Queensland foreign surcharge exemptions expanded and simplified: what you need to know about the new rulings

The Queensland Government introduced AFAD on foreign purchasers of residential land from 1 October 2016, following the examples of Victoria and New South Wales, which had recently introduced similar measures. At about the same time, it issued Revenue Ruling DA000.15.1, which offered ex gratia relief from AFAD for significant developers “having regard to exceptional circumstances to be considered on a case-by-case basis”.

Queensland introduced LTFS for foreign person individuals on all land (not just residential land) from 30 January 2017, and this was extended to foreign companies and trusts from 30 June 2019. Again, at about the same time it issued Revenue Ruling LTA000.4.1, which offered ex gratia relief from LTFS for foreign companies and foreign trusts that made a significant contribution to Queensland.

While well-intentioned, the rulings were such that in assessing applications for relief, the Commissioner had to have regard to a myriad of factors and then exercise his discretion as to whether relief should be granted or not. 

Likely because the rulings lacked specificity in when an applicant should either be granted or not be granted relief, our experience is that applications tended to take a long time to be assessed. Further, because relief depended on the Commissioner exercising his discretion, an applicant could never be certain of being granted relief, even if the applicant seemed to clearly meet the criteria. 

To address some of the issues identified above, the Queensland Government has issued GEN012.1 and LTA000.6.1.

GEN012.1 effectively replaces DA000.15.5 for AFAD relief significant developers and also incorporates the LTFS relief elements relating to significant developers previously contained in LTA000.4.4. 

LTA000.6.1 replaces LTA000.4.4 for LTFS relief for entities that make a significant contribution (except for significant developers which has been incorporated into GEN012.1 as noted above).

In effect, GEN012.1 and LTA000.6.1 will apply prospectively from 15 December 2025, whereas DA000.15.5 and LTA000.4.4 will apply in respect of taxing events that arose prior to 15 December 2025 and 30 June 2026 respectively. This is because AFAD is levied on acquisitions of land and LTFS is levied on land owned at midnight on 30 June each year.

As noted above, LTA000.6.1 and GEN012.1 are now described as “administrative arrangements” whereby the Commissioner will simply be administering the exemptions according to set criteria. In theory, this should mean that taxpayers should expect relief to be granted as of right if they meet the relevant criteria – rather than relying on the Commissioner’s discretion.

Applications for the exemptions must be made in the approved form and must be “supported by the documents and information required by the Commissioner to decide the application”. Hopefully, the Commissioner will not require exhaustive levels of documentation in keeping with the streamlined intent of the new rulings. Our experience under the previous ex gratia system has been that the Commissioner requires a great deal of documentary evidence and applicants may often go through a series of RFIs and responses before satisfying the Commissioner.

The new rulings expand the corporate tracing rules. Essentially, most of the requirements for relief can be satisfied by either the applicant entity alone or in combination with other entities in its corporate group. A corporate group is a parent and all its 90 per cent owned-or-more subsidiaries. In the previous rulings, 100 per cent ownership was required for entities to be parent and subsidiaries, and the activities of other members of the corporate group could be counted towards fewer factors compared to in the new rulings.

The new rulings also institute a pre-approval process whereby relief can be pre-approved in certain circumstances. However, there is also a notifiable event process whereby entities approved or pre-approved for relief must notify the Commissioner on the happening of certain events. These notifiable events are essentially where the circumstances of the entity or its corporate group change such that it no longer meets the requirements. AFAD or LTFS would then generally be payable.

Below, we set out the requirement criteria for each exemption in more detail. 

GEN012.1 sets out the criteria for when residential land developers undertaking residential land development should be entitled to an exemption from AFAD and LTFS (but only while the development activities are being undertaken after which time they will generally be considered to hold the developed land as a passive investor and the land will no longer qualify for the LTFS exemption).

AFAD exemption

Under GEN012.1, AFAD is not imposed on a relevant transaction if the transaction is a transfer, or agreement for the transfer, of AFAD residential land and, when the liability for transfer duty arises:

a. the “entity requirements” are satisfied

and

b. either

i. the AFAD residential land is a “qualifying development”.

or

ii. the entity, or the “relevant corporate group” of which the entity is a “group entity”, is a “large developer”.

The “entity requirements” comprise the following:

If the “entity requirements” are met, then the entity must satisfy either of the following requirements: 

The Commissioner has discretion to reduce the minimum number of residential lots necessary to qualify for an exemption below 20 for land in regional and priority development areas. 

LTFS exemption

Under GEN012.1, LTFS is not imposed on the taxable value of an entity’s taxable land if, when a liability for land tax arises, all the following apply: 

1. The “entity requirements” are satisfied (these are the requirements set out above).
2. The entity, by itself or as part of a corporate group, is a “large developer” (the meaning of which is set out above).
3. One of the years in which the large developer test is satisfied is the year for which the LTFS exemption is being sought.
4. The size and scale of the activities conducted by the entity or corporate group is proportionate to the taxable land for which the exemption is sought.

There is no guidance provided on when the size and scale of the activities will be considered to be “proportionate” to the taxable value of the land for which the exemption is sought. While this is not ideal, it is to be hoped that this is applied as an anti-avoidance measure aimed at preventing entities not truly in the business of property development from obtaining relief, rather than being applied overly restrictively. 

The LTFS exemption under GEN012.1 is only available while development activities are being undertaken, after which the entity or corporate group is generally considered to hold the land as a passive investor.

An entity is not eligible for the LTFS exemption for taxable land if the concession for land used for an eligible build-to-rent BTR development under section 58B(3) of the Land Tax Act 2010 (Qld) (Land Tax Act) has been applied to the land or the entity has been pre-approved or approved for exemption under LTA000.6.1.

LTA000.6.1 sets out the criteria for when landholders undertaking commercial activities that make a significant contribution to the Queensland economy and community should be entitled to an exemption from LTFS.

Under LTA000.6.1, LTFS is not imposed on the taxable value of an entity’s taxable land if, on the liability date, all the following apply:

1. the “entity requirements” are satisfied (these are the same as set out above). 
    
2. the entity or its corporate group:
    
   1. conducts commercial activities in Queensland that make a “significant contribution” to the Queensland economy and community;  
      
      or 
       
   2. is a “significant contributor”. 
       
3. the size and scale of the commercial activities conducted by the entity or its corporate group is proportionate to the taxable land for which exemption is sought.
    

An entity or its corporate group will make a “significant contribution” where it has current commercial activities or committed future commercial activities over a 12-month period from the liability date, at the “requisite contribution level”.

The “requisite contribution level” effectively means employing 75 or more full-time equivalent employees in Queensland (not including labour hire or contractors) OR incurring $20 million annually in expenditure in Queensland for goods, services, wages or payroll tax.

This is a significant shift compared to the prior ruling, in which the examples made it appear necessary to meet both the 75 employee and $20 million Queensland expenditure requirements. Now, it appears that an entity will only need to meet one of these tests. However, the size and scale of the commercial activities conducted by the entity or its corporate group will still need to be proportionate to the taxable land. Again, no guidance is given in the ruling for when this will be the case.

Where an entity does not meet the threshold but undertakes commercial activities in non-metropolitan areas and/or in particular industries, the Commissioner can nonetheless approve relief having regard to: 

1. the commercial activity in the context of the population size, demographics and activity in the area, and/or the size and maturity level of the industry;
2. the nature of the area and/or industry;
3. the contribution that the commercial activity makes to the area and/or industry (e.g. whether the entity is a major employer in the area, and/or whether the industry or activity would exist in the absence of the entity); and
4. any other relevant factors. 

An entity or its corporate group will be a “significant contributor” if it makes a “significant contribution” (within the meaning set out above) on average, each financial year, provided the averaging does not exceed five consecutive financial years (averaging period) or is approved by the Commissioner under paragraph 21 of LTA0006.1 in relation to regional and/or industry significance.

An entity is not eligible for the LTFS exemption for taxable land if the concession for land used for eligible BTR development under section 58B(3) of the Land Tax Act has been applied to the land or “the entity has been pre-approved or approved for an exemption under GEN012.1”. It is not clear whether this means that an entity that has obtained relief under GEN012.1 while development was underway is then permanently excluded from obtaining relief under LTA000.6.1. However, in our view this sentence should be read as meaning the entity is currently pre-approved or approved under GEN012.1, meaning it should be possible for an entity (subject to meeting the criteria) to obtain the LTFS exemption under GEN012.1 during development and then in later years obtain the LTFS exemption under LTA000.6.1 if it makes a significant contribution to the Queensland economy and community.

As the exemptions are contained in public rulings and not under an enactment, the decision not to grant the exemption is not reviewable under the Judicial Review Act 1991 (Qld).