Tax Alert - Annual Vacancy Fees for Foreign Property Owners

Background:

The Government announced in Budget 2017 that it would seek to increase the supply and affordability of residential property through a number of targeted measures. One of these measures was the introduction of a specific ‘tax’ on empty properties owned by foreigners.

This measure is known as the annual vacancy fee return and applies to any foreign person who applied for a Foreign Investment Review Board (FIRB)/New Dwelling Exemption Certificate on or after 7:30pm on 9 May 2017 to acquire a residential property or residential land in Australia.

The definition of a foreign person however is deliberately wide and will include individuals not ordinarily resident in Australia. It can also capture Australian trusts and companies owning residential property acquired on or after 9 May 2017 where non-resident individual/ individuals have substantial interests in the trust or company.

Substantial interests are defined as 20% and a non-resident beneficiary of a discretionary trust can be treated as having a 100% interest even if they have never received a distribution.

What do foreign persons need to do

Every year the foreign person must lodge an annual vacancy fee return 30 days after the end of their vacancy year for each property. The vacancy year starts from the day they occupy and runs for successive 12 months periods.

If the property has not been residentially occupied, then an annual vacancy fee must be paid after the return is lodged.

Residentially occupied means, for at least 183 days in the vacancy year, one of the following applies:

• the individual foreign person or a relative genuinely lives in the property as a home,
• the property was genuinely lived in as a home for terms of 30 days or more,
• the property was genuinely available to be rented as a home for terms of 30 days or more.

The rental requirements are strict and each of the following 3 tests must be met:

• it must be made available on the rental market
• be advertised publicly, and
• available at a market rate.

If the property cannot be occupied as a home, the fee will not apply although the annual vacancy fee return is still required to be lodged claim the exemption.

Other practical points

To lodge the annual vacancy fee return the foreign owner will need to obtain a Land and Water Register reference by registering the property with the ATO, and this reference can then be used to complete the annual vacancy fee return via the ATO website.

Once the form has been completed the ATO will notify the foreign owner of the vacancy fee required and how to pay by issuing a notice of liability.

If the property is held by joint tenants, only one form needs to be lodged, but if held by tenants in common each will need to lodge a return and pay their share of the annual vacancy fee.

Penalties
A penalty regime applies if forms are not lodged on time, which includes paying the annual vacancy fee due regardless of whether the property was residentially occupied, and a civil penalty of up to $52,500 for failing to lodge the return or keep appropriate records.

What next

Your Bentleys team has extensive experience advising on and dealing with the practical aspects of acquiring property in Australia. We can:

• guide you through the annual vacancy fee return provisions;
• advise if they apply to you, and;
• help you to complete the relevant returns and declarations.

It is important to remember that even if no fee is payable, a return is always due 30 days after the end of the vacancy year for each individual property or a significant penalty could apply.

If you do not live in Australia and have acquired residential property here since 9 May 2017, you will need to meet the annual vacancy fee return provisions, even if you do not need to make a payment.

If your Australian trust or company has acquired residential property here since 9 May 2017, and non-residents have an interest, you will need to consider if the annual vacancy fee return provisions apply.

Please call your friendly tax advisor now to discuss your next steps.