Recovery of Land Tax under Commercial Leases - What's changed?

In a previous article, our Commercial and Retail Leasing team discussed the implications flowing on from the Supreme Court of Queensland’s decision in Wyuna Court Pty Ltd as trustee v Vikpro Pty Ltd [2015] QSC 216.

This decision opened the doors for landlords to recover land tax from tenants that had been imposed on, or after, 30 June 2010, in circumstances where a lease had been entered into between those parties before 30 June 2009, and where that lease contained a provision permitting the recovery of land tax by the landlord.

However, that decision was not without contention. Indeed, as was foreshadowed in our original article, the possibility that the Supreme Court’s decision could be the subject of an appeal or overruled by way of legislative change loomed large at the time of its handing down.

Two years on, and both of those predictions have since come to fruition. Whilst the original decision of the Supreme Court was upheld on appeal by the Queensland Court of Appeal in Vikpro Pty Ltd v Wyuna Court Pty Ltdas trustee [2016] QCA 225, recent changes to the Land Tax Act 2010 (Qld) (the Act) by way of the Revenue Legislation Amendment Act 2017 (Qld) have now overruled those decisions.

In this article, we discuss the current state of play with respect to the recovery of land tax under commercial leases.

Amendments to the Act

Put simply, the decisions of the Supreme Court and the Court of Appeal have been reversed by the insertion of a new section 83A into the Act.¹

The new section 83A renders any provision requiring a tenant to pay land tax or otherwise reimburse the landlord for land tax² unenforceable if such a provision is contained within:³

1. a “pre-existing lease” (meaning a lease entered into after 1 January 1992 and before 30 June 2009);
2. a lease arising from a renewal under an option to renew in a pre-existing lease; or
3. a lease arising from an assignment or transfer of a pre-existing lease. 

Of particular note is that section 83A has been given retrospective effect. Specifically, the prohibition on the recovery of land tax by way of section 83A is taken to have effect from 30 June 2010.⁴

However, despite the retrospective effect of that section, and in light of the decisions of the Supreme Court and the Court of Appeal, additional amendments to the Act mean that tenants under pre-existing leases are precluded from relying on section 83A to recover land tax that they’ve already paid from 30 June 2010.⁵

What does this mean for landlords and tenants?

• The recovery of land tax under commercial leases entered into after 1 January 1992 and before 30 June 2009 (pre-existing leases) is once again prohibited.
• Tenants who are a party to a pre-existing lease and who have already paid land tax to their landlord from 30 June 2010 (in reliance on the decisions of the Supreme Court and the Court of Appeal) lose out and cannot rely on the newly inserted section 83A to recover land tax they have already paid.
• Tenants who are a party to a pre-existing lease may now rely on the newly inserted section 83A and  refuse to reimburse their landlord for any land tax they have been invoiced for but not yet paid, or refuse payment of any invoice that may be issued in the future for the recovery of land tax by the landlord.   
• Landlords who are a party to a pre-existing lease will need to consider re-calculating their annual budgets and potentially issuing an amended estimate of the annual outgoings for leased land (to the extent they have an obligation to do so) so as to factor in that land tax is no longer recoverable from the tenant under the lease.
• The amendments only affect pre-existing commercial leases – the recovery of land tax under retail shop leases and residential leases remains prohibited.
• In relation to commercial leases entered into, on, or after 30 June 2009, landlords may continue to require tenants to reimburse them for land tax that is assessed against the leased land from 30 June 2010 onwards, but only if there is a provision in the lease permitting the recovery of land tax by the landlord.

  For more information or discussion, please contact HopgoodGanim Lawyers’ Taxation team.

Revenue Legislation Amendment Act 2017 (Qld), section 26; Land Tax Act 2010 (Qld), section 83A.
Revenue Legislation Amendment Act 2017 (Qld), section 26(2); Land Tax Act 2010 (Qld), section 83A(2).
Revenue Legislation Amendment Act 2017 (Qld), section 26(1) and (3); Land Tax Act 2010 (Qld), section 83A(1) and (3).
Revenue Legislation Amendment Act 2017 (Qld), section 27(1); Land Tax Act 2010 (Qld), section 100(1).
Revenue Legislation Amendment Act 2017 (Qld), section 27(2); Land Tax Act 2010 (Qld), section 100(2).