The 2017 Federal Budget delivered several significant measures that will impact the real estate industry, including the following:

Introduction of Annual Levy for Foreign-Owned Vacant Residential Property

In a move to increase housing availability, the Government has introduced an annual levy which will apply to foreign persons that own residential property which is either:

  • vacant; or
  • not genuinely available on the rental market,

  • for at least six months of the year.

    This annual levy will be equivalent to the relevant foreign investment application fee imposed on the property at the time it was purchased. This measure applies to any foreign persons who make a foreign investment application for residential property from 7.30pm (AEST) on 9 May 2017.

Changes to Australia's foreign resident capital gains tax (CGT) Regime

The Government has introduced the following changes to Australia's foreign resident capital gains tax (CGT) Regime:

  • denying foreign and temporary tax residents access to the CGT main residence exemption from 7:30PM (AEST) on 9 May 2017, however existing properties held prior to this date will be grandfathered until 30 June 2019;
  • increasing the CGT withholding rate for foreign tax residents from 10.0 per cent to 12.5 per cent, from 1 July 2017; and
  • reducing the CGT withholding threshold for foreign tax residents from $2 million to $750,000, from 1 July 2017.

Changes to GST remittance of new residential properties

From 1 July 2018, the Government will require purchasers of any newly constructed residential properties or new subdivisions to remit the GST directly to the Australian Tax Office (ATO), as a condition of settlement.

It is not clear how this regime will be implemented and what penalties will be levied on purchasers if they fail to comply with the new regime.

Foreign Ownership decrease to 50% for new developments

The Government will include a new condition on New Dwelling Certificate Exemptions Certificates (formerly known as advance off-the-plan approvals) which prevents developers selling more than 50% of lots within the development to foreign persons.

This new condition will be included on New Dwelling Exemption Certificates applied for from 7.30pm (AEST) on 9 May 2017.

Improvements to Foreign Investment Framework

The Government has announced some substantial changes to Australia's foreign investment framework in order for it to operate more efficiently and reduce any unnecessary red tape. These changes include the following:

  • removing low sensitivity applications from the meaning of sensitive land subject to the lower $55 million threshold for a developed commercial property;
  • allowing failed off-the-plan purchases to be considered as 'new' for the treatment of residential applications;
  • improving limitations with existing exemption certificate system for individual residential real estate purchases and amending the treatment of residential land used for commercial purpose;
  • streamlining of foreign investment business application fees, such as legislating existing fee waiver arrangements;
  • introducing a new exemption certificate applicable to low risk foreign investors;
  • clarifying the treatment of developed solar and wind farms; and
  • reinstating the previous arrangement for companies with significant foreign custodian holdings so that the companies are not subject to notification requirements.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.