04 Oct 2019 4 October 2019
John Ioannou, CTA, is a Partner in Deloitte Private. He is The Tax Institute’s Queensland State Chair and acting Chair of the Institute’s Queensland State Taxes Committee.
Additional State taxes payable by foreigners
In Queensland, there is a big interest at present on the impact of foreign acquirer land tax and duty surcharges. This issue is also one that is topical across most State and Territory jurisdictions. The recent Property & Construction Intensive that The Tax Institute held in Brisbane highlighted the current issues taxpayers are facing.
Since Victoria introduced foreign surcharges from 1 July 2015, all jurisdictions other than Northern Territory have some version of foreign surcharges, being:
- Stamp duty surcharges on a transfer – all jurisdictions other than Northern Territory and Australian Capital Territory; and
- Land tax surcharges – Victoria, New South Wales, Queensland, Australian Capital Territory, with Tasmania recently announcing the introduction of a surcharge commencing in 2020.
The 2019 Budget season continued the trend, with Tasmania, New South Wales and Victoria increasing their rates, and Queensland introducing a wide land tax surcharge while also increasing its rates.
While the majority of jurisdictional focus is on residential land, Victoria, and now Queensland, impose land tax surcharges on all taxable land, albeit subject to exemptions. Tasmania also imposes a foreign land tax surcharge on primary production land.
Other than the rate for surcharge on primary production land in Tasmania, the rates are often more than double the tax that would otherwise be payable. This means that modelling acquisition, holding and disposal taxes becomes a fundamental input into the economic viability of a project or investment.
As with many things involving State taxes, the concepts are similar in nature, but there are fundamental differences, not only in nomenclature, but also in ambit and design.
Queensland’s version of surcharge duty, known as “additional foreign acquirer duty” (AFAD), is imposed under Chapter 4 of the Duties Act 2001 (Qld) (Qld Duties Act). AFAD is imposed on an acquisition of “AFAD residential land” (or certain acquisitions of a company or trust which holds “AFAD residential land”) by a “foreign person”, at an additional rate of 7%. These definitions have their own peculiarities.
The focus is not only on the current use of the land, but also the intended use of the land. If the current sole or primary use is for residential purposes, and residential premises exist on the land as at the liability date, the residential land definition is likely satisfied. However, if the land is vacant, or does not include residential premises at the liability date, future intention becomes relevant.
Victoria has exemptions for developers and persons who substantially contribute to the State economy. The Queensland Government is still considering its exemption/ex gratia relief regime. While the ambit of the exemption regime remains unknown, it is difficult for potential investors and buyers to properly model the likely tax costs related to the investment, which is less than ideal.
Steven Paterson, Grant Thornton’s National Leader for State Taxes, spoke at our Property & Construction Intensive and comments as follows:
“The trend in relation to foreign surcharges seems to be one-way traffic, being an increase of rates, and expansion of the base. The difference between the jurisdictions can be subtle, and assuming the same or similar outcome from a previous deal/investment in one jurisdiction, could lead to unfavourable surprises if not properly considered early.”
Clearly, there is a lot that we have to be aware of, and manage, when advising foreigners looking to invest in Australia. These State taxes changes can’t be overlooked by advisers.
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John Ioannou, CTA