Buying a property in Australia as a foreigner does involve a little extra work compared to buying as a local, and you will need to jump through some hoops to comply with the rules. But it can be well worth it, as you could end up with a fantastic investment or even a new family home if you’re planning to move out there.
Before you can start scouring the market for your dream property and putting in offers, it can be helpful to have an overview of how the buying process works for non-residents.
There are certain restrictions for foreigners buying property in Australia. Here’s what you need to know in a nutshell:
If you follow these rules, you’re ready to start the buying process. The first and most crucial step is to apply for approval from the Foreign Investment Review Board (FIRB). All foreign buyers must get approval from the FIRB before they can proceed.
Here’s how it works:
Once you have FIRB approval, you can then proceed with your purchase. This may include getting a loan from an Australian lender (for which you’ll need proof of FIRB approval). You may also want to seek the services of:
Some foreign buyers also like to have an accountant on the team to help you structure their financial arrangements in line with Australian tax rules. This can save you from losing money unnecessarily, as well as falling foul of any important regulations.
Note: Any rental or lease payments for your Australian property must be declared as income in an Australian tax return, whether or not the payments are actually paid to you.
The key difference between buying property as an Australian resident and a foreigner is that the former isn’t required to apply through the FIRB (and pay the application fee).
The FIRB process aims to encourage foreign buyers to invest in new properties while reserving existing properties for locals to buy and live in.
Foreign buyers may also face restrictions when it comes to getting a home loan. Many lenders have tighter lending criteria for non-residents, including higher interest rates and lower loan-to-value ratios (LVRs). This could mean that you need a larger deposit. Some lenders will even refuse to accept applications from non-residents or temporary residents unless they earn their income in Australia itself.
Unfortunately, there may also be extra costs to pay as a foreigner buying property in Australia. One of these is known as the Foreign Citizen Stamp Duty. This is an extra stamp duty levy of up to 8%, and depending on the state, you buy property in, a 2% land tax surcharge on top of that.
If you are a foreign person (including temporary resident or foreign non-resident) and you plan to invest in Australian residential real estate, there are obligations, you will need to meet under Australian law. Before you start, you need to check the Foreign Investment Review Board (FIRB) guidance notes to see if you are affected by these laws.
A foreign person is defined in Section 4 of the Act;
To apply to purchase residential real estate, you need to submit a Residential real estate application and pay an application fee. The fees apply for each application, and the value of the property determines the amount.
Residential real estate includes:
The Residential property investment: fact sheet for foreign owners provides information to guide you through the requirements of applying to purchase Australian residential real estate.
Step 1. Obtain FIRB approval
Before you purchase residential real estate, you must obtain Foreign Investment Review Board (FIRB) approval and pay a fee. To apply, complete and submit the Residential real estate application form available at https://www.ato.gov.au/General/Foreign-investment-in-Australia/Residential-real-estate-application---instructions/.
Incorrect applications or information may result in delays in processing and additional charges.
Step 2. Review your FIRB approval conditions
You will generally receive your FIRB approval within 30 days. The approval letter will tell you any conditions you must follow when you purchase your property and after settlement (the date that ownership of the property transferred to you, not the sale date).
If you do not comply with these conditions, you may be liable for an infringement notice, criminal prosecution or civil penalty.
Step 3. Record your property on the ATO Land and water register
The ATO records purchases of residential property by foreign persons on the ATO Land and water register. As a condition of your FIRB approval, you are required to enter your purchased property on the ATO Land and water register within 30 days of settlement. You will need to tell us your:
Important
Once you enter your information, you will receive an ATO Land registration number, which you need to use when you lodge your Vacancy fee return.
Step 4. Lodge your Vacancy fee return
If your land has a residential dwelling on it, you must lodge an annual Vacancy fee return within 30 days of the end of every 12 month period you own it. This is called the ‘vacancy year’.
It would help if you told us how the dwelling was used over the previous 12 months in the Vacancy fee return.
We will email you a reminder to lodge your Vacancy fee return when it is due to the email address you gave us in your ATO Land and water registration. You will need your ATO land registration number to lodge your Vacancy fee return.
For more information on the Vacancy fee, see ato.gov.au/vacancyfee.
Make sure you tell us if your details change so that we can contact you about your property.
To update your email address, you can either:
If your situation or the ownership of your property changes, update your details by completing the ATO Land and water registration form at ato.gov.au/firb_land_registration
Fee waiver
There are limited circumstances where a fee waiver or remittance will be granted, and each will be determined on a case-by-case basis. For example, fees generally won't be waived or remitted following an unsuccessful attempt to purchase property or if there has been a change of mind to invest in the targeted property.
If you wish to apply for a fee waiver, you will need to submit a fee waiver form and attach relevant documents to support your claim. Fee waivers will not be considered before an application has been submitted.
Getting a tax file number and lodging tax return
You must lodge a tax return if you were a foreign resident and you had income taxable in Australia, which did not have a final non-resident withholding tax withheld from it. If you are a foreign resident and acquire an interest in Australian real property:
Tax File Number (TFN)
A tax file number (TFN) is free and identifies you for tax and superannuation purposes. It's yours for life. You keep the same TFN even if you change your name, change jobs, move interstate or go overseas. If your details change, you need to let us know.
How you apply for a TFN depends on your circumstances. Use the relevant application process for:
You should receive your TFN within 28 days after we receive your completed application and required documents. To prevent delays, don't lodge another application. We appreciate your patience during the processing period. If you haven't received your TFN after 28 days, you are advised to contact the authority.
Keeping your Details Safe
Make sure you protect your identity by keeping all your personal details secure, including your TFN. Someone only needs some basic details such as your name, date of birth, address, myGov details, or TFN to commit identity fraud.
There are only a few people and places that can ask for your TFN, including:
Keep your TFN private. It would help if you did not share it with anyone not listed above. Please check your applicable vacancy fee for a foreign owner.
Vacancy Fee
The vacancy fee return must be lodged by foreign owners of residential dwellings who:
The vacancy fee may also apply where a foreign person failed to submit a foreign investment application but purchased a residential property before 9 May 2017. Foreign owners of vacant land do not have to lodge a vacancy fee return until a dwelling has been constructed on the land. When multiple dwellings are constructed on the land, a vacancy fee return must be lodged for each new dwelling constructed.
You must lodge a return even when the dwelling has been occupied or made available for rent. If two or more people own the dwelling as joint tenants, you only need to lodge one return. If you own a share of a dwelling as a tenant in common, you each must lodge a vacancy fee return. If you are not sure whether you are a joint tenant or a tenant in common, please check the latest information on the Foreign Investment Review Board (FIRB) site.
If any of the following occur during a vacancy year, a vacancy fee return will not be required to be lodged:
Disposing of Australian property
If you sell (or otherwise dispose of) an interest in taxable Australian property, you must report it in an Australian tax return and pay capital gains tax on any profit. Taxable Australian property includes houses, apartments and commercial buildings.
Your interest in the property may be:
In the year you dispose of your interest in a property, you need to work out your net capital gain or capital loss and report it in an Australian tax return. If you have made a capital gain, you will pay tax on the gain.
Off-the-plan properties
An off-the-plan purchase occurs when you enter into a contract to purchase new residential taxable Australian property before the construction is completed. At this stage, you are purchasing a contractual right to have the premises built.
If you dispose of this contract right before the construction is completed, you will have a capital gains tax obligation.
Property developers
If you build new residential premises for sale, you will be liable for goods and services tax (GST) on the sale and entitled to claim GST credits for related purchases. GST does not apply to the sale of existing residential premises.
Commercial premises and GST
Commercial premises are things like shops, factories and offices.
If you buy, sell, lease or rent commercial premises, you may be liable to pay GST and entitled to claim GST credits for related purchases. However, most residential accommodation is exempt from GST.
After reading this, you should have a better idea of the process of buying property in Australia as a foreigner and paying the tax. But you must have updated information and do your homework.
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Have a chat with one of our esteemed members of the Juwai IQI team to start a new chapter in Australia.
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