New laws have been enacted to implement vacancy fees on foreign owners of residential land as part of the Housing Affordability 2017-18 Agenda to increase housing availability and create greater rental utilisation.
Who does the charge apply to?
Foreign owners (as defined) that submitted an application or notice to the Foreign Investment Review Board (FIRB) after 7:30pm (AEST) 9 May 2017 will need to consider the impact of the new rules. This captures any foreign individual (those that are not ordinarily a resident in Australia and are not Australian citizens), companies or trusts held by foreign persons. Foreign persons acquiring a residential property under a New Dwelling Exemption Certificate or a Near-New Dwelling Exemption Certificate (held by the developer) approved prior to the time will not be captured.
The vacancy fee applies to foreign owners of unoccupied residential property or residential property not genuinely available on the rental/licensing market (with at least 30 day terms), for at least a total of six months (183 days) out of a year (vacancy year). The person occupying the property does not have to be the owner of the property. New dwellings under construction or redevelopment will also be considered to be occupied until completion.
The vacancy year commences on the owner’s initial right to occupy the property (i.e. settlement).
Vacancy fee payable
Broadly, the vacancy fee payable will be equivalent to the fee payable for the residential land acquisition application to the FIRB at the time. As of the date of this Riposte, an acquisition of residential land priced up to $1 million will be expected to incur a FIRB application fee of $5,500. If a fee that would have been payable at the time of application of acquisition was waived, the vacancy fee is the lowest fee payable for a residential land acquisition, being $5,500.
Purchases covered by an exemption certificate (i.e. new dwelling or near-new dwelling certificates) held by the developer will be assessed as if the purchasers made the acquisition application individually. The effect of which is that the same rates as above apply.
Schedule 1 of the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Vacancy Fees) Act 2017 (commenced 15 December 2017)) sets out the fees payable in specie.
Foreign owners of Australian residential property will need to submit an annual vacancy fee return within 30 days after the end of vacancy year even where there is no obligation to pay vacancy fees. The ATO will notify the owner of any applicable vacancy fees. Owners should be aware that penalties will apply for non-compliance.
Vacancy tax in Victoria
The new Victorian Vacant Residential Property Tax (VRT), applicable from 1 January 2018, will be levied on dwellings in Melbourne’s inner and middle suburbs that are vacant for more than a total of six months in a calendar year. The tax applies irrespective of whether the dwelling is advertised for rent or sale. The Victorian tax operates separately to land tax and the federal vacancy charge above.
The VRT will be applied to owners that own the residential property at midnight on 31 December of the preceding year. This means that although the tax applies from 2018, calculation of liability is based on use and occupation in 2017.
Owners should be aware that for transitional purposes, all properties are deemed to be occupied between 1 January to 30 April 2017 inclusive. Residential property owners will need to occupy or use the land for at least two months between 1 May and 31 December 2017 to avoid a liability arising.
The applicable tax rate will be 1% of the property’s capital improved value (displayed on council rates notice) and payable annually. Exempted properties include holiday homes owned by those with a principal place of residence in Australia, city units for work purposes, properties in deceased estates and homes subject to legitimate temporary absences (e.g. medical care, overseas appointments). If a property changes ownership (including settlement) during a year, it will also be exempt from VRT in the following year.
The new proposed tax will rely on self-reporting. Owners of vacant residential property will be required to notify the State Revenue Office (SRO) of any vacant properties that they own or any exemptions by 15 January via the SRO online portal each year. Property owners should be diligent in reporting as failure to notify the SRO by the date may attract penalties.