Considering investing in Australian real estate as a non-resident? The good news is, you can!
We’ll walk you through the essentials, covering eligibility criteria, costs, and the government’s approval process.
Purchasing options essentially align with three major pathways:
- Obtain an approval from the ATO, regardless of the type of property you’re interested in—be it a new dwelling, an established one, or vacant land. Keep in mind that the associated fees are typically non-refundable, so it’s crucial to decide wisely.
- If you’re looking to buy a property in places where homes are mostly sold at auctions, such as Bondi Beach, you can apply for a general exemption for the whole “Bondi Beach area” instead of getting a separate certificate for each specific property.
- If below conditions are met, you do not need an approval or an exemption.
-
- A property development has 50 or more homes
- The developer has a special certificate called ‘developer exemption certificate’
- The property is valued up to 3 million Australian dollars
Furthermore, keep in mind that your intended use for the property—whether you plan to keep it vacant, rent it out, or reside in it—can lead to varying outcomes.
Property purchases typically fall into one of three categories: owner-occupied, rental properties, or vacant properties. Regardless of your intentions, a well-informed purchase at the right price and in the right location can lead to substantial capital gains over several years. For expert tips on making the ultimate investment in the Australian property market, you can refer to our blog post Rising Returns’ 72-Step Property Purchase Checklist.
1. Owner-occupied
This offers the most advantages for non-resident purchases.
Owner occupiers have the option to buy an existing property instead of a new build.
As detailed in this article, existing homes can be a better financial decision since they often come with a larger portion of land compared to new dwellings. This means when you buy an existing property, you’re likely getting more land value for your money than you would with a newly built property.
2. Rental properties
To rent out your investment property you are not allowed to buy existing properties. You could do either of the following:
- Acquire a newly developed property
- Construct a new property on vacant land
This helps increase supply in the Australian rental market which is a top priority for the government. By doing so, you support both builders and developers, ultimately contributing to Australia’s economy.
3. Vacant properties
If the property remains vacant, an annual vacancy fee must be paid.
Generally, the vacancy fee equals the residential land application fee paid by the non-resident when applying for foreign investment approval to purchase the property, or when an exemption was requested or acquired through the developer exemption certificate scheme.
If the fee from the initial application was waived or exempted, the same amount that was originally meant to be paid remains applicable.
You must pay the vacancy fee if the following conditions do not apply.
- Your property is occupied
- Your property is available on the rental market
- Your property is rented out for 183 or more days (6 months) in a 12 month period
Regarding eligibility for purchase under specific conditions
If you are acquiring a property jointly with a spouse who is an Australian or New Zealand citizen (or permanent resident), there is no requirement for FIRB (Foreign Investment Review Board) approval.
Foreign investors should acquaint themselves with Australia’s foreign investment regulations and ensure strict adherence to the legal requirements. Non-compliance may lead to penalties.
Now that we’ve learned about how investments are regulated in Australia for non-residents and the available options, let’s take a closer look at the associated costs:
- Foreign investment application fee (or exemption certificate)
- Stamp duty
- Capital Gains Tax
1. Foreign Investment Application Fee
The current fees from 1 July 2023 to 30 June 2024 are:
| Amount | Fee |
|---|---|
| 1,000,000 AUD or less | 14,100 AUD |
| 2,000,000 AUD or less | 28,200 AUD |
| 3,000,000 AUD or less | 56,400 AUD |
| 4,000,000 AUD or less | 84,600 AUD |
| 5,000,000 AUD or less | 112,800 AUD |
2. Stamp Duty
In addition to the first home buyer grants available in various Australian states and territories, which require Australian citizenship or permanent residency for eligibility, there is a universally applicable tax on property purchases throughout Australia known as Stamp Duty. This tax, calculated based on the property’s price, involves a complex calculation that varies depending on whether the property is for rental purposes or primary residency, as well as the specific state or territory where it’s located.
3. Capital Gain Tax
Understanding Capital Gains Tax (CGT)
Capital gains tax (CGT) is a tax on the profit you make when you sell assets like property.
When you sell something valuable, like a house, you must report any profit or loss from the sale on your income tax return.
Here’s how it works:
- If you sell for more than you bought (a capital gain), you’ll need to pay extra income tax. It’s wise to calculate this tax and save for it.
- If you sell for less (a capital loss), you can use this loss to lower your taxes for that year or future years. So, it’s important to include these losses in your tax return.
To estimate the Capital Gain Tax, please use the this link.
Conclusion
In summary, non-residents can successfully invest in Australian real estate by understanding the various purchasing options, from owner-occupied to rental properties. Key considerations include obtaining ATO approval, choosing the right type of property, and being aware of the fees and taxes involved, such as the foreign investment application fee, stamp duty, and capital gains tax. It’s essential to comply with Australia’s foreign investment regulations to avoid penalties. With informed decisions and adherence to legal requirements, investing in Australian property can be a profitable venture for non-residents, offering potential for significant returns.
