From 1 July 2018, you will find it more difficult to sell your house, land or apartment to foreign buyers. Foreign people buying residential real estate in Queensland now pay even more duty to the Office of State Revenue (OSR) for the Queensland Government.
We have previously written about Additional Foreign Acquirer Duty (AFAD) – the additional duty paid by foreign persons when buying residential real estate. Similar laws exist throughout Australia.
AFAD commenced on 1 October 2016, when an additional 3% of the purchase price was added to the amount of duty payable by foreign buyers.
From 1 July 2018, AFAD increases to 7%.
AFAD is an additional amount, as the foreign buyer is also required to pay the standard transfer duty which is payable by Australian citizens and permanent residents.
The Office of State Revenue has provided guidance as to how New Zealand citizens buying property will be treated in relation to AFAD.
Example of the AFAD $$
$600,000 residential property
Where a foreign person buys a $600,000 residential property, the duty payable is:
– 1 October 2016 |
– |
1 July 2018 |
||
| Transfer Duty | $20,025 | Transfer Duty | $20,025 | |
| AFAD – 3 % | $18,000 | AFAD – 7% | $42,000 | |
| Total Duty | $38,025 | Total Duty | $62,025 | |
| TOTAL PAYABLE | $638,025 | TOTAL PAYABLE | $662,025 |
What about New Zealanders?
| 1. If a New Zealand citizen has relocated to Australia and lives in Australia, they will hold a special category visa. Therefore, AFAD will not be payable. |
| 2. If a New Zealand citizen lives in New Zealand, they do not have a special category visa. AFAD will be payable. |
| 3. If a New Zealand citizen lives outside Australia, and during a visit to Australia buys a residential property, if there is evidence that the purpose of their entry into Australia was to obtain a special category visa so as to avoid paying AFAD, then AFAD will be payable. |
What is evidence?
The OSR is likely to access data from other government agencies. It is possible that the OSR will review the visa records of the foreign buyer to determine their history of travel to Australia. They will then review their usual travel arrangements before the Contract was signed, at the time of signing the contract, and after the contract was signed.
If a New Zealand citizen (who lives outside Australia) visits Australia for a limited time and buys a property whilst here, and then a short time later returns to his overseas residence, the OSR may determine that the most probable explanation for the person visiting Australia was to buy the property whilst having the visa.
The OSR may reasonably conclude that the Buyer came to Australia for the sole or predominant purpose of buying residential real estate, and then to leave and return home or elsewhere. In other words, their specific purpose was to obtain the visa and therefore to avoid the AFAD.
The obvious observation is that the objective of the legislation is that AFAD is payable by every foreign person unless it can be established that the circumstances justifiably support the assertion that a valid exemption applies.
OSR auditors personally attend the offices of Authorised Duty Assessors to conduct inspections of foreign buyer’s purchase files.
AFAD: Australian residential development
Who Proves What?
In a practical sense, it is likely that the onus of proof will shift to the Buyer (the New Zealand citizen). If the OSR determines that they have sufficient evidence, they will require the Buyer to pay the AFAD.
The Buyer will then have to prove that there was no intent to avoid the tax. Often, the most effective manner to prove a lack of intent will be to provide documentary evidence of their reasons for visiting Australia. Where the OSR is satisfied with the Buyer’s evidence, the OSR would reimburse the AFAD payment to the Buyer.
The key issue are the relevant circumstances at the time of signing the Contract. A Purchase Contract for an off-the-plan apartment may be signed today, but settlement may not occur for several years. Any Declarations signed by a Buyer in relation to the duty & AFAD payable for a property purchase are usually completed at the time of the settlement of the Contract.
An example of alternate purposes
Following a recent conversation with a New Zealand citizen, there was substantial evidence that:
(i) he had a significant history of prior long-term employment and residency in Australia;
(ii) he had ongoing strong family connections with Australia as his parents and siblings have resided in Queensland for several decades – and continue to reside in Queensland; and
(iii) he was a regular visitor to Australia several times per year, for several years, to visit family members and attend family functions,
(iv) he would continue to regularly visit Australia, and intended to buy a property in Queensland to live in when he permanently relocated to Australia.
The behaviour of this person has been consistent over an extended period of time, and his visits to Queensland have been for purposes not connected with the purchase of real estate. Therefore, if he was to sign a Contract to purchase a residential property during one of his regular visits to Queensland when he is also doing usual non- real estate activities, and there is no other conflicting evidence, then AFAD should not apply.
Final Comment
It would be expected that the increased AFAD payment will have an impact on the property market. It is likely that more foreign buyers will decide not to buy Queensland residential real estate.
The reduced demand from foreign buyers may result in property prices increasing at a reduced rate, or the impact may be more significant where property prices remain stable or even decline.
This impact will improve the prospects of Australian residents being able to buy a property, and being able to pay a lower price.
Disclaimer: The above is to be considered as general education. This is not advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances.
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