What should foreign buyers consider when purchasing property in Australia? - QLD

It is important to note the following issues for foreign Buyers:

• A foreign person (i.e. a person not ordinarily resident in Australia) must obtain approval to purchase residential real estate in Australia regardless of the value of the Property. There may be significant fees required to obtain the approval, which are not refundable if the Contract does not settle.
• Non-resident foreign persons are generally prohibited from purchasing established dwellings in Australia while temporary residents will normally be allowed to purchase only one established dwelling to live in as their principal place of residence in Australia.
• Approvals for foreign acquisitions will generally only be given for purchases of vacant land, for residential development and for purchases of newly constructed dwellings.
• If the Property is not occupied or genuinely available for rent for at least half of the year, the Australian Taxation Office may charge you an annual fee equal to the relevant foreign investment application fee imposed on the Property. This fee may be significant, and you should make urgent enquiries to ensure you are aware of the ongoing costs if this may apply to you.

Purchasing property without a relevant approval may lead to significant monetary penalties as well as a forced sale of the Property.

What additional costs do foreign Buyers incur when purchasing property in Queensland?

Foreign Buyers in Queensland are required to pay additional transfer duty on the purchase of the property. If you are a foreign Buyer, you will need to factor in  an additional 7% of the purchase price to pay as transfer duty.

What additional requirements must foreign Buyers meet when purchasing property in Queensland?

Foreign Buyers also require Foreign Investment Review Board (FIRB) approval when purchasing property. If you fail to obtain this approval before you obtain title to the property, the Australian Government may impose significant penalties (such as issuing infringement notices and forcing the sale of the property). Under the standard terms of the contract you will warrant that you don’t need FIRB approval or that you have already received FIRB approval before you sign the contract.

What should you do if you need FIRB approval before settlement and haven't obtained it yet?

If you’re required to obtain FIRB approval before settlement, and haven’t already obtained it, you should insert a special condition in the contract to allow you to terminate if you’re unable to obtain FIRB approval before settlement. If you don’t insert this condition it could result in significant financial loss.

What are the requirements for foreign Buyers or trustees of foreign trusts when purchasing property in Queensland?

If a Buyer is a foreign person or are a trustee of a foreign trust, they may need to:

• obtain a notification from the Foreign Investment Review Board (‘FIRB’) under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (‘FAATA’) that it has no objection to your acquisition of the Property (‘No Objection Notification’); and
• notify Titles Queensland under the Foreign Ownership of Land Register Act 1988 (Qld).

There may be significant fees required to obtain the No Objection Notification, which are not refundable if any Contract does not settle.

What are the requirements under the FAATA for foreign Buyers or trustees of foreign trusts when purchasing property in Queensland?

The standard contract contains a warranty by the Buyer that the purchase of the Property is not a notifiable action under FAATA or that the Buyer has obtained a no objection notification under that act.

For the purposes of applying the FAATA:

1. a corporation is considered to be a foreign person if an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest in the corporation (at least 20% voting entitlements or shares) or two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest;
2. a trustee of a trust is considered to be a foreign person if an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest in the trust (at least 20% of the income or property of the trust) or two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest in the trust; and
3. the trustee of a discretionary trust where a foreign person holds  any beneficial interest in the trust is generally considered to be a foreign person in their capacity as trustee of the trust.

Failure to obtain a required No Objection Notification prior to entry into a Contract will involve a breach of the warranty. In addition, to proceed with the transaction without a required “no objection” notification may result in a forced sale and substantial penalties being imposed.

For this reason, if a purchase is subject to the FAATA, it is imperative to the Buyer that the contract is made conditional on a No Objection Notification being obtained.

What are the Australian Taxation Office (ATO) requirements for foreign property owners if the property is not occupied or available for rent?

If the property is not occupied or genuinely available for rent for at least half of the year, the ATO may charge an annual fee equal to the relevant foreign investment application fee imposed on the Property. From April 2024, this fee was significantly increased by the Australian Government.If this applies, its is the Buyer’s responsibility to seek advice on and comply with the relevant foreign ownership occupancy requirements.

What must a foreign person do after purchasing residential real estate in Australia?

A foreign person who has purchased residential real estate in Australia must register their acquisition on the Register of Foreign Ownership of Australian Assets maintained by the ATO within 30 days of settlement.  Required reporting must be made using the ATO’s online notification system.

What happens if a person becomes a foreign resident for tax purposes and then sells their property in Australia?

A person who lives overseas for more than six months in any given year, or otherwise become a foreign resident for tax purposes, and then sells their Property during that time, may not be eligible for the CGT main residence exemption on the disposal, even if they lived in the house as their principal place of residence prior to becoming a foreign resident. Ascertaining whether an individual is a foreign resident at a particular point in time can be complicated and will depend on all of the circumstances.

When does Additional Foreign Acquirer Duty (AFAD) apply to property transactions in Queensland?

AFAD applies to property transactions which are liable to transfer duty if:the Property is AFAD residential property (see below); and the acquirer under the transaction is a foreign acquirer.

What qualifies as AFAD residential property?

AFAD residential property is property in Queensland that is or will be used solely or primarily for residential purposes, where particular conditions are met. These include:established homes and apartments;vacant land on which a home or apartment will be built;land for development for residential use; andrefurbishment, renovation or extension of a building for residential use.AFAD residential property does not include property used for hotel and motel purposes.

Who is considered a foreign acquirer under AFAD regulations?

A person will be a “foreign acquirer” if the person is:a foreign individual e. an individual other than an Australian citizen or permanent resident. However, AFAD will not apply to a New Zealand citizen who holds a permanent visa, or who holds a special category visa as defined in the Migration Act 1958 (Cth);a foreign corporation e. a corporation incorporated outside Australia or a corporation in which foreign persons have a controlling interest; ora trustee of a foreign trust e. a trust where at least 50% of the trust interests are foreign interests.

What is AFAD and how is it applied?

AFAD is an additional duty imposed on the transaction’s dutiable value.

How is AFAD applied if there are multiple Buyers and only one is a foreign acquirer?

If there are multiple Buyers and only one is a foreign acquirer, AFAD will only apply to the extent of the foreign acquirer's interest under the transaction. Liability for AFAD will not affect any entitlement to a home concession for transfer duty.

What must happen if the acquirer becomes a foreign corporation or the trustee of a foreign trust within three years of the transaction?

If, within three years of the transaction, the acquirer becomes a foreign corporation or the trustee of a foreign trust, it is important to note that the Commissioner of State Revenue (‘Commissioner’) must make a reassessment to impose AFAD on the transaction.This may occur, for example, because of a change in the controlling interest in the company or interests in the trust.

What actions must be taken if the acquirer's status changes within three years of the transaction?

If this becomes applicable, action must be taken to inform the Commissioner of the changed circumstances within 28 days. If not, significant additional penalty duty may be payable and interest will be charged.

Is there any relief available from AFAD for significant residential developments?

Ex gratia relief from AFAD may be available where a foreign acquirer which is Australian-based acquires residential land for significant development. Qualifying for such relief will depend on satisfying relevant conditions imposed by the Commissioner (including as to the significance of the proposed development).

What must a foreign acquirer do if granted relief and conditions change?

If a foreign acquirer is granted relief, it must notify the Commissioner if any of the conditions are no longer satisfied or if there is a material change in the circumstances existing when the relief was granted.