One tick could cost thousands.There’s a hidden trap in the new REIQ contract that asks buyers to tick one of three land tax boxes - but two of them directly benefit the seller and will cost the buyer extra money!

Learn about the three options, and how to navigate them with confidence in this week's Empire Legal blog. 

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Hi everybody - George Sourris, Empire Legal.

Today's topic: Why Queensland property buyers should never tick box two or three for Land Tax without advice!

If you're buying or selling property in Queensland using the latest REIQ residential contract, you'll notice a land tax section that now requires one of three boxes to be ticked, if the property is not the seller's principle place of residence, and the seller is not exempt from land tax.

This seems like a small checkbox section. However, the option chosen can shift hundreds or sometimes thousands of dollars between the parties at settlement. This is general information only, of course, we are not accountants, and land tax calculations depend on individual circumstances and ownership structures.

Buyers and sellers should confirm their position with their accountant before signing.

Understanding the land tax period.

Land tax in Queensland is assessed based on ownership as at 30 June each year. The assessment covers the following land tax year, a 12 month period. This means the entire annual land tax bill is tied to whoever owned the property on 30 June, even if the property is sold shortly afterwards. The contract must therefore decide whether the buyer contributes to any portion of that assessment.  This is what the three check boxes deal with.

The three options in the contract.

These appear in the reference schedule and link to section 3.5 of the standard terms ,which govern adjustments and how land tax is shared (or not shared) at settlement. Keep in mind guys, this same contract is used for commercial property contracts as well, not just residential.

Option one - no land tax adjustment is to be made.

So this is the default option if no box is selected. Under this section, the seller pays the full land tax for the relevant land tax year. The buyer does not contribute at all, and there is no adjustment at settlement. This option is usually the fairest and the safest for standard residential purchases, because the buyer does not inherit any of the seller's land tax position.

Option two - land tax to be adjusted on a single holding basis.

So adjustment calculated as if the property was the seller's only land holding. This option calculates a hypothetical land tax amount based solely on this property, the one going under contract, with its land holdings, ignoring the sellers other land holdings.

The amount is then adjusted between the parties in accordance with section 3.5. So effectively it's a pro rata adjustment. While this may appear fair, the buyer is still paying a portion of land tax that would not be otherwise owed. Benefit - seller. Detriment -  buyer. In practical terms, the buyer is contributing to a land tax liability incurred because the seller owned the property on 30 June.

Option three - land tax is to be adjusted on the seller's actual land tax liability.

This option is the most financially risky for buyers. Under this option, the settlement adjustment is based on the seller's actual land tax bill, which may be significantly higher if the seller owns multiple properties, or the property is owned within a trust or company.

The buyer will then have to contribute to a portion of that higher tax rate, even if the buyer would never personally be assessed on that level. Benefit - seller, heavily. Detriment - buyer, potentially thousands of dollars. This is all adjusted under section 3.5, which allocates the land tax between the parties based on the settlement date.

For most residential buyers, option three should be approached with extreme caution.

OK, but, which option should I use?

For residential buyers, the safest and most appropriate option is usually option one -  no adjustment. Options two and three almost always result in the buyer paying money that they would not otherwise owe, while the seller receives a financial benefit. At the end of the day, it's the seller's land tax bill.

Guidance for agents.

Do not ever select the land tax option for your client.

The correct and risk free phrase is: "this affects tax liability. You need to speak to your accountant and get them to advise of the correct option".

Once the contract is signed, reversing a land tax option can be costly, difficult, or simply not possible.

Final note, this blog provides general guidance only. Land tax calculations involve thresholds, tax brackets, trust structures, and multi-property ownership issues. You should always confirm your position with an accountant before signing a contract of sale.

Buyers - you should check out this section on page three of the contract (for REIQ contracts). Naturally, if our firm is providing pre-contract advice, we will pick it up for you. Pick a conveyancing team you can trust. Missing this, just like any critical part of a conveyance can be stressful and costly.

Please like, subscribe, and share. I would love if you could share this with a colleague that maybe has seen these land tax boxes, but hasn't really taken the time to learn.

Thanks guys. We'll see you next week.


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Ladies and gentlemen, please keep in mind that all advice is general in nature and does not constitute legal advice. This is authorised by George Sourris, Empire Legal, Brisbane, Queensland, Australia.

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Note: all information is general in nature and as each matter is unique please contact our office for tailored advices: the above does not constitute legal advice.