Additional Foreign Acquirer Duty (AFAD) may force contract termination

  04-Sep-2018


Imagine you are a New Zealand resident planning to emigrate to Australia.

You may be eager to secure your new home and sign a contract for a house or unit in Queensland. As a New Zealand national you might think you won’t have to pay the additional foreign acquirer duty because of the special exemption granted to our Kiwi neighbours. But beware the risk of being caught with a liability to pay AFAD.

From 1 July 2018 the AFAD rate increased from 3% to 7% of the purchase price, in addition to the normal rates of transfer duty which may apply.

The special relationship with our neighbours across the ditch enables any New Zealand citizen who is the holder of a special category visa when entering into a transaction that involves AFAD residential land to be exempt from AFAD. The typical example is A New Zealand citizen residing in Australia who holds a special category visa when they enter into a transaction for AFAD residential land in which case they do not need to pay AFAD. 

But compare with a New Zealand citizen residing in New Zealand who enters into a transaction for AFAD residential land in Queensland. Because they will not be the holder of a special category visa under the Migration Act 1958 AFAD will be payable.

Recently we advised in a transaction where a New Zealand resident signed a contract to purchase a home in Queensland before moving across The Tasman Sea, where faced with the prospect of paying AFAD because they hadn’t yet obtained their special category visa when they entered into the transaction, they sensibly decided to cool off and leave the house hunting until they arrived in the country with their special category visa.

But also consider the following pitfalls:

  • AFAD will apply if evidence indicates that the purpose of entry into Australia is to avoid paying AFAD by obtaining a special category visa.

  • If a New Zealand permanent resident enters into a transaction for AFAD residential land in Queensland AFAD will apply, as a New Zealand permanent resident will not be the holder of a special category visa under the Migration Act 1958 and is instead a foreign person for the purposes of AFAD.

  • If a person is appointed in writing as an agent acting for another person (a principal) in an agreement to transfer dutiable property, AFAD will apply if the agent or principal is a foreign person. Where an agent is foreign, but the principal is not, AFAD will apply when the agreement is assessed. But, when the agent transfers the property to the principal, AFAD will be reassessed.