Farmland taxes on foreign investors scares them away, says agricultural fund manager

A top agribusiness fund manager says governments’ taxes on foreign investment are driving capital away from Australia.

There are fears excessive tax on foreign agricultural investment was driving away investors.

The founder and head of a top agricultural fund manager says he believes excessive taxes on foreign investments in the agribusiness sector are “scaring capital away”.

Brisbane-based Laguna Bay managing director and founder Tim McGavin took aim at the Queensland government’s land tax regime on foreign investment, telling the Global Food Forum investors who would normally want to invest in Queensland were now eyeing southern states.

“You have generally really low margins in agriculture and they’re pulling out of Queensland entirely because of land tax. They’re scaring capital away,” he told the forum on Wednesday.

“These things can’t be looked at in isolation. They have to be looked at collectively. Costs are driving up and the consequences are less capital wealth, which will go south.”

In Queensland there is an additional 3 per cent surcharge to the 2 per cent land tax on freehold land owned by foreign companies and trustees of foreign trusts.

The government may consider ex gratia relief from this surcharge for foreign entities that make a significant contribution to the state economy and community.

Mr McGavin also took aim at the federal government’s ruling that foreign investment fees must be paid within 30 days of a call-in notice being given. He said that was also eroding confidence.

“It will get to the point where they will kill the golden goose,” Mr McGavin said.

Outside the forum, Mr McGavin told The Australian the tax regime was hampering foreign investment, which could potentially cause future social problems.

“Someone has to back the next generation who won’t have the benefit of a massive balance sheet into succession planning or re-aggregation or other options we have,” he said.

“A lot of farms we look at have a negative real yield. And a lot has to do with government policy and changes that keep coming and coming and coming.

“A good example of that is the withholding tax on dividend distributions to foreigners.

“Initially the tax rate was set at 30 per cent and then it was set at 7.5 per cent to give certainty to try to track capital when the government was privatising our state-owned assets, and it was then changed to 15 per cent and then changed back to 30 per cent.”

Farmland sales have hit the pause button after the boom years of 2021-22.

Mr McGavin said it was important to have foreign investment, but it was vital to have consistency.

“The polarisation and the bi-polarisation of politics is giving all these different messages,” he said.

“That’s why nothing is getting done. It’s short-term thinking and they’re not thinking about the consequences.”

Mr McGavin said Laguna Bay was “sector-agnostic” and not necessarily focused purely on Australian farmland.

“We can look at the whole supply chain and this issue is certainly forcing us to look at other sectors and perhaps offshore like New Zealand,” he said.

At the forum’s panel discussion Investing in Australian Agriculture: The Opportunities and Obstacles, LAWD senior partner Danny Thomas said the market was currently on pause after a stellar period in 2021-22, when farmland prices had soared.

Mr Thomas said there were billions of dollars on the sidelines seeking the right investments and Queensland had the “best natural assets in the country”, but the tax regime was weighing on foreign investment.

However, Queensland Agriculture Minister Mark Furner doubted investors would flee the state. In NSW the land tax for absentee foreign owners will increase from 4 per cent to 5 per cent in 2025. In Victoria it is 4 per cent.

“I’d be surprised given we are still lower than NSW and Victoria in terms of taxes,” Mr Furner told the forum.

“There are different measures and attractiveness to being in Queensland, as opposed to other states and territories as well.”