Foreign Buyers - NSW

It is important to note the following issues for foreign Purchasers:

• A foreign person (i.e. a person not ordinarily resident in Australia) must obtain approval to purchase residential real estate in Australia regardless of the value of the Property. There may be significant fees required to obtain the approval, which are not refundable if the Contract does not settle.
• Non-resident foreign persons are generally prohibited from purchasing established dwellings in Australia while temporary residents will normally be allowed to purchase only one established dwelling to live in as their principal place of residence in Australia.
• Approvals for foreign acquisitions will generally only be given for purchases of vacant land, residential development and newly constructed dwellings.
• If the Property is not occupied or genuinely available for rent for at least half of the year, the Australian Taxation Office may charge you an annual vacancy fee equal to the relevant foreign investment application fee imposed on the Property. This fee may be significant, if this may apply to you, you should make enquiries to ensure you are aware of the ongoing costs.
• When you buy or sell residential land, you must notify the Register of Foreign Ownership of Australian Assets.

Purchasing property without a relevant approval may lead to strict penalties (including fines, imprisonment and forced sale of the property).

Who is a foreign person under the Foreign Acquisitions and Takeovers Act (‘FATA’)?

A foreign person or foreign investor is:

• a person not ordinarily resident in Australia
• a corporation, where a person not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest a corporation in which two or more people, each of whom is not ordinarily resident in Australia, a foreign corporation or a foreign government hold an aggregate substantial interest
• the trustee of a trust in which a person not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest
• the trustee of a trust in which two or more people, each of whom is not ordinarily resident in Australia, a foreign corporation or a foreign government hold an aggregate substantial interest
• a foreign government
• a person not ordinarily resident in Australia, a foreign corporation or a foreign government that holds at least 20% in a limited partnership
• two or more people each of whom is not ordinarily resident in Australia, a foreign corporation or a foreign government, that hold an interest of at least 40 per cent in a limited partnership
• any other person that meets the conditions, prescribed by the Foreign Acquisitions and Takeovers regulations.

What requirements do I need to meet to be ordinarily resident in Australia under the FATA?

You are considered ordinarily resident in Australia at a particular time if:

• you have actually been in Australia for at least 200 days in the preceding 12-month period; and
• at that time:
  • if you are in Australia — your continued presence in Australia is not subject to any time limitation, e.g. you hold a permanent residence visa; or
  • if you are not in Australia — immediately before your most recent departure from Australia, your continued presence in Australia is not subject to any time limitation, e.g. you hold a permanence visa immediately before you last leave Australia.

Are there exceptions where a foreign person does not need to obtain approval to purchase residential real estate in Australia?

Yes, persons that meet certain criteria do not need foreign investment approval before purchasing residential real estate in Australia. This includes:

• Australian citizens living abroad;
• New Zealand citizens who hold, or are eligible for, a special category visa (subclass 444);
• Holders of Australian permanent residency visas;
• Joint tenants who are purchasing with their spouse who is:
  • an An Australian citizen or permanent resident
  • a New Zealand citizen who is eligible to hold a special category visa (subclass 444).
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What additional requirements must foreign Purchasers meet when purchasing property in New South Wales?

Under the standard terms of the NSW contract, the Purchaser promises to have approval to purchase residential real estate in Australia if required (i.e. when the Purchaser is a foreign person), otherwise, the Vendor can terminate the contract. This approval is commonly known as Foreign Investment Review Board Approval (‘FIRB Approval’) and must be obtained before you enter into a contract to purchase a property.

When should I apply for FIRB Approval?

You must apply for FIRB Approval before entering into a contract to purchase a property in Australia.

You should make an application as soon as possible if you plan to purchase a property. It can take up to 30 days from the day the full application fee is received for the decision to be made regarding your application and a further 10 days for you to be notified. The 30-day period may be extended by up to 90 days on more than one occasion if there are reasons requiring further time to assess the application.

How do I apply for FIRB Approval?

You need to submit your application to the Australian Taxation Office (ATO) using ATO Online Services for foreign investors.

For further information, refer to the following link: https://www.ato.gov.au/online-services/foreign-investors/residential-application

What should I do if I haven't obtained FIRB Approval yet?

It is important to note that failure to obtain an FIRB approve before entering into a contract is an offence and will result in strict penalties (including fines, imprisonment and disposal orders).

If the contract is not exchanged

If you have not signed and exchanged contract, you must urgently obtain an FIRB approval before signing. Failure to obtain an FIRB approve before entering into a contract is an offence and may result in fine and/or imprisonment.

If the contract is exchanged

If you have already signed and exchanged contract, you should request insertion of a special condition so that the contract is conditional on you obtaining FIRB approval. It is important to note that as the contract has been exchanged, the vendor is not obliged to agree to this request. In this case, you have the option to rescind the contract if the contract is under the cooling off period. If the contract is not under the cooling off period, you cannot rescind the contract and must urgently obtain an FIRB approval and settle the purchase.

What are the Australian Taxation Office (ATO) requirements for foreign property owners if the property is not occupied or available for rent?

If the property is not occupied or genuinely available for rent for at least half of the year, the ATO may charge an annual vacancy fee equal to the relevant foreign investment application fee imposed on the Property. From April 2024, this fee was significantly increased by the Australian Government. If this applies, it is the Purchaser’s responsibility to seek advice on and comply with the relevant foreign ownership occupancy requirements.

What must a foreign person do after purchasing residential real estate in Australia?

A foreign person who has purchased residential real estate in Australia must within 30 days of settlement register their acquisition on the Register of Foreign Ownership of Australian Assets maintained by the ATO.  Required reporting must be made using the ATO’s online notification system.

What happens if a person becomes a foreign resident for tax purposes and then sells their property in Australia?

A person who lives overseas for more than six months in any given year, or otherwise become a foreign resident for tax purposes, and then sells their Property during that time, may not be eligible for the Capital Gains Tax (‘CGT’) main residence exemption on the disposal, even if they lived in the house as their principal place of residence prior to becoming a foreign resident. Ascertaining whether an individual is a foreign resident at a particular point in time can be complicated and will require consideration of the specific circumstances of the individual.

What additional costs do foreign Purchasers incur when purchasing property in New South Wales?

Foreign Purchasers in New South Wales are required to pay additional transfer duty, known as surcharge purchaser duty, in addition to transfer duty on the purchase of the property. The surcharge is currently calculated at 8% of the greater of the purchase price and value of the property.

Once you become the legal owner of the property, you will also be required to pay additional land tax, known as surcharge land tax.

When does Surcharge Purchase Duty apply to property transactions in New South Wales?

Surcharge Purchase Duty applies to residential-related property purchases if the Purchaser is considered a foreign person.

Who is a Foreign Person liable for Surcharge Purchaser Duty?

Individuals

An individual is a foreign person if they are not:

• an Australian citizen;
• ordinarily resident in Australia, which means you:- are not holder of a permanence visa or partner (provisional) visa (subclass 309 or 820); or- have not been in Australia for at least 200 days within 12 months before the contract date;
• a New Zealand citizen who holds a special category visa (subclass 444) and has been in Australia for at least 200 days within 12 months before the contract date;
• an Exempt permanent resident, which means you must live in the property as your principal place of residence continuously for at least 200 days within 12 months after the contract date;
• holder of a Retirement visa (subclass 405 or 410) who will live in the property as your principal place of residence continuously for at least 200 days within 12 months after the contract date.

Corporations and Trusts

A corporation or trust is considered foreign if a substantial interest or aggregate substantial interest in the corporation or trust is held by:

• an individual who is not ordinarily resident in Australia;
• a foreign corporation; a foreign government.

When must I pay Surcharge Purchaser Duty?

Surcharge Purchaser Duty must be paid on the earlier of:

• settlement date; and
• 3 months from the contract date.

How is Surcharge Purchaser Duty applied if there are multiple Purchasers and not all Purchasers are foreign persons?

If there are multiple Purchasers and not all Purchasers are foreign persons, Surcharge Purchaser Duty is only charged on the value of the proportion of shares that the foreign person acquires. Liability for Surcharge Purchaser Duty will not affect any eligibility for transfer duty exemption or concession under the First Home Buyers Assistance Scheme.

Is there any other concession or exemption available for Surcharge Purchaser Duty?

Other concessions and exemptions may be available for:

• Australian based developers that are foreign persons that:-
  • are Australian corporations which will legally own the property;
  • and- satisfy one of the following:
• has constructed a new home on residential land to sell to an unrelated party; or
• has subdivided the residential land for the purpose of new home construction then sold the land after subdivision; or
• will use the land wholly or predominantly for commercial or industrial purposes — it is also acceptable that a related body corporate of the foreign persons (that received the concession or exemption) will use the land wholly or predominantly for commercial or industrial purposes.

Residential land used for commercial purpose (such as hotels, motels, inns, hostels, boarding houses, student accommodation, aged care and other care facilities, bed and breakfast accommodation, caravan and home parks, separately titled rooms, apartments, serviced apartments, cottages and villas);

Build-to-rent properties that are multi-unit developments with a unified ownership structure where the property is held for rental purposes.