THE BIG AUSSIE CLAMPDOWN

Michelle Ciesielski, National Residential Director, Knight Frank Australia lists out all the new taxes and duties applicable to foreign purchasers buying in NSW, Victoria and Queensland.
Prior to the Victorian state government introducing statebased taxes in mid-2015, a foreign investor was not required to pay any additional costs to purchase an Australian residential property. One year on, foreign investors are now faced with Foreign Investment Review Board (FIRB) application fees to buy in Australia with surcharges on stamp duty and land tax across multiple states.
Despite these additional fees and duties, the Australian government continues to encourage foreign investment into new housing to increase the housing supply and support local economic activity.
There has been increased concern from foreign buyers in Australia with the announcement of the increase in fees and taxes, with many seeking clarity on the new regulations.
While these additional fees may deter some foreign investors, the majority of buyers investing in Australia are looking for longer term returns, such as the lifestyle, a place to accommodate family when studying and a transparent ownership structure. However, these latest announcements will certainly make Australia less competitive in the global marketplace.
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It’s challenging to monitor the direct impact of the foreign investor tax introduced by the Victorian state government since mid-2015. It coincides with capital outflow regulation changes in China, and the introduction of application fees for foreign buyers by the Australian federal government from 1 December 2015 following a lengthy and sustained period of heated residential markets in both Sydney and Melbourne.
Melbourne mainstream apartment prices still saw relatively strong growth in the 2nd half of 2015 despite the new state tax being introduced; although growth has weakened by almost 3% in the three months to April 2016. Despite this, the Victorian state government has persisted to increase the tax to 7% as of 1 July 2016.
Given foreign investors can only purchase new and off-theplan properties in Australia, this data is only captured on settlement by the government so the real impact will not be known for some time.
The perception, including that of the Victorian Government, in the marketplace at the time the increased additional duty was introduced was that it didn’t have too much impact on foreign buyers. The greater concern was the tapering-off of demand after the regulation changes to outbound capital in China which was felt elsewhere around the world.
CURRENT RULES
From 1 December 2015, all foreign investors are required to pay a fee to the Australian Taxation Office (ATO) before their foreign investment application (FIRB) will be processed and stricter penalties have been ramped up by the ATO for those who breach the rules. For a property with a value of AUD1 million or less, AUD5,000 is payable per application. When a property valued over AUD1 million, AUD10,000 is payable with AUD10,000 increments per additional AUD1 million in value; uncapped. The fees apply for each individual property and do not provide any assurance of securing the property.
PURCHASING
Foreign investors must now pay a duty surcharge in addition to standard state-based stamp duty rates in New South Wales, Victoria and Queensland. The duty is levied on the market value of a residential property at the time of sale.
New South Wales—including the capital city of Sydney— has introduced a flat transfer duty of 4% applicable to all acquisitions from 21 June 2016.
Victoria—including the capital city of Melbourne—since 1 July 2015 has imposed a duty surcharge on foreign investors at 3% of the purchase price; although from 1 July 2016, this rose to 7%. For off-the-plan sales, the additional duty will be calculated on the whole of the consideration paid. Current off-the-plan concessions will still be available to foreign purchasers when calculating the normal stamp duty rate payable.
Queensland—including the capital city of Brisbane and the Gold Coast—a foreign investor duty will be applied at a rate of 3% for contracts signed on or after 1 October 2016; where the purchaser has a greater than 50% offshore component.
OWNING
An annual surcharge is now applicable for foreign investors owning a residential property in NSW and Victoria; effective for the 2017 Land Tax year.
New South Wales—including the capital city of Sydney—an annual land tax surcharge of 0.75% will be enforced from midnight on 31 December 2016. There will be no tax-free threshold and no principal place of residence exemption for the tax.
Victoria—including the capital city of Melbourne—an absentee person, considered to be a foreign purchaser not residing in the property will be levied an annual 1.5% surcharge on the land value; from 1 January 2017. This foreign investor land tax was first applicable in the 2016 Land Tax year at 0.5%.
Across Australia, no other states have introduced similar surcharges for foreign investors when buying and owning a residential property.[/ihc-hide-content]