Foreign property owners slapped with fee for vacant property

December 2017

Australia has followed the international trend of penalising foreign owners of Australian residential property who keep their property vacant for extended periods of time.

Last month Parliament approved legislation that imposes an annual vacancy fee on foreign owners of residential real estate if the property is not occupied or genuinely available on the rental market for at least 183 days in a particular 12-month period.

So what does this mean for foreign property owners?

What Does This Mean for Foreign Property Owners?

Foreign owners can avoid the fee by living in the property (or have a family member live in the property), leasing the property, or making it available for rent, for a total of 183 days in a 12-month period. A property is genuinely available for rent if it is made available on the rental market; advertised publicly; and, available at a market rent.

Interestingly, the law requires the property to be let for a minimum of 30 days – so short-term rentals arranged through platforms such as AirBNB are not an option unless the rental period is 30 days or more.

If owners fail to comply with the new law the Government has the capacity to recover any outstanding fee as a debt and/or by the creation of a charge over Australian land owned by the foreign person.

How Much is the Vacancy Fee and When Does It Apply?

The vacancy fee is equal to the initial foreign investment application fee (currently $5,500 for properties acquired for $1m or less). The vacancy fee can also apply even if the initial application fee was waived.

A vacancy year generally starts at settlement when the property was acquired or in some cases when the occupancy certificate is issued for newly built dwellings. The new vacancy fee system only applies if the notice or application to acquire the property was submitted with the Foreign Investment Review Board on or after 7.30pm on 9 May 2017. 

Foreign Owners Will Be Required to Lodge a Vacancy Fee Return

Importantly, a foreign person who falls within the scope of the rules will need to lodge a vacancy fee return with the ATO within 30 days of the end of the relevant 12-month period. 

If this obligation is not met then the owner is deemed to be liable to the vacancy fee, even if the 183-day occupation requirement was actually satisfied. The main exception to this is where the owner has disposed of their interest in the property before the end of a particular vacancy year.

Speak to Our International Tax Team

If you're a foreign taxpayer with Australian property assets, then speak to our team on +61 2 99574033 to get further guidance on how this legislation affects your property holdings.

Please note, we are closed for the Christmas & New Year break and will be back in the office from 9 January 2017.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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