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 should be noted that, where possible, it will usually be beneficial to acquire the property with an Australian citizen or Australian permanent resident to reduce the tax costs of acquiring the property.
Foreign Investment Review Board (FIRB) Approval
Foreign persons will generally be required to obtain FIRB approval when purchasing an existing residential property in Australia.
However, if you are acquiring a new dwelling in a development, the developer may be able to obtain a FIRB exemption certificate such that FIRB approval is not required. This should be confirmed with the developer.
Stamp Duty and Foreign Duty Surcharge
The acquisition of an Australian property will be subject to stamp duty in the Australian state where the property is acquired. 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. The current rates of land tax in Victoria are outlined below:
|Taxable value of Property||Land tax payable|
|$250,000 to < $600,000||$275 plus 0.2% of amount > $250,000|
|$600,000 to < $1,000,000||$975 plus 0.5% of amount > $600,000|
|$1,000,000 to < $1,800,000||$2975 plus 0.8% of amount > $1,000,000|
|$1,800,000 to < $3,000,000||$9375 plus 1.3% of amount > $1,800,000|
|$3,000,000 and over||$24,975 plus 2.25% of amount > $3,000,000|
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
There is also a 1% vacant residential land tax that applies based on the value of the property where the property is located in the inner city of Melbourne and the property is left vacant for more than six months of the year.
Australian Government Annual Vacancy Fee
Foreign owners of Australian residential property are required to pay an annual vacancy fee if the property is not occupied or rented out for more than 6 months in a year.
As evident from the above, there are potentially significant upfront and ongoing costs for foreign buyers of Australian property. It is therefore important that the acquisition of the property be structured in the most appropriate manner. Furthermore, there are also other Australian tax issues to be considered, including:
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.