Measures were introduced in the 2017 budget to assist with the supply of housing in Australia. The measures impose an extra fee on foreigners who do not either reside in, or rent out, their Australian properties. This is in response to a perception that there were too many of these ‘ghost’ properties.
The annual vacancy fee will be levied on foreign owners of residential real estate where the property is not occupied or genuinely available on the rental market for at least six months in a 12 month period.
The vacancy fee applies to foreign persons who make a foreign investment application for residential property after 9 May 2017 and to foreign persons who are purchasing in a development that has a New Dwelling Exemption Certificate which was applied for after 9 May 2017.
Obligation to lodge vacancy fee return
The ATO will assess the vacancy fee amount that is payable following lodgement of the vacancy fee return by the foreign person.
Where a vacancy fee return is not lodged on time, the foreign owner of the dwelling is taken to be liable to pay a vacancy fee regardless of the number of days during the vacancy year on which the dwelling was residentially occupied. The ATO will notify the foreign person in writing if the vacancy fee is payable and the amount of the fee payable.
Do you need to do a return if you are a foreign person even if you rent it out or live in it for the full year?
Yes. Foreign owners of residential real estate will need to report annually, via lodgement of a vacancy fee return, about the use of their property in the previous 12 months (vacancy year). The vacancy fee return is required to be lodged with the ATO in the approved form within 30 days of the end of each vacancy year.
The period for which the ATO will assess liability is the vacancy year, that is the 12 months after the first day the foreign person acquires the right to occupy the property (for example, the date of settlement or receipt of an occupancy certificate). This is also the date from which the liability to pay the fee arises in future years. This means that if the property is settled on 8 August 2017, it will need to be occupied or genuinely available for six months or more from that date to 8 August 2018.
In subsequent years, liability for the annual vacancy fee will be assessed yearly from the date of settlement or receipt of the occupancy certificate.
How much is the fee?
Generally, the vacancy fee payable will be equivalent to the residential land application fee that was paid by the foreign person at the time the application for foreign investment approval was made to purchase the property. The minimum amount is $5,500 (for a property with a value under $1 million) and increases for each $1 million of value. [Please see fees schedule in the FIRB Treasury guidance note 29: Fees – residential land].
The ATO is able to issue an infringement notice if a person fails to keep the required records for the timeframe specified (five years) or fails to lodge a vacancy fee return by the due date.
If a foreign person fails to submit a vacancy fee return or retain required records then they may be liable to a civil penalty of 250 units (currently $52,500).
Further, a failure to submit the vacancy fee return will result in a deemed vacancy for that dwelling in the 12 month period (vacancy year). These measures are designed to encourage compliance with the vacancy fee regime.
Any unpaid vacancy fees for a property may be recovered as a debt or by the creation of a charge over Australian land owned by the foreign person.
The definition of “foreign person” for the purpose of this new rule is very broad which may include companies and trusts. So if you would like to know more about the new rule and how it may apply to your situation, please contact one of our experts at Hoffman Kelly.