With impending changes to the Queensland land tax regime, deductions for site improvements can be an effective tool for landowners and developers in managing land tax rates and liabilities.
Changes to land tax assessment in Queensland
Queensland has introduced amendments to the land tax regime extending the basis for land tax assessment to include interstate landholdings. From 30 June 2023, landowners will need to declare landholdings in other states and territories for the purpose of land tax assessment. This change is significant, as it impacts individuals, companies and trusts. It will be a significant impost for landowners and developers with substantial landholdings across Australia.
While there is no deduction against land tax under the Queensland land tax legislation, if you have paid for site improvements in preparation for development, you may be eligible for a deduction for site improvements off the statutory valuation that forms the basis for calculating your land tax liability.
Deductions for site improvements
A deduction for site improvements (DSI) applies to residential and commercial land, other than land zoned as rural land. The scheme was introduced under the Land Valuation Act 2010 as a mitigation measure for the increase in statutory valuation transitioning from the previous ‘unimproved value’ methodology to ‘site value’ methodology.
While the objection period for the 2022 land valuations closed on 30 May 2022, you can still apply for a DSI at any time outside of the objection process. You can claim any eligible site improvement costs that you paid for in the last 12 years. When it is approved, the amount of the deduction will be reflected in the subsequent valuation notice.
Using valuation methodologies available under the Act
As a measure to manage rates and land tax liability and achieve an effective land valuation outcome, landowners and developers should consider valuation methodologies available under the Act at different stages of a development.
In the initial holding pattern when land is not ready for development, consider keeping the land in its original state to attract the farming concession or the exclusive use as a single dwelling concession.
When planning approval for subdivision has been obtained, you may not wish to carry out any site improvements. You can consider applying for the discounting method for subdivided land (not yet developed) to be applied for the levying of rates.
Where concessional valuation applies, site improvements works cannot be claimed, as concessional land value does not capture the value of improvements. However, these costs can be carried forward for up to 12 years and included in a DSI application when the land is no longer eligible for concessional valuation.
Impact on project financing
Another point to note is that DSI is separate to site value and, as such, the deduction does not deflate the intrinsic value of the developed land as it is captured in the statutory valuation, which has relevance to market valuation. Therefore, it would not have any negative influence on project financing.
Site improvement categories
The categories of works that have been considered as site improvements include:
- vegetation clearing
- picking up and removing stones
- improving soil fertility or soil structure
- works to manage or remedy contaminated land
- restoring, rehabilitating or improving the land’s surface by filling, grading or levelling (which may include works related to the ‘cut and fill’ process, including depositing spoil onto or removing spoil from the land)
- reclamation works, including draining or filling, retaining walls and other works for the reclamation of land – where land has been filled or excavated, such as in canal estates or hillside lands, any revetment wall, retaining wall and associated material required to retain the land may be considered site improvements
- any underground drainage works necessary to drain underground or surface water, including stormwater run‑off, underground pipes, agricultural slotted pipes, pits, catchment ponds, swales and associated excavations
- any other works to the land necessary to improve or prepare it for development.
If you would like more information about deduction for site improvements and managing your statutory valuation, please contact partner Leanne O’Neill.