Queensland, New South Wales and Victoria have all introduced new additional foreign investor duty in 2016. This means that foreign individuals, companies and trusts will be liable for additional duty on certain dutiable transactions relating to residential property in those states.
This note focusses only on the changes to the Queensland Duties Act. If you require advice regarding the additional duty in Victoria and New South Wales, please contact us.
What are the relevant dates for application of the additonal duty?
The relevant dates (and rates) for the imposition of the additional duty are as follows:
- Queensland – from 1 October 2016 – 3%;
- New South Wales – from 21 June 2016 – 4%;
- from 1 July 2015 – 30 June 2016 – 3%;
- from 1 July 2016 onwards – 7%.
The amendments to the Queensland legislation apply if a liability for transfer duty, landholder duty or corporate trustee duty arises on or after 1 October 2016. As to when the liability arises, contracts should be reviewed – we point out that an extension to the time to lodge certain instruments (i.e. applying Ruling DA019.1.3 to certain transactions) is a different concept to changes to the date that the liability for duty arises.
There has been no guidance given in the draft legislation as to how the additional duty would apply to certain scenarios such as option agreements.
When will the additional duty be imposed on transactions in queensland?
Dutiable transactions under Chapter 2 and relevant acquisitions for the purposes of landholder duty or corporate trustee duty are caught by the amendments to the Duties Act.
Dutiable transactions under Chapter 2 include, but are not limited to, an agreement to transfer dutiable property, transfers of dutiable property, trust creations and trust surrenders.
The conditions for the imposition of the additional duty on dutiable transactions under Chapter 2 are:
- the acquirer is a “foreign person” (see below);
- the dutiable property is “AFAD residential land” (as defined) and the relevant transaction is a transfer of dutiable property, agreement for the transfer of dutiable property, surrender of dutiable property, vesting of dutiable property or a foreclosure of a mortgage over dutiable property;
- the acquisition of a new right where the new right is AFAD residential land or an option to acquire AFAD residential land;
- a partnership acquisition where the partnership holds dutiable property or has an indirect interest in AFAD residential land;
- a trust acquisition or trust surrender where the trust holds dutiable property or has an indirect interest in dutiable property;
The conditions for landholder duty and corporate trustee duty purposes are:
- for landholder duty – the landholder has land-holdings that include AFAD residential land; and
- for corporate trustee duty – the dutiable property held by the corporate trustee, or in which the corporate trustee has an indirect interest, includes AFAD residential land.
What is “afad residential land”?
AFAD residential land in Queensland includes:
- land which is, or will be, solely or primarily used for residential purposes; and
- to which any of the following applies:
- there is a building designed and approved from human habitation by a single family unit;
- there is a building which will be refurbished, renovated or extended so that it becomes a building designed and approved for human habitation by a single family unit;
- the land is a lot on which there is a building (or part of a building) that is designed and approved for human habitation by a single family unit;
- the land will be a lot on which there is a building (or part of a building) that is designed and approved for human habitation by a single family unit;
- the land is a lot on which there will be a building or part of a building that is designed and approved for human habitation by a single family unit;
- a person is undertaking, or will undertake, development of the land so that it becomes land in the above paragraphs.
Who is a “foreign person” for this purose?
A “foreign person” includes:
- a foreign individual;
- a foreign corporation; and
- the trustee of a foreign trust.
A “foreign individual” is an individual other than an Australian citizen or permanent resident.
The definition of “foreign corporation” looks beyond the jurisdiction in which the company was registered to the control of the corporation. It includes:
- a corporation incorporated outside of Australia; and
- a corporation in which foreign persons have a controlling interest,
Control is determined by reference to the voting power, potential voting power and/or shareholding in the corporation.
Trustees of foreign trusts
A trust will be a “foreign trust” if at least 50% of the trust interests are foreign interests. That is, t least 50% of the trust interests are held by:
- a foreign individual;
- a foreign corporation;
- a foreign trustee; or
- a related person of any of the above.
The definition of “trust interest” in section 57 of the Duties Act 2001 (Qld) provides that a trust interest is “…a person’s interest as a beneficiary of a trust, other than a life interest” and, for a discretionary trust, refers to the interest of a taker in default of an appointment by the trustee.
When does a liability for the additional duty arise?
The liability for the additional duty arises at the same time that the liability for transfer duty, landholder duty or corporate trustee duty arises.
Who is required to pay the additional duty?
The same liability rules apply for the additional duty as for the primary duty.
- for dutiable transactions under Chapter 2 the parties to the transaction are jointly and severally liable for the duty;
- for a trust creation or a trust termination, the trustee of the trust is liable and, if the trustee does not pay, the beneficiaries are jointly and severally liable for the duty;
- for a trust acquisition the beneficiary acquiring the trust interest is liable for the duty;
- for trust surrender, the trustee and the beneficiary whose trust interest is surrendered are liable for the duty;
- for a relevant acquisition for landholder duty the acquirer is liable for the duty; and
- for a relevant acquisition for corporate trustee duty the acquirer is liable for the duty.
Obligation to notify the Office of state revenue
An acquirer under a relevant transaction for Chapter 4 must, within 30 days of the date of the transaction, lodge a statement with the Office of State Revenue in the approved form.
Failure to lodge the form is an offence under the Taxation Administration Act 2001 (Qld) and could lead to a penalty of approximately $11,780.
The amendments include reassessment provisions for the additional duty where a purchaser/acquirer becomes a “foreign person” within 3 years after the original duty liability date. As to whether unpaid tax interest or penalty tax would be imposed on such a reassessment is not clear.
Interestingly the reassessment provisions only relate to a foreign corporation or the trustee of a foreign trust becoming a foreign person and do not apply where an individual ceases to be an Australian citizen or permanent resident.
For entities which become foreign corporations or trustees of foreign trusts, the reassessment provisions will need to be considered in any due diligence for transactions which result in a change of control for these entities.
Foreigners who have entered into contracts to acquire residential land or who are proposing to enter into contracts to acquire residential land should seek advice as to the application of the amendments to the Duties Act to the contract or proposed contract or option.
On the basis that the seller in an agreement to transfer dutiable property has a joint and several liability for duty, sellers should consider obtaining advice to ascertain any impact on them.