AFAD & FIRB - FINALLY explained EASILY to QLD real estate agents!
Conveyancing, real estate
This blog explains the difference between AFAD (Additional Foreign Acquirer Duty) & FIRB (Foreign Investment Review Board) and a few tips, tricks and examples on how to tackle both of these tricky topics for QLD Real Estate Agents!
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AFAD + FIRB EXPLAINED
I am sure you have heard the terms “AFAD” and “FIRB” being thrown around when it comes to foreign purchasers in property transactions in QLD. I know a lot of agents put it in the “too hard basket” and have little or no knowledge on the topics.
It is a difficult and confusing area of the law. I am going to explain to you the main things you need to know about AFAD & FIRB in Queensland…without becoming a fuddy duddy lawyer and overcomplicating everything. This blog is a bit longer than what I normally deliver, and has a fair bit of technical information to digest. Please note this is only general advice and not legal advice and anyone looking to purchase who may be subject to these charges should seek their own advice before they sign any contract.
You will walk away from this blog with the tools you need to have a baseline understanding to navigate basic AFAD + FIRB questions that you may encounter in your day-to-day as an Agent.
WHAT IS AFAD?
Additional Foreign Acquirer Duty (AFAD) is a state-based tax that applies to foreign buyers of residential property in Queensland. This tax is in addition to the standard transfer duty and is designed to ensure foreign acquirers of residential property who benefit from government services and infrastructure also contribute - the same as local buyers who have been paying local taxes for years.
The tax rate for AFAD is currently set at 7% of the property value for foreign individuals and companies, and it is payable at the same time and on top of the usual Transfer Duty.
You are a “Foreign Person” for AFAD purposes if you are a:
- foreign individual
- foreign corporation
- trustee of a foreign trust.
You are a Foreign Individual if you are NOT an Australian citizen or Permanent Resident. This means every purchaser that does not have Australian citizenship or is not an Australian Permanent Resident WILL be subject to this additional tax for their share of the property.
A side note on Kiwi citizens - is a New Zealand citizen is generally granted a “special category visa” automatically upon their arrival to Australia, which then expires when they leave the country. The holder of a Special Category Visa is treated as a permanent resident for the purposes of AFAD, so provided they are living in Australia when they enter into the Contract and hold the special category visa, they should be exempt from paying AFAD.
A Foreign Corporation is one that is incorporated outside Australia or in which foreign persons (or related persons of foreign persons) have a controlling interest of at least 50%. The same applies with Foreign Trusts.
Please note, there may be exemptions that apply (for example the holders of retirement visas or purchasers of lots in a hotel), so it is always best NOT to give any specific advices – instead just be able to identify if the purchaser may need to explore AFAD or FIRB and would need to obtain independent advice.
WHAT IS FIRB?
Foreign Investment Review Board (FIRB) is an Australian Government department that regulates foreign people purchasing property in Australia.
If you are a foreign person or company looking to buy residential property in Queensland, you may need to apply to FIRB for approval before proceeding with your purchase.
If you are an Australian citizen or Permanent Resident, or a New Zealand citizen, you do not need to apply for FIRB approval.
This process is usually completed by the purchaser themselves, direct on the Government website. If they require help, we suggest engaging immigration lawyers who specialise in this area.
On and from 29 July 2022, FIRB application fees doubled. This means:
- Residential land for $0- $1m – $13,200 application fee (previously $6,600)
- Residential land for $1m-$2m– $26,400 application fee (previously $13,200)
- Residential land for $2m-$3m– $52,800 application fee (previously $26,400)
Fees are generally payable at the time an application is lodged. For most applications, the statutory timeframe of 30 days for making a decision on an application or notification will not start until the correct fee has been paid.
There is an annual Vacancy Fee for foreign owners of residential dwellings if the dwelling is not residentially occupied or rented out for at least 183 days (approximately 6 months) in a year.
An example of some exemptions from the requirement for FIRB approval are:
- If a foreign person is purchasing the property with an Australian citizen or Permanent Resident, or New Zealand citizen, as joint tenants and are in a spousal relationship, then they are exempt from needing FIRB approval. This exemption does not apply between friends or other family members. They must also reside in the property as their Principal Place of Residence.
To be eligible for this however, they must either be married, or in de facto relationship. An example of a de facto relationship is if they have lived together for two years or longer. Note, this is not an exhaustive definition.
- Another exemption available is for new (or near new) properties where the property developer holds a FIRB exemption certificate for the new property that the foreign person would like to purchase.
Overall, the cost of obtaining FIRB approval can be a significant expense for foreign buyers looking to invest in residential property in Queensland and without it they are legally unable to purchase the property. It is important for a buyer to factor these costs into their budget and also ensure the contract is subject to the approval being obtained, and allows sufficient time to obtain the approval.
HYPOTHETICAL SITUATIONS:
- Sergio is a foreign person, looking to buy a $1,000,000 residential property in QLD. He has found a place at Indooroopilly. He will be required to pay the standard Transfer Duty on the property (if he is moving in as a principal place of residence, the fee would be $30,850), as well as an the AFAD (7% of the purchase price) – which is an extra $70,000.00. Furthermore, he will require FIRB approval, which will take approximately 30 days, and attract an application fee of $13,200.
- Sally is married to Fernando. Sally is Australian, however Fernando is NOT an Australian Citizen or Permanent Resident. They are looking to buy a property together for $1,000,000 to move into. As long as they buy as Joint Tenants, and have the property as their principle place of residence, Fernando will not require FIRB approval. Fernando will however need to pay AFAD (7% of the purchase price) on his 50% share of the $1m, which is an extra $35,000 in addition of the normal Transfer Duty ($30,850).
WHAT QUESTIONS DO I NEED TO ASK?
The whole idea of this blog is to protect both you as the real estate agent, and the agency from any risk or claim and to be able to flag possible issues early on that may prevent the transaction from actually settling.
To help achieve a smooth transaction, the red flags you need to know that should prompt you to advise a buyer to seek advice from their lawyer for FIRB and AFAD are simple….just ask them if they are Australian Citizens or Permanent Residents. If the answer is no, they need to speak to someone who can counsel them for their specific situation. This can also affect the lender – so they will need to make sure their banker/broker knows they are foreign too!
This base knowledge can prevent a major disaster – i.e a deal falling over because the purchaser does not have the right amount of funds to complete settlement, or the proper approval to buy land in Queensland. It is crucial that the purchaser understands their position BEFORE signing the contract of sale.
TO SUMMARISE:
If you have a foreign person or company looking to purchase residential property in Queensland, it is likely they will need to obtain FIRB approval and may also be subject to the AFAD tax. It is important to carefully consider these regulations and their potential impact BEFORE proceeding with any property purchases.
We have experience with AFAD & FIRB, and can help with advices. Feel free to get in touch with us via the email below!
We look forward to continuing to help thousands of Queenslanders every year with their conveyancing!
Any questions? Want to know more? Get in contact with us via the below form or via info@empirelegal.com.au.
Note: all information is general in nature and as each matter is unique please contact our office for tailored advices: the above does not constitute legal advice.
RESOURCES:
If you have further questions regarding AFAD, I suggest you contact the Office of State Revenue on 1300 132 685 or selfassessment@treasury.qld.gov.au.
https://firb.gov.au/residential-real-estate
https://firb.gov.au/exemptions-thresholds/exemptions
