Foreign property investment in Australia has been an area of growing interest in recent years. With Australia’s stable economy, high-quality infrastructure, and appealing lifestyle, it is no surprise that foreign investors are keen to purchase residential and commercial properties.
However, potential foreign buyers must understand that several additional taxes, fees, and restrictions apply when purchasing property in Australia. These financial considerations can significantly impact the overall investment cost in Australian real estate.
This blog outlines the key taxes and fees foreign property buyers must know when considering purchasing property in Australia.
Let’s Get Straight To The Point
Foreign property buyers in Australia face additional taxes, fees, and restrictions, significantly increasing investment costs.
These include state-based stamp duty surcharges (7-9%), annual land tax surcharges (up to 5%), federal application fees (starting at $44,100), vacancy fees for underutilised properties, and capital gains tax (CGT) obligations.
Foreign buyers are restricted to purchasing new or off-the-plan properties, must report income annually to the Australian Taxation Office, and comply with strict tax laws. Consulting legal and tax professionals is essential to navigate these complexities effectively.
Additional Taxes And Fees For Foreign Property Buyers
1. Additional Stamp Duty
Stamp duty is one of the most significant costs foreign buyers face when purchasing property in Australia. It is a state-based tax levied on the property transfer and payable at purchase time.
While Australian residents must pay the standard stamp duty rates, foreign buyers are subject to additional surcharges in most states and territories.
Stamp Duty Surcharges by State and Territory:
- New South Wales (NSW): Foreign buyers must pay an 8% surcharge, which will increase to 9% by 2025. This surcharge is in addition to the standard stamp duty rates.
- Victoria: Foreign buyers are also subject to an 8% surcharge on the property’s purchase price in Victoria.
- Queensland: Foreign buyers in Queensland must pay a 7% surcharge on top of the standard stamp duty.
- Western Australia (WA): A 7% surcharge applies to foreign buyers in WA.
- South Australia (SA): Foreign property buyers in South Australia face a 7% surcharge.
- Tasmania: Tasmania imposes an 8% surcharge on residential properties and a 1.5% surcharge on primary production land.
These surcharges apply to the purchase price of residential property. In addition to the standard stamp duty rates, they make the total cost of purchasing property significantly higher for foreign buyers.
2. Land Tax Surcharges
In addition to the stamp duty surcharge, some states and territories impose an additional land tax surcharge on foreign property owners. This tax is applied annually and is based on the property’s value.
Land Tax Surcharges by State and Territory:
- New South Wales (NSW): Foreign owners must pay a 4% surcharge on land tax, which will rise to 5% by 2025.
- Victoria: Foreign owners in Victoria are subject to a land tax surcharge. This surcharge applies to properties owned by foreign individuals or entities.
- Queensland: Foreign buyers in Queensland must also pay an additional land tax surcharge on their properties.
- Australian Capital Territory (ACT): A land tax surcharge applies to foreign property owners.
These land tax surcharges are a substantial additional cost for foreign property owners and can significantly impact the profitability of owning and renting property in Australia.
3. Federal Fees And Taxes
In addition to state-based taxes and surcharges, foreign buyers are also subject to various federal fees and taxes.
Federal Application Fees:
Foreign buyers must pay application fees to the Foreign Investment Review Board (FIRB) when applying to purchase property in Australia.
These fees are based on the value of the property being purchased:
- For properties valued under $1 million, the application fee is $44,100.
- For properties valued between $1 million and $2 million, the application fee is $88,500.
- For properties valued over $2 million, the application fee increases accordingly.
These application fees can significantly increase the upfront cost of the purchase process for foreign buyers, making it essential to factor them into the overall investment calculation.
Vacancy Fees:
A relatively new tax, the vacancy fee, is levied on foreign owners of residential properties. The fee applies if the property is not rented out or occupied for at least six months per year.
This measure aims to address housing affordability and ensure that foreign investors do not leave properties vacant for extended periods, thus contributing to a shortage of rental properties. This is particularly relevant in major cities like Sydney and Melbourne, where rental demand is high.
Capital Gains Tax (CGT):
Capital gains tax (CGT) is another important consideration for foreign property investors. A foreign property owner must pay CGT on the capital gain if they sell their property for a profit. This tax applies to individuals and entities (such as companies) that are non-residents.
The current CGT rate for foreign residents is the same as that of Australian residents. Still, foreign investors may not be eligible for the main residence exemption, which allows Australian residents to avoid CGT on the sale of their primary residence.
From July 2025, a 12.5% withholding tax will be applied to property sales by foreign residents, increasing to 15% from 2025. This tax applies to selling properties over $750,000 and ensures that foreign sellers meet their tax obligations before leaving the country.
4. Restrictions On Property Types
Foreign buyers in Australia are generally restricted to purchasing new dwellings or off-the-plan properties. This restriction prevents foreign buyers from purchasing established properties, which could further exacerbate housing affordability issues.
Foreign investors who want to develop the land are eligible for certain exceptions, which the Foreign Investment Review Board (FIRB) must approve.
5. Annual Tax Returns And Reporting Obligations
In Australia, foreign real estate investors must submit an annual tax return to the Australian Taxation Office (ATO).
This ensures foreign investors meet their tax obligations and report any income from Australian property investments. Failure to file an annual tax return can result in significant penalties and interest charges.
Additionally, foreign property investors may need to report the property sale to the ATO and pay any applicable capital gains tax on profits made from the sale. The reporting requirements can be complex, and foreign buyers should consult with a tax professional to ensure they meet all their obligations.
Conclusion
Investing in Australian property as a foreign buyer involves significant financial considerations due to additional taxes, fees, and restrictions. These include stamp duty surcharges, land tax surcharges, federal application fees, and vacancy fees, which can significantly increase the cost of property ownership.
Furthermore, foreign investors face restrictions on the types of properties they can purchase and ongoing tax and reporting obligations. It is essential for foreign buyers to carefully evaluate these costs and obligations when planning their investment in Australia.
Legal and tax experts might be consulted to maximise the investment’s financial results and guarantee adherence to all legislation. Understanding these complexities is key to making informed decisions and successfully navigating Australia’s property market.
Frequently Asked Questions
Are There Ongoing Taxes For Foreign Property Owners?
Foreign property owners may need to pay land tax surcharges, which vary by state or territory. For example:
- In New South Wales, a surcharge land tax of 2% applies.
- In Victoria, the surcharge is 1% for foreign owners.
Can Foreign Buyers Avoid These Additional Taxes?
Generally, no. These taxes are designed specifically for foreign buyers. However, exemptions or reductions may apply in certain cases, such as when a foreign buyer becomes a permanent resident or citizen.
Are There Restrictions On The Type Of Property Foreign Buyers Can Purchase?
Foreign buyers typically can only purchase new dwellings, vacant land, or properties for redevelopment, subject to FIRB approval. Buying established (existing) dwellings is generally restricted.
Can A Foreign Buyer Consult Professionals For Advice?
Absolutely. Foreign buyers are strongly encouraged to consult property lawyers, accountants, or real estate experts familiar with Australian laws to understand their obligations fully.
How Can Foreign Buyers Stay Compliant With Australian Tax Laws?
Foreign buyers should:
- Apply for foreign investment approval before purchasing a property.
- Register their investment with the appropriate authorities.
- Lodge annual vacancy fee returns if applicable.
- Obtain an Australian Tax File Number (TFN).
- Report any rental income or capital gains by filing Australian tax returns.