Foreigners buying Australian Property in NSW
Recently the New South Wales (NSW) and Commonwealth of Australia governments introduced additional fees and charges regarding the transacting of property by foreigners.
In NSW a foreign purchaser now needs to take the following additional charges into consideration when budgeting to buy into the great Australian dream:
- FIRB fees
- A four per cent (4%) surcharge on stamp duty
A three-quarter of a percent (0.75%) surcharge on land tax
What is FIRB?
The Foreign Investment Review Board (FIRB) is legislated to assess foreigners (those without permanent residency status in Australia), who want to buy a house or land within Australia, to ensure they comply with government regulation. A foreigner must receive FRB approval before a land purchase is approved.
The FIRB assesses whether land may be sold to a particular investor, whether the investor can afford the land, and whether the sale is deemed appropriate under the regulation. There are two methods of obtaining FRIB approval. Either:
(a) the purchaser selects a property and applies to the FRIB for approval; or
(b) a developer obtains approval from the FRIB for a percentage for the development to be sold to foreign purchasers.
Where a developer has obtained the approval from the FRIB to sell to foreigners, the foreign purchaser does not need to apply to the FRIB for approval to buy the property. The FRIB will usually determine the percentage of the development, which can be sold to foreign purchasers.
Who needs FIRB approval?
You will need FIRB approval if you fall into the following categories:
If you are on a temporary visa such as a spouse visa, 457 work visa or student visa, there are conditions to FIRB approval as follows:
- You can only buy one (1) established dwelling and it must be to live in, however you will be required to sell it once you do not live there anymore.
- You can buy an investment property, however it must be a new property or vacant land to build a new property. This is to stimulate the construction industry.
- You do not need FIRB approval if you are buying the property with an Australian citizen as joint tenants and you are in a spousal relationship. Approval does not apply to other relationships like business partners, parents and child, siblings, friends or relatives.
If you are a foreign investor:
- You will need approval from the FIRB.
- The investment property must be a new property or vacant land to build a new property.
- You cannot buy an established dwelling as an investment property.
- You can buy a new property in your name and rent it out to your child if they are on a temporary visa.
Exceptions for foreign citizens
You are exempt if:
- The property developer has obtained an exemption certificate for the new property that you are buying.
- You inherited the property.
- You were awarded the property by a court order.
- You were awarded the property in a divorce settlement.
Who does NOT need FIRB approval?
- Australian citizens (regardless of whether they are ordinarily resident in Australia or not);
- New Zealand citizens;
- Holders of an Australian permanent visa; or
- Foreign persons purchasing property as joint tenants with their Australian citizen spouse, New Zealand citizen spouse, or Australian permanent resident spouse.
In mid-2015 the government imposed FIRB charges for an application to all foreign investors who want to buy land or property in Australia.
The fees can vary depending on the value of the residential property or land that you want to purchase. Currently, the ATO fees are:
- $1 million or less: $5,000
- $1 million to $1,999,999: $10,000
- $2 million to $2,999,999 $20,000
- $3 million or higher: $10,000 per every $1 million
When is approval required?
An individual cannot apply for FIRB “pre-approval” so you should refer to the FIRB guidelines before you begin looking for an Australian property. You can only apply for FIRB approval when you have chosen a specific property to buy.
As long as you’re following the FIRB‘s rules then it is highly likely that your investment will be approved. Once you find a property then you can sign the contract of sale with a condition that allows you to back out of the purchase if FIRB approval is not granted.
2. FOREIGNERS STAMP DUTY
The NSW Budget introduced an additional four per cent (4%) surcharge purchaser duty on the purchase of residential real estate by foreign persons on 21 June 2016.
The surcharge is imposed when you are buying residential property in the State of New South Wales. The surcharge doesn’t apply to commercial property.
It only applies if you are a foreign citizen or temporary resident. This does not apply if you are an Australian citizen, permanent resident or a New Zealand citizen on a Special Category Visa (subclass 444).
The surcharge is only applicable if you signed the Contract of Sale after 21 June 2016. This is only for the stamp duty surcharge – a land tax surcharge also applies to purchases made from 1 January 2017.
In addition to this, foreign investors will no longer be entitled to the twelve (12) month deferral for the payment of stamp duty for off the plan purchases of residential property.
This surcharge will also apply to landholder transactions if there is a landholder liability and:
- one (1) or more of the properties owned by the landholder is classified residential; and
- the purchaser is a foreign person who purchases shares or units in the landholder.
From 21 June 2016, all transferees who are liable to pay duty in respect of a dutiable transaction must lodge a purchaser’s declaration in the approved form which identifies whether or not they are foreign purchasers.
The new regulations are complex and you should seek expert advice when purchasing property or shares in a company that owns property or purchasing property as an individual.
3. LAND TAX
The NSW Budget introduced a three-quarter of a percent (0.75%) surcharge land tax of the taxable value of residential land owned by a foreign person at midnight on 31 December 2016 in any year from 2016 onwards.
The tax is separately assessed in relation to each parcel of land and is payable in addition to any land tax otherwise payable by a foreign person. There is no minimum land value, nor is there any exemption for land occupied by a foreign person as a principal place of residence.
Claire Martin is a Solicitor on the Kreisson Property team.
This communication is sent by Kreisson Legal Pty Limited (ACN 113 986 824). This communication has been prepared for the general information of clients and professional associates of Kreisson Legal. You should not rely on the contents. It is not legal advice and should not be regarded as a substitute for legal advice. The contents may contain copyright.