Residential real estate – annual vacancy charge [GN48]
Last updated: 9 May 2017
Ensuring foreign owned property is used and occupied is important so that foreign investment in Australian residential real estate contributes to the actual supply of residential property available for use in Australia.
Foreign persons who purchase residential real estate will be subject to an annual charge where the property is not rented out or occupied for more than six months per year.
This Guidance Note sets out who the charge will apply to, how use of a property will be assessed, the amount of the charge and reporting obligations.
Who will the charge apply to?
The charge will apply to foreign persons who make a foreign investment application for residential property after 7.30 pm (AEST) on 9 May 2017. Foreign persons who are purchasing in a development which has a New Dwelling Exemption Certificate will be subject to the annual charge where contracts were entered into after 7.30pm (AEST) on 9 May 2017.
Annual Use requirements
A property that is vacant for at least six months per year is under‑used. A property is considered to be “used” where it is rented out, used as a residence or otherwise occupied. The annual liability is assessed based on the date of settlement of the property. The person who purchased the property does not have to be the person who uses or occupies the property. For example, a friend, relative or some other person can be the occupant and it is not a requirement that a rental agreement is in place.
In the following circumstances a property will also be considered used:
- For any period where a property has genuinely been made available for rent, including by advertising the property, engaging a leasing agent and setting the rent at a market rate.
- During a construction period for the building of new dwellings or redeveloping existing dwellings—this is taken to be from the settlement of the property until a new dwelling has been completed.
The six month period in which the property must be used does not need to be six consecutive months. As long as the property is not left vacant for a total of six months or more in a 12 month period the charge will not apply.
The annual vacancy charge is not a condition of the foreign investment approval and does not impact any conditions in a foreign investment approval.
Susie and Greg decide to buy a new house close to their Australian relatives to use as their residence when they visit each year. Prior to purchasing the property Susie and Greg make a foreign investment application. An approval is granted and on 22 August the purchase of the property is settled. In the following year Susie and Greg decide to visit their family for three months during the Australian summer. For the rest of the year their relatives maintain the property but do not live in it or make it available for rent. On 22 August the following year Susie and Greg are liable to pay the annual vacancy charge because in the previous year they left the property vacant for at least six months and did not take steps to make it available for rent.
Marcia is a temporary resident and seeks approval to purchase an established dwelling for redevelopment. Foreign investment approval is granted subject to the standard conditions that:
- the existing dwelling cannot be rented out prior to demolition and redevelopment;
- the existing dwelling is demolished and construction of the new dwellings are completed within four years of the date of approval; and
- evidence of completion of the dwellings is submitted within 30 days of being received by the applicant. This could include a final occupancy or builder’s completion certificate.
Marcia purchases the property on 1 June and completes the construction of two new dwellings 17 months after settlement. On 1 June, the year following settlement, Marcia is not liable for the vacancy charge because the new dwelling has not been completed. Following construction of the properties, Marcia sells one dwelling and uses the other as her residence. On 1 June each year Marcia’s use of the dwelling she owns is assessed. In any future year where she or someone else does not reside in the dwelling for at least six months of the year, and she does not take reasonable steps to make the property available for rent during this period, she will be liable to pay the charge.
The amount payable for the annual vacancy charge will be the same amount as the fee payable for the foreign investment application for the property. For persons who purchase a property under a New Dwelling Exemption Certificate the charge will be the same as the reconciliation fee paid for the property. For more information on current residential application fees see Guidance Note 29.
The charge will no longer apply when a person ceases to be a foreign person.
Reporting obligations and how to pay the charge
The Australian Tax Office will administer the charge. Foreign persons and developers should ensure they notify the Australian Taxation Office of purchases of residential real estate once they have settled as detailed in their approval.
Liability for the annual vacancy charge will be assessed yearly on the date of settlement and foreign investors will need to report annually about the use of their property in the previous 12 months. Foreign investors may be required to provide evidence that that property was used. Further advice on payment of the charge and evidence requirements will be provided shortly.
Further information is available on the FIRB website at www.firb.gov.au or by contacting +61 2 6263 3795.
Important notice: This Guidance Note provides guidance on the announced measure, which is yet to be legislated. The application of the measure will depend on the final legislation. The Commonwealth does not guarantee the accuracy, currency or completeness of any information contained in this document and will not accept responsibility for any loss caused by reliance on it. Your particular circumstances must be taken into account when determining how the measure may apply to you. This Guidance Note is therefore not a substitute for obtaining your own legal advice once the measure is legislated.