Non-resident Tax Surcharges on Real Estate in Australia
Published: August 2, 2016
Over the last 15 years, the real estate market in Australia has boomed! As of December 2015, the average price of a house in Sydney was A$1,025,478 and in Melbourne was A$718,000.
Partly as a result of the Government of Australia seeking to raise revenue, and partly to try and stymie the “housing affordability crisis” that is currently gripping Australia, various tax measures have been introduced over the last couple of years that directly impact Australian real estate owned by non-residents. These are:
From 2012, non-residents of Australia have had to pay tax on the full profit from the sale of their Australian real estate holdings. Before 2012, only half of the profit was taxable. If the property owner was a resident of Australia for some of the time that they owned the property, then they will be eligible for a partial discount on the profit.
While all purchasers of real estate in Australia have to pay stamp duty on the purchase of a property, foreign purchasers are now required to pay stamp duty at surcharge rates in most States of Australia. For example, from 1 July 2016, the surcharge rate of stamp duty for foreign purchasers in New South Wales is 4%, and in Victoria, 7%. By way of example, a foreign purchaser purchasing a property for A$1,000,000 would have to pay stamp duty of A$80,490 if the property was located in New South Wales (as compared to A$40,490 if the purchaser was an Australia resident), or A$125,000 if the property was located in Victoria (as compared to A$55,000 if the purchaser was an Australian resident).
Taxpayers with land holdings need to pay an annual land tax in the various States of Australia (based on the value of their landholding). The Office of State Revenue in NSW and the State Revenue Office of Victoria have both recently introduced higher annual land tax rates for owners of property that are not Australian residents and are absent from Australia during the taxing period (referred to as “absentee owners” in both jurisdictions).
From 1 July 2016, the Australian Government has introduced a new tax withholding regime that applies where the seller of the property is a non-resident of Australia and the sale price of the property is A$2,000,000 or more. From 1 July 2016, the buyer will be required to withhold 10% of the purchase price of the property and pay that amount to the Australian Taxation Office rather than the seller. Sellers who are Australian resident will need to prove their residency by providing a tax clearance certificate to the buyer. When an amount is withheld by a buyer, the non-resident seller will then claim this amount as a tax credit when lodging their income tax return in Australia.
As can be seen, there are various additional tax imposts now in place that apply to foreign owners of real estate in Australia. To date however, it does not appear as though any of these measures has dampened the level of foreign investment into Australian real estate. However, time will tell.