The landscape for foreign investors in real property in Australia is not without its legal and regulatory challenges.
SOME CHALLENGES INCLUDE:
- Foreign Investment Review Board (FIRB) approval
- Annual vacancy fees for foreign owners of land
- Foreign resident capital gains tax (CGT) withholding regime
- Additional State duties for foreign buyers
Below is a brief summary of those challenges.
FOREIGN INVESTMENT REVIEW BOARD (FIRB) APPROVAL:
The right of foreign investors to acquire ‘Australian land’ is, in many cases, subject to the requirement to obtain the approval of the FIRB. Different approval thresholds apply, depending on whether the investor/buyer is from an FTA partner country or not. Where approval is required, an application is generally required to be made to FIRB before the land is acquired.
All acquisitions of interests in agricultural land by foreign persons must be notified to the Australian Taxation Office Register of Foreign Ownership.
For foreign buyers of residential land, FIRB approval must be obtained before the land is purchased. FIRB applications to purchase new residential dwellings are generally approved if all conditions are met however, FIRB approval is generally not given for foreign buyers to purchase established dwellings.
FIRB imposes application fees (which are generally payable by the foreign buyer unless the developer has obtained an exemption certificate) which fees are calculated based on the purchase price of the land.
FOREIGN RESIDENT CAPITAL GAINS TAX (CGT) WITHHOLDING REGIME:
Foreign investors looking to dispose of real property for a contract price that is $750,000 or more need to give to a buyer a Clearance Certificate issued by the Australian Taxation Office (ATO). Without the Clearance Certificate, buyers must withhold 12.5% of the purchase price under a contract of sale and pay it to the ATO.
ANNUAL VACANCY FEES FOR FOREIGN OWNERS OF LAND:
The Commonwealth also imposes an annual vacancy fee on residential property owned by foreign investors that are left vacant for at least half of a 12 month period.
THE VACANCY FEE APPLIES TO:
- foreign persons (including individuals, corporations, trustees and foreign governments);
- who own residential property in Australia;
- which property is not occupied or genuinely available on the rental market for at least six months (183 days) in a 12 month period; and
- for which the foreign investment application to purchase a residential property was made after 9 May 2017.
If it applies, the annual vacancy fee payable is equal to the amount of the price paid on application to FIRB for the purchase of the property.
Every foreign person who owns residential property will be required to lodge an annual vacancy fee return with the ATO, i.e. not just those with a liability for the annual vacancy fee. This return must set out the number of days the property was occupied during the previous 12 month period, and, on lodgement, must include payment for any applicable vacancy fees.
ADDITIONAL DUTY FOR FOREIGN BUYERS IN QUEENSLAND:
Transfer (stamp) duty or landholder duty is imposed on most direct and indirect acquisitions of land in Queensland. Additional Foreigner Acquirer Duty (AFAD) is an additional duty payable by foreign investors on their acquisition of direct or indirect interests in most land which is or will be solely or primarily used for residential purposes (AFAD residential land).
AFAD is imposed at a rate of 7% on the dutiable value of the relevant acquisition, based on the value of the AFAD residential land and the extent of the foreign acquirer’s interest. The liability for the additional duty arises at the same time that the liability for transfer duty, landholder duty or corporate trustee duty arises (before settlement of the sale contract is effected).
Similar AFAD regimes also apply in some other States in Australia.
HOW WE CAN HELP?
The Residential Real Estate and Projects team at McInnes Wilson are well placed to advise foreign investors on the acquisition and sale of Australian real estate, including providing expert advice in relation to the impact the above issues may have on any proposed transaction.