Providing Best Solutions in a
       framework of Legal Certainty

AUSTRALIA: New tax on foreign owners of unoccupied homes

Australia imposes new taxes on foreign owners of residential property

Australia's 2017 budget introduces an annual charge on non-resident owners of 'under-utilised' residential property.

The term 'under-utilised' property refers to homes that are unoccupied and not 'genuinely available on the rental market for at least six months a year'.

This measure is intended to encourage foreign owners of second homes to rent them out, and so address the housing shortage in Australia. There have been numerous reports about homes being bought by foreign investors and left vacant while they increase in value through the housing price boom.

The new charge will be equal to the foreign investment application fee imposed on the property at the time it was acquired by the foreign investor – at least AUD5,000. It will apply to all foreign persons who make a foreign investment application for residential property on, or after, 9 May 2017. Some unoccupied homes are likely to be double-taxed as a result, for example under the unoccupied property measures imposed by the state of Victoria.

The main residence capital gains tax exemption for foreign and temporary tax residents that own Australian real estate was also removed as of 9 May 2017.
Existing properties will be grandfathered until 30 June 2019.

The budget also announced that the capital gains withholding tax (FRCGW), paid by non-resident sellers of Australian homes, will rise from 10 to 12.5 per cent of the sale price for disposals completed on, or after, 1 July 2017. At the same time, the threshold at which the withholding tax applies is being lowered from AUD2 million to AUD750,000.

The withholding tax is imposed where a foreign resident disposes of Australian property. The purchaser is required to withhold the tax from the purchase price and pay it to the Australian Taxation Office (ATO).