Foreign transfer duty

Individuals who are not Australian citizens are foreign individuals unless they hold a permanent or special category visa, as determined by the Department of Home Affairs.

• A permanent visa is a visa to remain in Australia indefinitely. Holders of permanent visas are commonly referred to as Australian permanent residents.
• A special category visa (Subclass 444) refers to a visa for New Zealand citizens who wish to visit, stay or work in Australia. 

A foreign corporation is a corporation:

• that was incorporated outside Australia or
• in which foreign persons have a controlling interest.

Foreign persons are taken to have a controlling interest in a corporation if one or more foreign persons or their associates directly or indirectly control at least 50 per cent of the voting or potential voting power, or hold at least 50 per cent of the issued shares in the corporation.

Voting power in a corporation refers to the number of votes that might be cast at a general meeting of a corporation. Potential voting power in a corporation refers to the voting power based on the assumption that the votes:

• may exist in the future because of an exercise of a right and
• if they came into existence, would be capable of being cast at a general meeting of a corporation. 

A foreign trustee is a trustee of a foreign trust. An individual or corporation acting as trustee for a foreign trust is considered a foreign trustee, even if they are not a foreign person in their own capacity.

A foreign trust is:

• a discretionary trust controlled by a foreign person or
• a discretionary trust in which one or more foreign persons that are takers in default, together with their associates, hold at least 50 per cent interest in the discretionary trust or
• a trust (other than a discretionary trust) where one or more foreign persons, together with their associates, hold beneficial interests in at least 50 per cent of the income of the trust.

A person controls a discretionary trust if they are in a position to directly or indirectly influence the vesting of the capital of the trust property or the distribution of income from the trust property. This includes the trustee of a trust. 

A person is an associate of another person if they are:

• family members or
• related corporations or
• trustees of trusts sharing any common beneficiary or
• an individual and a corporation where that individual is a majority shareholder, director or secretary of the corporation (or a related corporation) or
• a trustee and a beneficiary of the same trust or
• a corporation and a trustee of a trust where the corporation or its majority shareholder, director or secretary is a beneficiary or
• a corporation and a trustee of a trust where a related corporation is a beneficiary or
• partners in the same partnership.

If a beneficiary of a trust, other than a unit trust scheme or a discretionary trust, is an associate of a person, the trustee is also treated as an associate of that person.

An agreement to transfer residential property will be exempt from foreign transfer duty when the purchaser on the agreement is a foreign person but the transferee on the transfer is not and no double duty applies to the transfer because:

• the transferee is related to the purchaser or
• the purchaser was acting as agent for the transferee or
• the purchaser is a trustee for a related beneficiary or
• the purchaser enters into an agreement to acquire property with the intention of transferring it to a corporation which was in the process of being incorporated, or a dormant corporation which was in the process of being acquired.

If a purchaser who was a foreign person at the time of executing the agreement is no longer a foreign person when the property is transferred to them, submit Form FDA42 ‘Foreign Transfer Duty - Change in Foreign Status’. 

Land purchased for residential developments by foreign persons is chargeable with foreign transfer duty at the time the property is purchased. Foreign transfer duty may be reassessed and the amount refunded to the taxpayer if the development produces ten or more residential dwellings, or lots on which ten or more dwellings can be constructed.

Complete and submit Form FDA43 ‘Foreign Transfer Duty – Developer Exemptions’. 

The transfer of certain residential property between spouses or de facto partners is exempt from transfer duty.

If a person acquires property on or after 1 January 2019 and transfers a 50 per cent interest to a spouse or de facto partner who is a foreign person, foreign transfer duty is chargeable on the 50 per cent transfer unless it was paid on the original acquisition. 

Nominal duty applies to an eligible transfer of property to a taker in default of a discretionary trust on the vesting or termination of the trust.

If the trust purchased residential property on or after 1 January 2019, foreign transfer duty will apply to the transfer of the property from vesting or terminating the trust if the taker in default is a foreign person and did not pay foreign transfer duty on the original purchase. 

Nominal duty applies to transfers of trust property to a beneficiary of the trust.

If the trust acquired residential property on or after 1 January 2019, foreign transfer duty will apply to the transfer of the property to a beneficiary who is a foreign person if the trustee did not pay foreign transfer duty on the original purchase. 

Nominal duty applies to certain transactions where property was held by an apparent purchaser and is transferred to the real purchaser who provided the funds for the purchase.

If the apparent purchaser acquired the property on or after 1 January 2019, foreign transfer duty will apply to the transfer of the property to a foreign real purchaser if the apparent purchaser did not pay it on the original purchase.