The Australian property market has long been considered an excellent investment option, not just for local buyers but also for those currently located overseas. We have a history of relatively steady price cycles and long-term upside. Australia also has a stable government and diverse economy. In addition, our currency is secure and our exchange rate makes buying in Australia attractive to those living in other countries – particularly Britain, China and the USA. Add to this the fact that foreign buyers and expats are often able to source finance in their country of residence where lending criteria may be less strict.
And now, given the way we’ve successfully handled COVID-19 thus far, not to mention the absence of riots on our streets, plenty of overseas investors must be wishing they had a foothold in our market.
Australian real estate has been seen by foreign buyers as a low risk way to invest… and in the past, overseas buyers have been welcomed more freely. During the boom run in 2013 to 2016, many of the high-rise projects helping boost our construction sector were being bought out by overseas investors – particularly from China.
But as overseas buying activity ramped up, there were increased concerns that foreign buyers were compounding our affordability woes, and the issue became a political hot potato.
In the era of nationalism over globalism, the taxation of foreign or overseas purchasers had become an easy sell for governments. Quite simply, voters found it more palatable to charge offshore owners more tax.
Of course, how we proceed after the lockdowns and borders are reopened is an unknown, but at this stage, existing and planned tax structures remain on the table.
Here is a list of some of the changes off-shore buyers should be aware of if they’re considering an Australian investment in the near future:
The CGT change for expats
Foreign nationals are required to pay Capital Gains Tax (CGT) when selling their Aussie investment, but new legislation this year will increase liabilities for Australian expats who’ve relocated to another country for work as well.
As of 30 June 2020, a rule that allowed expats to retain Principal Place of Residence status on their Australian home for CGT exemption purposes will cease. Until recently, if the property was leased for a period of less than six years, the expat owner could avoid CGT at the time of sale.
The sting with this rule change is that the CGT will be calculated from the time they bought the home, not from when they vacated it for tenants. This will add years of capital gains to the calculated value of some properties.
State-by-state foreign buyer surcharges
State governments apply a variety of surcharges on foreign buyers in terms of stamp duty and land tax. Here’s a state-by-state breakdown of the added levees:
- NSW
There are two types of foreign-owner surcharge applied to residential property in NSW.
Firstly, when you buy or acquire a residential property you must pay an additional 8% on top of the stamp duty.
There’s also a land tax surcharge of 2% which is applicable on the taxable value of all the residential land you own as at 31 December each year. In fact, you may need to pay that surcharge even if you’re under the land tax threshold.
- VIC
Foreign buyers pay additional stamp duty at the time of acquisition. The applicable rates vary based on the date of contract, as per the following.
For contracts signed on or after:
- 1 July 2015 but before 1 July 2016, the additional duty rate is 3%,
- 1 July 2016, the additional duty rate is 7%,
- 1 July 2019, the additional duty rate is 8%.
There is also an absentee owner surcharge in Victoria – a move designed to discourage ‘ghost towers’ where overseas buyers purchase property only to leave them vacant.
From the 2020 land tax year, a 2% absentee owner surcharge on land tax applies to absentee owners. Absentee owners are individuals who are not an Australian citizen or permanent resident, and don’t ordinarily reside in Australia. In addition, they were either absent from Australia on 31 December of the year prior to the tax year, or for more than six months in total in the calendar year prior to the tax year.
- Queensland
Queensland applies what’s called an Additional Foreign Acquirer Duty (AFAD) to transactions and transfers. The GST-inclusive purchase price is used when determining the dutiable value and is calculated as follows:
- 3% where the transaction’s liability for transfer duty arises between 1 October 2016 and 30 June 2018
- 7% where the transaction’s liability for transfer duty arises on or after 1 July 2018.
In addition, a 2% land tax surcharge for absentee owners applies to properties in Queensland.
- WA
Western Australia has a Foreign Transfer Duty. From 1 January 2019, the Duties Act imposes an additional duty of 7% on residential property purchased by foreign persons.
- SA
South Australia’s Foreign Ownership Surcharge is a figure calculated as 7% of the value of the interest in residential land. Like other states, this surcharge is in addition to the duty that is otherwise payable on an acquisition of an interest in land.
- NT
The Northern Territory is the only jurisdiction that doesn’t apply additional changes, taxes and fees to foreign buyers.
- Tasmania
Tasmania also applies additional costs to foreign buyers which is described as a Foreign Investor Duty Surcharge (FIDS) calculated at 3% of the purchase price of residential property.
- ACT
The ACT applies a foreign ownership surcharge which kicked off on 1 July 2018. Under their regime, foreign investors pay an extra 0.75 per cent in land tax on top of any land tax they’re already paying.
Tailored solutions
Of course, every buyer – including foreign nationals and expats – will have their own individual circumstances that must be taken into account when they purchase or own property. While I’ve provided an overview above, you must seek tailored guidance on your potential liabilities from a qualified accountant or financial advisor. They will explain how the new rules will affect you and perhaps provide options to help minimise the impost.
