In brief: Buying property in Australia –
as a foreign investor – is not always a simple and
straightforward process. The rules surrounding the purchase of
Australian real estate by foreign buyers and investors are
constantly changing. Knowing which pitfalls to avoid can save you
considerable time and money.
Set out below are some tips and background information that will
be of benefit if you are considering buying property in Australia,
as a foreign investor.
A foreign person is someone who does or will hold a substantial
interest (generally 20% or more) and who is not:
ordinarily resident in Australia; or
a corporation or trust in which the directors, shareholders,
unitholders or beneficiaries are not ordinarily resident in
These tips briefly explain the basics of the foreign investment
review framework, foreign purchaser duties, foreign resident
capital gains withholding, and what to consider prior to
Tip 1: Know the land: do you need foreign investment
It is important to keep the land categories in mind when
determining whether a foreign investor can invest in the Australian
real estate market.
There are four categories of Australian Land:
Established or existing dwellings – foreign non-residents
are generally unable to purchase an existing dwelling and
Australian temporary residents require approval.
New dwellings – both foreign non-residents and Australian
temporary residents – generally require approval from the
Treasurer who is advised by Foreign Investment Review Board
(FIRB) before entering into a purchase
Vacant land – foreign investors require approval to buy
vacant land for residential development.
Vacant land – foreign investors require approval before
acquiring an interest in any vacant commercial land.
Developed land – foreign persons require approval of the
value of the interest is more than the relevant threshold. The
threshold is usually $252 million, but can vary from $55 to $1,094
million depending on the nature of the property and country of
origin of the foreign investor.
Foreign persons generally require approval where the cumulative
value of a foreign person's agricultural land holdings exceed
Exploration, mining or production
Whether foreign investment approval is required depends on a
range of factors including the nature and type of the
These categories are not mutually exclusive meaning that an area
of land could fall under several categories.
Tip 2: Does additional purchaser duty apply?
If you are a foreign purchaser, and acquire residential property
in Victoria (or a non-residential property with the intention to
convert it to a residential property), you must pay foreign
purchaser duty in addition to the land transfer duty on the
dutiable value of the property. This is calculated on the greater
of the price you pay or the market value of the property.
This additional purchaser duty is currently 7% on contracts
entered into from 1 July 2016.
There are limited exemptions. However, in most cases, the State
Revenue Office will impose the additional duty.
Tip 3: Where's my 10 percent? Foreign resident capital
From 1 July 2016, when purchasing properties or land with a
market value greater than $2 million, the purchaser is required to
withhold 10% of the purchase price and remit the funds to the
Australian Tax Office (ATO) ensuring the
collection of foreign residents' Australian tax
To avoid this non-final withholding tax, Australian resident
vendors (who are resident for tax purposes) are able to obtain a
clearance certificate from the ATO prior to settlement of the
property to ensure they do not incur the 10% withholding.
The rules surrounding the purchase of Australian real estate by
foreign buyers are complex and intricate and are constantly
changing. It is therefore essential that you evaluate the type of
land being purchased, the nature of the purchaser and country of
origin and the relevant thresholds to determine whether you need
foreign investment approval prior to entering into a purchase
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.Madgwicks is a member
of Meritas, one of the world's largest law firm
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