violated, and the scheme might be unconstitutional.

Legislature Overreach

It is also necessary to consider the federal compact to determine the constitutionality of the Queensland scheme. Specifically, the High Court might consider whether state legislative power that encroaches on the sovereignty of other states is constitutional.

The tax law also interferes with the functions of state governments that are expected to co-operate with Queensland to ensure the effectiveness of Queensland’s calculation of land tax.

Such interference might infringe the federal compact as it is presently understood—the existence of sovereign states that are part of a federation. Requiring the cooperation of interstate agencies it may also affect the legislative powers of state parliaments to adopt land tax legislation in their own jurisdiction. The scheme may constitute an extraterritorial invasion of other states by the Queensland legislature.

The changes to the calculation of land tax in Queensland have generated numerous other problems of an economic and social nature. But it suffices for the purposes of this commentary to speculate that interstate investors might sell their investments in Queensland and will instead invest in states that are more tax-friendly.

In conclusion, the new calculation is an example of legislative overreach and an egregious money-grabbing exercise, which will hurt interstate investment in Queensland, and may also be unconstitutional.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.