Foreign owners of residential dwellings

By Denise Honey - August 16, 2018

As part of the Government's housing affordability plan, foreign owners of residential dwellings are required to lodge a vacancy fee return within 30 days of the anniversary of taking possession. Failure to do so could result in a fine of $52,500.

Overview

As part of a broader policy framework relating to foreign investment in housing, the Government has introduced a vacancy fee – a fee payable by a foreign person that owns a residential dwelling if the dwelling is vacant for at least six months in a 12 month period. The fee is equal to the fee paid in respect of the application for foreign investment approval. A foreign person who fails to lodge the return will be liable for the vacancy fee regardless of the number of days the dwelling was occupied and may incur a penalty of $52,500.

Who is a foreign person?

The term ‘foreign person’ is defined to mean a person not ordinarily resident in Australia. A foreign citizen would not be ordinarily resident in Australia at a time if, either, the individual was in Australia on a limited term visa or had actually been in Australia for less than 200 days in the 12 months preceding that time. Technically, the term would also include an Australian citizen. However, Australian citizens are exempt from the requirement to obtain approval to purchase a residential dwelling[1].

A company will be a foreign person if, either, it is established outside Australia or, having been established in Australia, is one in which a foreign person holds (or has a right to acquire[2]) an interest of at least 20% either alone or with one or more associates. “Associate” is a broadly defined term.

A trust will be a foreign person if an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds an interest of at least 20% either alone or with one or more associates. For this purpose, the interest that an individual holds in a discretionary trust is the maximum percentage of income or property of the trust that the trustee may distribute to that individual[3].

When is a dwelling vacant?

A dwelling would be regarded as vacant unless: a) the dwelling is genuinely occupied as a residence by the owner or a relative; b) the dwelling is occupied by an unrelated person under a lease or licence covering a period of at least 30 days; or c) the dwelling is genuinely available for occupation as a residence under a lease or licence covering a period of at least 30 days.  

When is a dwelling genuinely occupied or genuinely available for occupation?

Those terms are not defined in the legislation so it’s a question of fact.  There are some examples in the guidance material.  In one, an apartment owned by Nick, a foreign citizen, is rented through Airbnb so as to provide Nick with the flexibility to be able to use the property at short notice.  While users of Airbnb could have rented the apartment for periods of at least 30 days, records evidence that the apartment is generally rented for less than one week at a time.  In this case, the apartment would not be considered to be genuinely occupied and Nick will be liable to pay the vacancy fee for this apartment.

When is the return due?

The vacancy fee return must be lodged with the Australian Taxation Office within 30 days after the end of the foreign owner’s vacancy year. The vacancy year is each successive period of 12 months measured from the foreign person’s ‘occupation day’. The occupation day will usually be the first day the foreign person has the right to occupy the dwelling – typically, the settlement date under the purchase contract.Importantly, a vacancy fee return is require to be lodged even if it was not vacant at any time during the relevant vacancy year. If the return is not lodged, the dwelling is deemed to be vacant for the requisite period triggering a liability for the vacancy. In addition, the legislation provides for a failure to lodge penalty of $52,500.

What is the amount of the vacancy fee?

The vacancy fee amount is equal to the fee that was paid or would have been required to have been paid in the absence of an exemption certificate in respect of the application for foreign investment approval. Application fees vary based on purchase price. For example, the current application is $5,600 where the purchase price of the dwelling is $1 million or less rising to $102,300 where the purchase price is between $9 million and $10 million.

Are there any exemptions?

The requirement to lodge a vacancy fee return only applies to foreign persons who lodged an application for foreign investment approval or exemption after 9 May 2017. Returns for those first affected by the new regime will be falling due around now. In addition, foreign owners of vacant land do not have to lodge a vacancy fee return until a dwelling has been constructed on the land. There are also exemptions from the vacancy fee (but not the requirement to file a return) including where the dwelling is undergoing substantial repair or renovation or where the tenant is receiving long-term, in-patient, medical or residential care. 

What are the next steps?

Clients should contact their Pitcher Partners representative to review their situation and determine what, if any, further action is required.

[1]       Foreign Acquisitions and Takeovers Regulation 2015, Reg 35.
[2]       Foreign Acquisitions and Takeovers Act 2015, subsection 18(1).
[3]       Foreign Acquisitions and Takeovers Act 2015, subsection 18(3).

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