- What is a foreign person?
- Who is not a foreign person
- What is considered residential land?
- What to do if you are considering purchasing residential property
- Penalties for breaches of Australia’s foreign ownership & investment rules
- New foreign investors surcharge differs state by state
- Summing up
Australia’s track record over the past 25 years, has seen its housing market move through five distinct growth cycles pushing median house values 412 per cent higher. This stability outshines other real estate investments around the world.
Keen foreign buyers or companies and trusts with majority foreign ownership wanting to invest in Australian residential property, however, may find it difficult to navigate the changes in government regulations and restrictions placed on property purchase.
In 2015, the Australian Government introduced new laws which have made it harder for foreign investors to purchase Australian residential property. Around the country, there are now restrictions on what type of property foreigners can buy but also surcharges payable in most states.
In 2019, the NSW Government has proposed amendments to foreign person duty and land tax surcharges for discretionary trusts.
Do you fit into the definition of a foreign person? Have you purchased or looking to purchase residential property in Australia through a trust or company with a foreign person? Read on.
What is a foreign person?
A foreign person is:
- An individual:
- an individual who is not ordinarily resident in Australia (other than an Australian citizen).
- A corporation: –
- a corporation in which 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,
- a corporation in which an individual “not ordinarily resident in Australia”,
- a foreign corporation or a foreign government hold a substantial interest.
- A trust:
- the trustee of a trust in which 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,
- the trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest.
- A foreign government,
- A government investor,
- A partner in a limited partnership.
Note: Where an interest in a property is acquired by or held on trust by a discretionary trust, the trustee of the trust may be liable for foreign surcharges if any one of the potential beneficiaries is a foreign person.
This poses difficulties in situations where there are no present beneficiaries who are foreign persons but the classes of beneficiaries are wide enough to allow foreign persons to become beneficiaries at a later date.
Trust deeds may be amended to exclude foreign beneficiaries from the trust where considered appropriate.
Who is not a foreign person
You are usually considered a foreign person, unless you are:
- an Australian citizen
- a New Zealand citizen holding a subclass 444 visa or
- a permanent resident and you have lived in Australia for more than 200 days in the last 12 months from your liability date.
What is considered residential land?
The definition of residential land by the Australian Government includes:
- vacant land zoned/designated as residential
- land on which there are one or more dwellings (includes building under construction)
- land use entitlement
- strata lots
- utility lots
What to do if you are considering purchasing residential property
1. Apply for approval to purchase
If you are a foreign investor, before you consider buying any residential property, you will need to apply for and receive foreign investment approval from the Foreign Investment Review Board (FIRB).
Foreigners are encouraged to invest in new residential buildings and approval may be subjected to whether the investment could boost Australia’s housing stock.
More information on the approval process through FIRB can be found here.
It is important that you seek approval first before considering or purchasing any residential property.
Start your application to purchase Australian residential real estate or to vary the conditions of an existing foreign investment approval here.
2. Pay the FIRB application fee
An application fee is payable by all foreign buyers of an Australian residential property. The fee is dependent on the value of the property and does not guarantee that the non-resident purchaser will be able to purchase the property they want.
The fee is a sliding scale starting from $5700 for properties valued at under $1 million.
Click here for the fee schedule.
Penalties for breaches of Australia’s foreign ownership & investment rules
Penalties, including civil and criminal penalties as well as disposal orders, may apply if you breach Australia’s foreign investment rules.
Non-compliance may also be brought to the attention of law enforcement agencies and other Commonwealth departments such as the Department of Immigration and Border Protection.
A detailed list of penalties and offences for non compliance [GN11] can be found here.
New foreign investors surcharge differs state by state
As of December 2019, all Australian jurisdictions, except the Northern Territory, now have a surcharge for foreign buyers.
However, each Australian state has their own legislation on duties and how to buy residential property as a foreign buyer.
These handy links will send you straight to each State Government website showing the fees and processes you must follow to buy residential property.
New South Wales
There are two types of surcharge applied to NSW residential land bought by foreign investors:
1. Surcharge purchaser duty
When you buy or acquire a residential property you must pay a once-off surcharge of 8%, based on the purchase price, in addition to the transfer duty.
Resource: Surcharge purchaser duty calculator.
2. Surcharge land tax
You must pay a 2% surcharge on the taxable value of all residential land you own as at 31 December each year, in addition to any land tax you may already pay. You may need to pay the surcharge even if you don’t pay land tax.
Resource: Land tax calculator.
If you are a foreign purchaser and acquire residential property in Victoria as well as land transfer duty (also called stamp duty), you may have to pay a once-off foreign purchaser additional duty on the share of the property you acquired.
From 1 July 2019, the additional duty rate is 8 per cent.
Additional foreign acquirer duty (AFAD) is a once-off, extra amount of duty that applies to transactions that are liable for transfer duty, landholder duty or corporate trustee duty. Residential land that is considered for AFAD is land in Queensland that is or will be used solely or primarily for residential purposes.
As of 1 July 2018, the AFAD is 7% of the GST-inclusive purchase price.
Foreign persons (which includes natural persons and corporations) or foreign trusts that acquire an interest in residential land in South Australia are required to pay a once-off foreign ownership surcharge of 7% of the value of the interest in residential land.
Foreign buyers duty imposes a once-off additional duty of 7% on the dutiable value for certain transactions and landholder acquisitions involving foreign persons or entities acquiring residential property in Western Australia.
Resource: Foreign buyers duty – Western Australia
In Tasmania, the Foreign Investor Duty Surcharge (FIDS) is a once-off additional amount of duty charged when residential or primary production property is acquired (either directly or indirectly) by a foreign person.
FIDS is charged as an additional duty impost of:
- 3 per cent on the proportion of the dutiable value of residential property directly or indirectly acquired by a foreign person; and
- 0.5 per cent on the proportion of the dutiable value of primary production property directly or indirectly acquired by a foreign person.
Australian Capital Territory
If a foreign person owns or purchases residential land in the ACT, a yearly land tax surcharge of 0.75 per cent of the Average Unimproved Value per year will be charged from 1 July 2018.
This land tax surcharge is in addition to land tax you must pay if a property is not your principle place of residence.
These changes to the surcharges for foreign buyers of Australian residential property are complex and confusing with potentially significant impacts on the holding costs of property.
It is highly recommended that you seek advice to ensure you satisfy all regulatory requirements during the purchase and ongoing ownership of Australian residential property.
As a foreign purchaser, Penguin Management accountants can help you navigate Australian residential property purchase to make informed decisions on your investments. Please call us on 1300 319 870 or contact us here.
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