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Key Policy Update: Sharp Rise in Overseas Property Vacancy Tax – Time for Quick Action?

R&D Tax Incentives
 

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On 10 December 2023, Australian Treasurer Jim Chalmers revealed significant updates to the existing foreign investment framework, with the goal of enhancing Australia's housing inventory and increasing housing availability for Australians. Those changes announced include: 


  • a tripling of foreign investment fees for the purchase of established homes;

  • a doubling of vacancy fees for all foreign‑owned dwellings purchased since 9 May 2017 (which together mean a six‑fold increase in vacancy fees for future purchases of established dwellings);

  • enhancing the ATO’s compliance regime to ensure foreign investors comply with the rules, including selling their residence when required.


These changes are not yet law. Amendments to the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 and Foreign Acquisitions and Takeovers Fee Imposition Regulation 2020, are required before fees can increase. The government has announced it intends to introduce legislation into parliament in 2024.


Additionally, from 14 December 2023 the commercial fee schedule will apply to eligible build to rent projects. This measure will be implemented by Treasury.

 

Tripling of foreign investment fees

Fees for single action applications are typically determined by identifying the type of action and then, if applicable, working out the fee based on the relevant consideration value. In most cases, fees increase in proportion to the fee constant. For instance, the fee constant for residential land acquisition is $1 million, for agricultural land it's $2 million, and for commercial land it's $50 million. This translates to incremental fee increases of $28,200 per fee constant. Additionally, there's a maximum fee cap in place, ensuring that fees for a single action do not exceed $1,119,100 (or $279,775 for reviewable national security actions). 


Outlined below are some examples of application fees: 

FIRB Application Fee

* Fees start at $14,100 for acquisitions of $1 million or less, rising to a maximum of $1,119,100 for acquisitions of more than $40 million

 

Doubling of vacancy fees

Foreign individuals who own residential properties face an annual vacancy fee if their property was acquired on or after 9 May 2017 and remains unoccupied or not genuinely available on the rental market for at least 183 days (approximately six months) within a 12-month period.


Typically, the vacancy fee corresponds to the residential land application fee paid by the foreign individual at the time of seeking foreign investment approval for property acquisition. This fee acts as an incentive for foreign investors to make their unused properties available for rent. The proposed doubling of this fee is intended to strengthen this measure, potentially resulting in a six-fold increase in vacancy fees for investors acquiring established dwellings.


Outlined below are some examples of application fees:

Vacancy Fee

* Fees start at $14,100 for acquisitions of $1 million or less, rising to a maximum of $1,119,100 for acquisitions of more than $40 million

 

These regulatory changes are poised to impact every overseas investor currently engaged in Australian real estate investments or contemplating such investments in the future. In light of these developments, we strongly encourage you, as overseas investors, to stay attentive to evolving investment decision in Australia. We will continue to monitor these updates closely to ensure that your interests are maximally protected.


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