Foreign investors be aware of the tax costs for purchasing residential properties

In addition to some of the more ‘well known’ costs applicable to foreign investors such as FIRB or the 7% additional foreign stamp duty, there have been at least 3 more recent Federal/State tax that may apply to foreign investors. As such, it is prudent to include all the applicable tax as part of the overall purchase cost calculation when considering to purchase residential properties in Australia.

 1.       Vacant Residential Land Tax: (Victorian State Revenue office tax）

From 1 January 2018, the Victorian state government imposes a tax on residential properties in certain areas of Melbourne that are unoccupied for more than 6 months in a year.

The tax is calculated based on 1% of the capital improved value of the property. The capital improved value can be found in the statement published by the relevant council. For example, if the council states that your property is of a capital improved value of $500,000, then the tax payable amount is $5,000.

 2.       Absentee Owner Surcharge (Victorian Revenue office tax）

The absentee owner surcharge is calculated based on 1.5% of the value of the land component of a residential property. For example, if you own an apartment, then the 1.5% tax is calculated by reference to the value of the land component of the apartment only (and not the full value of the apartment).

Who is an Absentee Owner?

An absentee individual is any individual who:

a.     Is not an Australian citizen or permanent resident,

b.    Does not ordinarily reside in Australia, and

c.     Was absent from Australia:

o   on 31 December of the year prior to the tax year, or 

o   for more than six months in total in the calendar year prior to the tax year.

If you are an absentee owner, then you may be required to pay the absentee owner surcharge at a rate of 1.5% by reference to the land component of your property. For example, if the land component of your property is valued at $500,000, then you will be required to pay a tax of $7,500.

However, there is an exemption to this tax. If your total land holdings is below $250,000 in value (in aggregate for all property holdings in Victoria), then you are not required to pay the absentee owner surcharge even though you are an absentee owner according to the definition above. 

 3.       Vacancy fee (Federal Australian Government fee)

The Federal Government has introduced a vacancy fee for residential property owned by foreign investors in Australia that is not occupied for more than 6 months in a 12 month period. 

 In December 2017 the Australian Government introduced an annual vacancy fee for foreign owners of residential properties.

 Under the legislation, foreign owners of residential properties in Australia are required to pay an annual vacancy fee if their property is not occupied or rented out for more than 183 days (six months) in a year.

 If you’re a foreign owner of a residential property you may be liable to pay the annual vacancy fee.

 The fee will be equal to the fee payable for FIRB approval to acquire the residential property. For example, if you paid a FIRB fee of $5,600 for acquiring a property then the annual vacancy fee will be equal to $5,600.