What should foreign Buyers consider when purchasing property in Australia?
It is important to note the following issues for foreign Buyers:
- A foreign person (i.e. a person not ordinarily a 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, for residential development and for purchases of 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 fee equal to the relevant foreign investment application fee imposed on the Property. This fee may be significant, and you should make urgent enquiries to ensure you are aware of the ongoing costs if this may apply to you.
Purchasing property without a relevant approval may lead to significant monetary penalties as well as a forced sale of the Property.
Who are foreign natural persons?
You are a foreign buyer if you:
- are not an Australia citizen
- are not a New Zealand citizen with a Special Category Visa (Subclass 444). To hold this visa, the New Zealand citizen must be physically present in Australia, or
- do not hold an Australian permanent residence visa.
What entities are foreign corporations?
A foreign corporation includes corporations incorporated:
- outside Australia.
- in Australia if a foreign natural person, another foreign corporation, or a trustee of a foreign trust has a controlling interest in those corporations.
A foreign natural person, foreign corporation or the trustee of a foreign trust has a controlling interest in a corporation when that person or entity either alone, or together with an associated person, or another foreign natural person, foreign corporation or the trustee of a foreign trust:
- is in a position to control more than 50% of the votes (voting power or potential voting power).
- has more than 50% of the issued shares in that corporation.
- has (in the Commissioner's opinion) the ability to influence the outcome of the decisions about the corporation’s financial and operating policies, taking into account certain factors (the practical influence a person can exert in addition to any rights the person can enforce, any practice or behaviour affecting the corporation’s financial or operating policies, even if that practice or pattern of behaviour involves the breach of an agreement or breach of trust).
What are foreign trusts?
A foreign trust is a trust where a foreign natural person, foreign corporation or trustee of another foreign trust, has a substantial interest in the trust estate of that trust.
A foreign natural person, foreign corporation or the trustee of a foreign trust has a substantial interest in a trust when that person or entity either alone, or together with an associated person, or another foreign natural person, foreign corporation or the trustee of a foreign trust has:
- a beneficial interest of more than 50% of the capital of the estate of the foreign trust, or
- in the Commissioner's opinion, the capacity to determine or influence the outcome of the decisions about the administration and conduct of the trust, taking into account certain factors (such as the practical influence the person can exert in addition to any rights the person can enforce, and any practice or behaviour affecting the trustee’s administration and conduct of the trust, even if that practice or pattern of behaviour involves the breach of an agreement or breach of trust).
Purchasing property without a relevant approval may lead to significant monetary penalties as well as a forced sale of the Property. For this reason, if a purchase is subject to the FAATA, it is imperative to the buyer that the contract is made conditional on a FIRB approval being obtained.
What additional duty do foreign Buyers incur when purchasing property in Victoria?
If you are a foreign purchaser and you acquire a residential property, on top of land transfer duty you may have to pay foreign purchaser additional duty (additional duty) on the share of the property you acquired.
Additional duty applies to any arrangement or transaction involving the transfer of an interest in residential property to a foreign purchaser, including:
- buying a residential property at, for example, auction or by private sale.
- buying a non-residential property with the intention of converting it to residential property.
- being given a residential property as a gift.
- certain leasing arrangements in respect of residential property.
Additional duty applies to the acquisition of residential property (or a relevant acquisition in a landholder that holds residential property) on or after 1 July 2015. However, you will not pay additional duty if the acquisition is the result of a contract you entered into on or before 30 June 2015. It applies even if you only acquire part of, or a part interest, in the property. Where a contract to purchase residential property is entered into before 1 July 2015 and you are nominated to take the transfer of the property on or after 1 July 2015, additional duty may apply to the transfer.
If the property you acquired is exempt from land transfer duty, the additional duty does not apply. If the property you acquired is eligible for a land transfer duty concession (e.g. a purchase of an off-the-plan property), the additional duty is calculated on the dutiable value of the property before the concession is applied.
Foreign corporations and foreign trusts may, in some circumstances, be eligible for an exemption from additional duty.
What are the rates of the additional duty?
For contracts, transactions, agreements and arrangements entered into on or after:
- 1 July 2015 but before 1 July 2016 (even if the settlement date is on or after 1 July 2016), the additional duty rate is 3%.
- 1 July 2016, the additional duty rate is 7%.
- 1 July 2019, the additional duty rate is 8%.
What additional requirements must foreign Buyers meet when purchasing property in Victoria?
Foreign Buyers also require Foreign Investment Review Board (FIRB) approval when purchasing property. If you fail to obtain this approval before you obtain title to the property, the Australian Government may impose significant penalties (such as issuing infringement notices and forcing the sale of the property).
What should you do if you need FIRB approval before settlement and haven't obtained it yet?
If you’re required to obtain FIRB approval before settlement, and haven’t already obtained it, you should insert a special condition in the contract to allow you to terminate if you’re unable to obtain FIRB approval before settlement. If you don’t insert this condition it could result in significant financial loss.
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 orgenuinely available for rent for at least half of the year, the ATO may charge an annual fee equal to the relevant foreign investment application fee imposedon the Property. From April 2024, this fee was significantly increased by the Australian Government. If this applies, it is the Buyer’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 register their acquisition on the Register of Foreign Ownership of Australian Assets maintained by the ATO within30 days of settlement. Required reporting must be made using the ATO’s online notification system.
What happens if a person becomes aforeign resident for tax purposes and then sells their property in Australia?
A person who lives overseas for more thansix months in any given year, or otherwise become a foreign resident for taxpurposes, and then sells their Property during that time, may not be eligiblefor the CGT main residence exemption on the disposal, even if they lived in thehouse as their principal place of residence prior to becoming a foreignresident. Ascertaining whether an individual is a foreign resident at aparticular point in time can be complicated and will depend on all of thecircumstances.
What qualifies as AFAD residentialproperty?
Residential property is:
- Land capable of being used solely or primarily for residential purposes and that may be lawfully used in that way.
- Land which includes a building, or part of a building, that a person intends to refurbish or extend so the land is capable of being used solely or primarily for residential purposes and that may be lawfully used in that way.
- Land:
- On which a person intends to construct a building so the land is capable of being used solely or primarily for residential purposes and may be lawfully used in that way.
- In respect of which a person has undertaken or intends to undertake land development for the purposes of:
- constructing a building so the land is capable of being used solely or primarily for residential purposes and may be lawfully used in that way, or
- enabling another person to construct a building so the land is capable of being used solely or primarily for residential purposes and may be lawfully used in that way.
Residential property does not include commercial residential premises, a residential care facility, a supported residential service or a retirement village and which may lawfully be used in that way.
What is AFAD and how is it applied?
AFAD is an additional duty imposed on the transaction’s dutiable value. If the property you acquired is exempt from land transfer duty, the additional duty does not apply. If the property you acquired is eligible for a land transfer duty concession (e.g. a purchase of an off-the-plan property), the additional duty is calculated on the dutiable value of the property before the concession is applied.
How is AFAD applied if there are multiple Buyers and only one is a foreign acquirer?
If there are multiple Buyers and only one is a foreign acquirer, AFAD will only apply to the extent of the foreign acquirer's interest under the transaction. Liability for AFAD will not affect any entitlement to a home concession for transfer duty.
What must happen if the acquirer becomes a foreign corporation or the trustee of a foreign trust within three years of the transaction?
If, within three years of the transaction, the acquirer becomes a foreign corporation or the trustee of a foreign trust, it is important to note that the Commissioner of State Revenue(‘Commissioner’) must make a reassessment to impose AFAD on the transaction. This may occur, for example, because of a change in the controlling interest in the company or interests in the trust.
What actions must be taken if the acquirer's status changes within three years of the transaction?
If this becomes applicable, action must be taken to inform the Commissioner of the changed circumstances within 28days. If not, significant additional penalty duty may be payable and interest will be charged.
Is there any relief available from AFAD for significant residential developments?
Ex gratia relief from AFAD may be available where a foreign acquirer which is Australian-based acquires residential land for significant development. Qualifying for such relief will depend on satisfying relevant conditions imposed by the Commissioner (including as to the significance of the proposed development).
What must a foreign acquirer do if granted relief and conditions change?
If a foreign acquirer is granted relief, it must notify the Commissioner if any of the conditions are no longer satisfied or if there is a material change in the circumstances existing when the relief was granted.
