We recently advised of the introduction of additional taxation and duty imposed on purchases by foreign persons of residential property in Australia (see full article here). In Queensland, the provisions of theDuties Act 2001 (Qld) (Act) that impose additional foreign acquirer duty (AFAD) of 3% on transfer duty, landholder duty and corporate trustee duty came into effect on 1 October 2016. In connection with the introduction of the new duty, the Queensland Office of State Revenue (OSR) has released a public ruling to confirm the type of land it considers is subject to the imposition of AFAD.
Section 232 of the Act relevantly provides that AFAD is imposed on acquisitions of residential land that is or will be solely or primarily used for residential purposes and on which there is or will be a building designed or approved by a local government for human habitation by a single family unit.
In ruling DA232.1.1 (Ruling) the OSR provides its interpretation of the phrases “solely or primarily used for residential purposes” and “designed or approved by a local government for human habitation by a single family unit”.
With respect to the words “residential purposes”, the OSR considers that the use or intended used of the land must be for normal home living, whether by the acquirer or another party, as opposed to commercial or business purposes. In this regard, the OSR will take into account various factors such as:
- how the land is zoned;
- how permanent the use is or will be;
- whether the use is or will be self-contained (e.g., there are bathroom and kitchen facilities).
As the words “solely or primarily” are not defined in the Act, the OSR adopts their ordinary interpretation, including (for “solely”) exclusively or only, and (for “primarily”) mainly or principally. Various factors may be taken into account in this regard, including:
- the overall nature and use of the land and buildings;
- the proportion of the land and buildings used for residential purposes;
- the proportion of the construction costs attributable to the land and buildings used for residential purposes.
The expression “single family unit” is also to be given its ordinary meaning in light of prevailing community standards.
Examples of AFAD residential land include established homes and apartments and land on which such dwellings are to be built. Dwellings that provide temporary accommodation, however, such as hotels, motels or student dormitories, do not fall within the definition, nor does land on which such temporary dwellings are to be built.
The test that the OSR will apply in determining whether land is AFAD residential land is an objective one at the time of the acquisition of land in the hands of the acquirer. Therefore, if there is evidence that at the time of the acquisition the acquirer has plans to develop the land into what will become AFAD residential land, the OSR considers that AFAD will be payable. Clearly, there is scope for this issue of what constitutes objectively determinative evidence to become a point of contention.
Coming into effect on 1 October 2016 – the same day as the AFAD provisions of the Act – the Ruling provides acquirers and their advisors with additional clarity around the manner in which the OSR will seek to impose AFAD. If you are a foreign acquirer who is in doubt about whether these provisions apply to your purchase, don’t hesitate to contact Rostron Carlyle for our advice and assistance.