Australia: New taxes and fees for foreign investors in real estate and agribusiness

Last Updated: 11 May 2015
Article by Steve Aitchison and Elizabeth Ho

Most Read Contributor in Australia, September 2016

The Victorian Government has announced the imposition of new taxes and duties on non-resident foreign nationals purchasing residential real estate in Victoria. These come on top of recent announcements by the Treasurer of the Federal Government's intention to get tough on foreign nationals who have purchased residential properties in Australia in breach of foreign investment rules.

In addition, the Federal Government also announced in February substantial fees for the assessment of applications by foreign investors for approval to invest in Australian real estate and agribusiness.

New Victorian taxes and duties affecting residential property

In the budget handed down yesterday the Victorian Government has announced the imposition of a stamp duty surcharge on foreign nationals purchasing residential property in Victoria, and the imposition of an additional land tax levy for absentee foreign owners.

Additional stamp duty surcharge

In Victoria stamp duty on conveyances is approximately 6% of the GST inclusive purchase price. Foreign residents purchasing residential property will now be liable for an additional stamp duty surcharge equivalent to 3% of the GST inclusive purchase price. For a residential property priced at $850,000 this will represent an additional duty amount of approximately $25,500.Given this is a budget announcement there are many important details yet to be clarified but some key issues to note are:

  • the surcharge will apply to residential property purchased under contracts signed on an after 1 July 2015
  • it may apply to residential property purchased by developers who have majority foreign ownership (and will again apply in relation to residential property sold by those developers to foreign buyers)
  • it may also apply to indirect acquisitions, such as the acquisition of shares or units in companies or trusts that hold residential property in Victoria, subject to the "landholder" thresholds under the Duties Act 2000
  • it is expected also to apply to vacant land zoned for residential use.

Additional land tax for absentee foreign owners

Foreign nationals who purchase real estate in Victoria, but do not ordinarily reside in Australia, will be charged additional land tax at 0.5% of value. For a property valued at $1million, for example, this will result in an additional land tax impost of $5,000 in the first year. At this point it is unclear whether the surcharge will also apply to absentee Australian citizens.

The additional land tax will apply for the land tax year commencing 1 January 2016. It is unclear at this stage how and when the question of absenteeism will be assessed and monitored. A number of important details are yet to be clarified, such as:

  • whether the impost will apply only in relation to residential property or include other property normally subject to land tax (such as commercial and industrial property)
  • what exactly is meant by "not ordinarily resident in Australia"
  • how and when the "ordinarily resident" status of a land owner will be assessed and monitored

The new taxes and charges will not apply to New Zealand nationals permanently resident in Australia, because of current treaty obligations between the two countries.

Further particulars will become available as the Government works through the detail and prepares the necessary legislation.

New Federal enforcement measures and foreign investment application fees

Foreign nationals who are not permanent residents are not permitted to purchase established residential properties in Australia. One exception to this requirement is that foreign nationals with eligible temporary resident status in Australia are permitted to purchase one established residential property provided they live in that property while resident in Australia, and sell the property when they leave the country.

Prosecutions and forced sales of residential properties

On 2 May the Prime Minister and the Federal Treasurer announced that breaches of these rules will in the future be policed more rigorously and defaulters penalised. In addition the current civil penalties for breach will be increased. The new maximum penalty for an individual will be increased to $127,500 (or up to three years imprisonment) and for corporations will be increased to $637,500.

A moratorium has also been announced, giving foreign nationals who have purchased residential property in breach of these rules, until 30 November 2015 to declare the breach and avoid a civil penalty. Foreign nationals who have purchased, and still own residential property in breach of these rules, will be required to sell them.

Increased fees for foreign investment applications/approvals

The Federal Government has also announced the imposition of significant fees to assess applications by foreign nationals to invest in Australian residential property, and also in the business, commercial real estate and agriculture sectors.

Some of the new fees are:

  • residential property valued at $1million or less - $5,000
  • residential property valued at over $1million - $10,000 plus an additional $10,000 for every additional $1million in value
  • rural, agricultural and commercial land, fees ranging from $5,000 to $100,000 depending on the sector, the total value of the acquisition and the thresholds that apply (these will vary depending on the applicable FTA arrangements)

A full list of the new fees and penalties are detailed in the Government's press release which can be found here...

The new penalties are expected to commence 1 December, and as mentioned above, the moratorium will expire on 30 November 2015.

Transparency of foreign ownership

The Federal Government has also announced that it intends to create a national register of foreign owned real estate in Australia, which is expected to be operational in 2016.

Importantly, the Federal Government intends to transfer functions relating to foreign investment in residential real estate to the Australian Tax Office, who will be able to check and match ownership records where appropriate to verify compliance or otherwise.

As with the changes announced yesterday by the Victorian Government, the details around the implementation of these changes by the Federal Government will not be known until the draft legislation is available for review.

Finally we also draw your attention to the discussion paper issued by the Federal Government in October 2014 with regard to a proposal for the forced withholding of revenue from the sale of Australian real estate by foreign nationals. The proposal envisages that 10% of the sale revenue must be withheld and paid to the Australian Taxation Office, on account of provisional tax liabilities of that foreign owner. This scheme is intended to enable the Tax Office to prevent the leakage of tax revenue earned by foreign nationals and entities on the sale of Australian real estate. At this stage the proposal has not moved beyond the discussion paper. For more information see article here...

We will issue updates once the detail of these new proposals becomes available.

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.

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Elizabeth Ho
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