Queensland’s New Extra-Territorial Land Tax May Be Unconstitutional

Signage for a real estate property is seen in Carlton North, Melbourne, Australia, on July 18, 2018. AAP Image/James Ross

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 investors in Queensland but also on land owned by them in other Australian states.

For example, currently land valued at under $600,000 (around US$400,000) or an individuals main place of residence is land tax-exempt.

But if the person owns land valued at $599,999 in Queensland and also land to the same value in New South Wales (NSW). The value of both will be added together, making it around $1.2 million, and, hence, the combined value will wipe out the state’s tax-free threshold.

Although conceding 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 the state.

There is disagreement about whether the scheme will result in double-dipping. In some ways 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.”

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 state authorities.

This first multi-jurisdictional land tax in Australia might, however, be challenged in the High Court.

Specifically, the validity of the Queensland scheme could come under question under Section 117 of the Constitution, which states that a resident of a 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 the circumstances of residents in different states, and whether an out-of-state resident is worse off—via some sort of discrimination—compared to residents within the state.

In this case, Section 117 could protect an interstate resident if the Queensland law is found to work to their detriment.

Queensland Premier Annastacia Palaszczuk speaks at a press conference at Parliament House in Brisbane, Australia, on Apr. 1, 2021. Jono Searle/Getty Images

On the other hand, Section 117 could also be interpreted to mean that since residents in both NSW and Queensland are treated the same by the new land tax laws, there would be no discrimination.

Yet, based on Queensland’s initial indication that law is targeting those deemed to be taking advantage—or closing a “loophole”—of land tax-free thresholds that exist across the country, then Section 117 could become a formidable obstacle.

Based on its practical effects and impact, it becomes clear that the law disproportionally affects interstate investors.

Legislative 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 powers that encroach on the sovereignty—and revenue raising powers—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 the state’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. By 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 extra-territorial 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.

Further, 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 opinions of the author and do not necessarily reflect the views of The Epoch Times.