The Melbourne & Sydney property markets have been booming for some time now. In a bid to address the lack of housing supply available, the Australian state and federal governments have introduced a number of new taxes and surcharges on properties owned by foreigners.
If you are a foreigner who owns properties in Victoria, here's a brief summary of some taxes and surcharges which may apply to you.
Vacant Residential Land Tax (VIC State Government)
From 1 January 2018, a vacant residential land tax applies to homes that were vacant for more than six months in the preceding calendar year, if the home is located in one of 18 municipal council areas.
The 18 areas are Banyule, Bayside, Boroondara, Darebin, Glen Eira, Hobsons Bay, Manningham, Maribyrnong, Melbourne, Monash, Moonee Valley, Moreland, Port Phillip, Stonnington, Whitehorse & Yarra.
The vacant residential land tax is assessed by calendar year (1 January to 31 December) and the six months do not need to be continuous.
This is an annual tax set at 1 per cent of the capital improved value (CIV) of taxable land. For example, if a vacant home has a CIV of $500,000, the tax will be $5000.
The CIV of a property is a value of the land, buildings and any other other capital improvements made to the property as determined by the general valuation process. It is displayed on the council rates notice for the property.
This tax is not payable if you are exempt from paying Land Tax (for example, if it is Crown land or primary production land).
This vacant residential land tax has a self-reporting requirement which means you are required to notify the State Revenue Office (Victoria) if you are liable to pay the tax.
Annual Vacancy Fee (Federal Government)
The annual vacancy fee will be levied on foreign owners of residential real estate where the property is not occupied or genuinely available on the rental market for at least six months in a 12 month period.
Generally, the vacancy fee payable will be equivalent to the residential land application fee that was paid by the foreign person at the time the application for foreign investment approval was made to purchase the property.
The vacancy fee applies to foreign persons who make a foreign investment application for residential property from 7:30PM (AEST) on 9 May 2017 and to foreign persons who are purchasing in a development that has a New Dwelling Exemption Certificate which was applied for after 7:30PM (AEST) on 9 May 2017.
Foreign owners of residential real estate will be required to lodge an annual vacancy fee return with the Australian Taxation Office (ATO) after the end of the 12 month period (vacancy year) in which the foreign person may be liable for the vacancy fee for their property.
This annual vacancy fee has a self-reporting requirement which means you are required to notify the FIRB if you are liable to pay the tax.
Further reading: Annual Vacancy Fee
Absentee Owner Surcharge
If you own property in Victoria, you may have to pay land tax. An absentee owner surcharge of 1.5 per cent applies from 1 January 2017 to Victorian land owned by an absentee owner. The absentee owner surcharge is an additional amount that applies over the land tax you pay at general and trust surcharge rates.
If you are an absentee owner at 31 December, the surcharge will apply in the following land tax year.
The surcharge is calculated on the total taxable value of Victorian land you own and will be included on your Victorian land tax assessment. Depending on how and who owns the land, the surcharge also applies to jointly owned land.
If your land attracts special land tax, you’ll pay an absentee owner flat rate of 6.5 per cent from 1 January 2017 (previously 5.5 per cent).
The surcharge does not apply if land is exempt from land tax or if the total taxable value of your land(s) is below the threshold. It is also not payable if you are an Australian citizen or Australian Permanent Resident.
The absentee owner surcharge has a self-reporting requirement which means you are required to notify the SRO if you are liable to pay the tax.
Further reading: Absentee Owner Surcharge
Foreign Resident Capital Gains Withholding Taxes
The foreign resident capital gains withholding taxes is applicable when a foreign resident disposes of certain taxable Australian properties.
For all Contracts entered from 1 July 2017, if an owner sells a property for a price of $750,000 and above, the purchaser of the property is required to withhold 12.5% of the purchase price and pay this amount to the ATO.
Your conveyancer will be able to assist with this as part of their services for the settlement of the property transaction.
Further reading: Foreign Resident Capital Gains Withholding Taxes
All of these taxes and charges carry heavy penalties for non-compliance and the Government's standard policy is that ignorance of the law does not excuse you from having to comply with that law.
Confused or worried about your situation? Make an appointment with us at either one of our offices to find out how we can assist you.