Before purchasing residential property in Australia, it is essential to understand the foreign investment regulations. Significant penalties apply for breaches of Australian foreign investment laws. Seeking independent legal advice before entering any contract is highly recommended.
Step 1: Determine If the Foreign Investment Rules Apply to You
The legal definition of a foreign person is complex. Generally, you are considered a foreign person if you are not:
- an Australian citizen
- a permanent resident of Australia
- a New Zealand citizen with a special category visa
Corporations that are at least 20% foreign-owned, as well as certain partnerships and trusts, may also be classified as foreign entities. Additionally, Australian citizens or permanent residents who do not ordinarily reside in Australia may be subject to foreign investment rules.
Step 2: Check What Type of Residential Property You Can Buy
Foreign investors can generally apply for approval to purchase:
- a new dwelling, including off-the-plan properties
- vacant land, provided that construction of a residential dwelling is completed within four years
The purchase of established dwellings is prohibited unless special conditions are met. If you are considering other types of investment, such as agricultural or commercial property, separate regulations apply.
Step 3: Apply for Foreign Investment Approval
Before purchasing residential property, foreign investors must apply for approval from the Australian Taxation Office (ATO).
It is illegal to buy residential property in Australia without first obtaining approval or an exemption certificate. Applications must be submitted online through the ATO’s foreign investment portal. Application fees apply, which vary depending on the value of the property.
If purchasing from a property developer, you may not need to apply for individual approval if the developer has a new or near-new dwelling exemption certificate. Confirm with the developer whether such a certificate applies to your purchase.
When You Buy the Property
Step 4: Register Your Property
Once you have acquired the property, you must register your ownership within 30 days of settlement using the ATO’s online services for foreign investors.
Failure to register on time may result in penalties.
While You Own the Property
Step 5: Declare Rental Income in Your Tax Return
If you rent out the property, you are required to declare the rental income by filing an Australian income tax return each year. You must also pay any applicable taxes on rental earnings.
Step 6: Lodge a Vacancy Fee Return
Foreign investors must ensure that their residential properties remain occupied.
Each year, a vacancy fee return must be lodged with the ATO, confirming whether the property was occupied or genuinely available for rent for at least 183 days in the previous year. If the property remains unoccupied, a vacancy fee may apply.
If you fail to submit a vacancy fee return, even if your property was occupied, you may still be required to pay the fee.
Step 7: Update Your Records on the Foreign Ownership Register
If your circumstances change, you must update your details with the ATO. This includes situations where:
- you become an Australian citizen or permanent resident
- you sell the property or no longer own it
Failure to update your records may result in compliance action.
Step 8: Lodge an Australian Tax Return When Selling
If you sell the property, you must log into the ATO’s online services for foreign investors and update your asset records to confirm that you no longer own the property.
Additionally, you must lodge an Australian income tax return to report any capital gains from the sale. Foreign residents are subject to capital gains tax withholding, but they may claim a credit for the withheld amount when filing their tax return.
For more information on tax implications, consult a tax professional or refer to the ATO’s foreign resident capital gains withholding guidelines.
Conclusion
Buying residential property in Australia as a foreign investor requires careful planning and compliance with strict regulations. Ensure Legal can provide legal guidance to help you navigate these steps, from obtaining approval to meeting tax and reporting obligations. Contact us for professional assistance with your property investment in Australia.
