Having only come into effect on 1 October 2016, the initial 3% rate of Additional Foreign Acquirer Duty (“AFAD”) is set to more than double this year, increasing to 7% from 1 July 2018. This brings the Queensland rate into line with other Australian States, including New South Wales (8%), Victoria (7%), South Australia (7%) but excluding Western Australia (4% from 1 January 2019).
This 7% is in addition to the base rate of transfer duty rate that is already imposed on a property transaction.
It should be noted that:-
- Contracts entered into before 1 July 2018 will not be affected by the increased AFAD rate, even if settling after 1 July 2018. That said, any Contract that is executed after 1 July 2018 will be subject to the 7% AFAD rate (in addition to base transfer duty payable).
- AFAD applies to residential land or land that can be used for residential purposes. It includes both vacant and built on residential land, but does not apply to hotels, motels or commercial or retail buildings.
- AFAD does not apply to foreign persons that are carrying out significant residential development (50 or more residential lots), which, under the Duties Act 2001 (Qld) can be granted by the Commissioner on a case-by-case basis. Whilst it is beyond the scope of this article to comprehensively examine the circumstances in which the Commissioner may grant relief, factors such as the following are often taken into account:-
- A head office or place of business in Australia;
- The will of the corporation meeting and making decisions in Australia;
- A history of business dealings in Australia with other Australian entities;
- Employment of significant management staff and employment of Australian citizens or permanent residents;
- Compliance with Foreign Investment Review Board requirements, corporations laws and taxation laws;
- If less than 50 lots, it can still be shown that a significant contribution will be made to the local economy, population or social development of the region; and
- The developer contracts with Australian building contractors and suppliers to supply at least 50% of goods, services and materials to complete the development.
- AFAD applies to foreign:-
- Individuals who are not Australian citizens or permanent residents. New Zealanders with permanent visas or special category visas are considered to be permanent residents; and
- Corporations or Trusts where at least 50% is owned by a foreign person.
- AFAD also applies to items sold with the land, where the use is incidental to the use and occupation of the land (household furniture, chattels, appliances etc).
The AFAD increase was announced in the 2018 – 19 State Budget as part of a revenue raising mechanism, which also includes a 2.5% increase (both for individuals and corporations, trustees and absentees) to the land tax payable by owners whom have aggregated landholdings with a taxable value over $10,000,000.00. This increase is also due to take effect from 1 July 2018.
How can Marino Law help?
Marino Law acts for both large and small scale developers, individual, corporate and trust purchasers and various others in respect of residential acquisitions and disposals that will shortly be affected by the changes highlighted in this article.
We work closely with real estate agents, developers, town planning agencies, bodies corporate and their managers, accountants and several other industry professionals to provide comprehensive advice in a format that is practical and innovative, yet still easy to understand.
Whether you are a developer, an industry professional or a purchaser, Marino Law can advise you on how these imminent changes may affect you or your transaction. Please contact one of our experienced property lawyers today.