Tax implications for foreign buyers purchasing Australian Property

If you are a ‘foreign person’ and looking to acquire an Australian property, it is important to be aware that you may be subject to additional upfront and ongoing costs in purchasing the Australian property. We note that this is a complex area and we recommend that specific tax advice be obtained based on your personal circumstances.

Generally, if you are not an Australian citizen or Australian permanent resident, you will likely be considered a ‘foreign person’ in most Australian states for the purposes of acquiring Australian property.

It’s worth mentioning that, whenever feasible, it’s generally advantageous to purchase the property alongside an Australian national or someone with Australian permanent residency. This can help minimize the tax expenses associated with obtaining the property.

Foreign Investment Review Board (FIRB) Approval

Foreign individuals typically need to secure FIRB authorization when acquiring an already-established residential property in Australia.

In the event that you’re purchasing a fresh residence within a new community, the builder could potentially secure a FIRB exemption certificate, eliminating the necessity for FIRB endorsement. It’s advisable to verify this directly with the builder.

Stamp Duty and Foreign Duty Surcharge

Acquiring an Australian property necessitates compliance with stamp duty regulations within the specific Australian state where the property purchase occurs. Stamp duty concessions may be available.

Importantly, most Australian states also impose an additional stamp duty cost, known as  ‘foreign purchaser additional duty’. The additional duty is often substantial. For example, in Victoria the rate of additional duty is 8% on the value of the property.

Land Tax and Vacant Land Tax

Land tax may also be payable in respect of the property on an annual basis. Again using Victoria as an example, where the value of property is more than $250,000 and the property is not lived in as a principal residence, land tax is payable. However, where the property is your principal place of residence and not rented out, it may be exempt from land tax. You must living in the property for at least 6 months from 1 July each year for the principal place of exemption to apply. Below, you’ll find the current land tax rates in Victoria:

Absentee Owner Land Tax

In Victoria, a 2% ‘absentee owner land tax surcharge’ also applies in respect of land owned by an ‘absentee owner’. For foreign persons, the absentee owner and tax would apply if you are absent from Australia on 31 December of a particular year, or if you were absent from Australia for more than six months in total during the year.

Vacant residential land tax

In the inner city of Melbourne, a 1% vacant residential land tax is applicable, determined by the property’s value. This tax comes into play if the property remains unoccupied for over half a year.

Australian Government Annual Vacancy Fee

Foreign investors who own residential real estate in Australia must pay an annual vacancy fee if the property remains unoccupied or unrented for a duration exceeding six months within a year.

As evident from the above, there are potentially significant upfront and ongoing costs for foreign buyers of Australian property. Hence, it holds great significance to arrange the purchase of the asset in the most suitable fashion. Furthermore, there exist extra tax-related concerns in Australia that require consideration, including:

• the availability of the CGT main residence concession and;
• the tax implications of transferring money to Australia to purchase the property.

Please do not hesitate to contact us if you have any questions in relation to the purchasing an Australian property and we would be happy to assist you further.