Additional Foreign Acquirer Duty
With effect from 1 October 2016 in Queensland, “foreign person” acquirers will be required to pay additional foreign acquirer duty (AFAD) of 3% on transfer duty for the purchase of “residential land”.
This follows the imposition of similar surcharges on transfer duty in other States on the Eastern Seaboard.
Land Affected
Under the amended Duties Act 2001 (Qld), AFAD is imposed on acquisitions of residential land:
1. that is or will be solely or primarily used for residential purposes; and
2. on which there is or will be a building designed or approved by a local government for human habitation by a single family unit.
The Queensland Office of State Revenue (OSR) has released a public ruling (DA232.1.1) providing its interpretation of “residential purposes” as being for normal home living and not commercial or business purposes. Factors to be taken into account include:
1. how the land is zoned;
2. how permanent the use is or will be; and
3. whether the use is or will be self-contained (e.g., there are bathroom, laundry and kitchen facilities).
AFAD residential land, therefore, does not include hotels, motels, student dormitories and other land on which such temporary dwellings are to be built.
It remains unclear whether retirement and aged care facilities are considered as primarily for residential purposes or commercial/business purposes. In Victoria retirement and aged care facilities are expressly excluded from the equivalent Victorian AFAD regime.
The OSR will apply an objective test at the time of acquisition as to whether land is AFAD residential land. Accordingly, any evidence or information indicating that the foreign acquirer intended to develop houses or apartments on the land at the time of the acquisition may be used to establish an AFAD liability.
Who is a “Foreign Person”?
“Foreign person” for the purpose of AFAD means:
1. individuals other than an Australian citizen or permanent resident (including the Subclass 444 visa New Zealanders);
2. a corporation incorporated outside Australia or a corporation in which foreign persons (or related persons of foreign persons) have a controlling interest of at least 50%; or
3. a trust where at least 50% of the trust interests are foreign interests.
(a) For unit trusts this can be discovered from the unit register; and
(b) for discretionary trusts the “takers in default” and their proportionate interests would need to be identified. Where there are only two takers in default and one is a foreign person the trust would be a foreign person also.
An acquisition by a foreign person of an interest in a landholder of residential land will be subject to the duty surcharge (provided the acquisition is otherwise dutiable). Ex gratia relief
Shortly before the changes came into effect Queensland Treasurer Curtis Pitt announced that foreign acquirers may be granted discretionary ex gratia relief from AFAD in certain circumstances. The requirements are set out in OSR public ruling DA000.15 and outlined as follows:
1. Australian-based – whether the foreign entity:
(a) has a head office or principal place of business in Australia;
(b) has significant management staff and office presence in Australia;
(c) employs Australian citizens or permanent residents;
(d) carries on business in Australia; and
(e) contracts primarily for services and materials of Australian building contractors and suppliers to engage in the development activities in Australia. In this context, ‘primarily’ means more than 50% of the value paid by the entity for goods and services goes to Australian contractors and suppliers;
Foreign Investment Review Board (FIRB) compliance – compliance with FIRB requirements for the acquisition of the residential land; 3. regulatory compliance – compliance with the Corporations Act 2001 (Cth), Queensland taxation laws and other relevant legislation; 4. “significant development” status – the foreign acquirer must demonstrate a “significant development” status whereby:
(a) the development includes a minimum of 50 residential lots; or
(b) in regional areas where the 50 residential lot minimum cannot be achieved, the foreign acquirer must show significant economic benefits to the region from the proposed development.
Foreign acquirers can apply for “in principle pre-approval” before entering into an acquisition transaction, to obtain an indication of whether ex gratia relief will be granted. However, a final approval for ex gratia relief can only be granted once a transaction has been entered into and assessed.