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Additional Foreign Acquirer Duty: Foreign Buyers Beware!

BY SAM RYALL

Foreign buyers beware!  Coming into legislative force as of 1 October 2016, the Queensland Government through the Department of Treasury, has implemented a three (3) percent duty surcharge on all foreign purchases of residential property in Queensland. [1]  The surcharge will apply to foreign purchases taking place on or after 1 October 2016 (any contracts or agreements signed by a foreign purchaser or ‘acquirer’ before 1 October 2016 are not liable).

What is AFAD duty and how is it calculated?

Colloquially dubbed the ‘Foreign Investor Tax’ [2], Additional Foreign Acquirer Duty or ‘AFAD’, it is a three (3) percent surcharge on foreign purchases in addition to the standard stamp duty that a foreign purchaser normally pays.

Who does AFAD apply to?

So you may be wondering, am I or aren’t I a foreign purchaser or ‘acquirer’ for the purposes of the legislation?  Good question!  Part 2 of the Duties Act classifies foreign acquirers into three (3) separate categories, namely:

  1. Foreign persons – An individual other than an Australian citizen or permanent resident. [3]  Please note that the exemption on who is classified as a foreign person as part of the Federal Government’s Foreign Investment Review Board (‘FIRB’) approval differs to State AFAD duty. That is, under the FIRB scheme a ‘foreign person’ who buys property as a joint tenant with their spouse who is an Australian citizen/ permanent resident or New Zealand citizen is exempt from FIRB approval. However, a foreign acquirer under the Duties Act is not afforded the same treatment i.e. a foreign acquirer will need to pay AFAD on their interest on the purchase property regardless of their spouse’s citizenship or residency status.
  2. Foreign Corporation – A corporation incorporated outside Australia or subject to a foreign person having a controlling interest of 50% or more. [4]
  3. A Trustee of a Foreign Trust – A trust where at least 50% of the trust beneficiaries are foreign interests. [5]

What type of purchases or acquisitions does AFAD duty apply to?

Broadly speaking, AFAD applies to ‘AFAD Residential Land’ consisting of land which is used for residential purposes and is (but not limited to) an established building or dwelling [6], vacant land where development will be undertaken or a commercial building converted into residential purposes.  AFAD Residential Land does not apply to short term accommodation such as hotels, dormitories, motels [7] or commercial/business buildings.

Exemptions from AFAD Duty

In certain circumstances, foreign acquirers may be exempt from AFAD or apply for ‘ex gratia relief’.  However, the eligibility criteria for such discretionary relief is strict and onerous.  Essentially, the foreign acquirer or ‘entity’ must satisfy all the following conditions [8]:

  1. The foreign acquirer must be ‘Australian-based’; and
  2. The foreign acquirer must have complied with the FIRB requirements for the purchase; and
  3. The foreign acquirer must meet regulatory standards most notably regarding corporations law and taxation law; and
  4. The development that the foreign acquirer is involved with must be ‘significant’; and
  5. The foreign acquirer must make use of Australian goods, services and personnel in the development of the AFAD residential land.

A Final Word

By bringing in AFAD, the Queensland Government is clearly seeking to minimise the impact of foreign investment on domestic first home buyers and investors in Queensland.  However, AFAD is still in its legislative infancy and not without criticism, most notably from the Property Council of Australia [9] who contend that it could increase the cost of newly constructed homes and equate to less jobs due to additional costs imposed on development projects.

If you are a foreign purchaser and are concerned as to the implications of AFAD on your purchase of property in Queensland, do not hesitate to contact either our Kelvin Grove or Wilston offices. If you, or someone else you know, needs help with this process, why not fill out an enquiry form, we would be happy to assist and advise over your rights and obligations with respect to AFAD.

[1] This legislative amendment is indicated in Section 244(2) of the Duties Act 2001 (Qld).

[2] Marland, Brad, ‘Queensland Treasurer Announces Relief from Additional Foreign Acquirer Duty’, Gadens, 26 September 2016.

[3] Section 245 of the Duties Act 2001 (Qld)

[4] Sections 236 (1)(2) of the Duties Act 2001 (Qld).

[5]Section 237 of Duties Act 2001 (Qld).

[6]Section 232 of the Duties Act 2001 (Qld).

[7]Rostron Carlyle Lawyers, 20 October 2016, ‘Additional Foreign Acquirer Duty’ Queensland OSR Release Ruling<http://rostroncarlyle.com/additional-foreign-acquirer-duty-queensland-osr-releases-ruling/>.

[8]For further guidance on these conditions please consult ‘DA000.15.1—Additional foreign acquirer duty—ex gratia relief for significant development’,28 September 2016 Office of State Revenue Public Ruling – Queensland Treasury.

[9]Property Law Council of Australia, Queensland Government Ignores Repeated Warnings about Poorly Conceived Legislation http://www.propertycouncil.com.au/Web/Content/Media_Release/QLD/2016/Queensland_Government_rushes_through_high_risk_tax.aspx,17 June 2016, Property Law Council of Australia, Media Release.

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