How Property taxes across Australia could impact you

Jan 7, 2020

Property taxes vary greatly across the country. In recent years most states have introduced surcharges for foreigners and different types of entities which could potentially catch locals. In this article we compare different state taxes and explore how you could be caught by a surcharge or vacancy tax.

The following are some taxes and charges you may be liable for:

One-Off Purchase Costs:

Stamp Duty - When you purchase a property you incur stamp duty based on a percentage of the value of the property. The rates differ between states. South Australia has no stamp duty on Commerical property.

Foreign resident Stamp Duty Surcharge - If you are classified as a foreign entity you may pay a surcharge. Particular attention should be given to Trusts and Companies as these entities can potentially be classed as foreign despite there being little or no foreign involvement. This is particularly the case in NSW, Victoria and Tasmania where a Discretionary Trust is classified as foreign unless there is a clause to exclude any potential foreign beneficiaries. All other states need a foreigner to be specifically named in certain capacities before the trust is treated as foreign. Developers may be exempt from the surcharge in Victoria, Queensland and WA.

Foreign Investment Review Board (FIRB) application fee - If you are classified as a foreign entity for FIRB purposes (which is defined differently from other taxes), you need to apply for a FIRB approval before you purchase a property. Only certain types of property are eligible to be purchased and the purchase of established residential property is generally not permitted unless you are a temporary resident.

Annual Holding Costs:

Annual Vacancy Fee - If you lodge or were required to lodge a FIRB application to purchase property after 9/5/17 you will be liable to an annual vacancy fee if your residential property is vacant for more than half a year. This applies anywhere in Australia and the cost is equal to the initial FIRB application fee.

Land Tax - In almost every state you will pay land tax based on the total value of land held in that state each year unless you are exempt. Exemptions can include your principal place of residence. The principal place of residence generally must be occupied by an owner to qualify for an exemption each year. Land held in a particular state is added together with other land held in that state under the same ownership, and as the rates are progressive, you pay higher rates or land tax for additional properties. If you hold property in multiple states, a property held in one state is not added together with a property held in another, so you may be taxed at lower rates than if you held them all in one state.

Land Tax Surcharge - This goes by a different name in different states such as in Victoria where it is called an Absentee owner surcharge. It is payable if you are classified as a foreign entity in the relevant state or as an absentee person in Victoria or Queensland. As with the foreign resident stamp duty surcharge above, citizens can potentially be caught if holding land through a Trust or Company. Developers may be exempt from the surcharge in Victoria and Queensland.

Vacant Residential Land Tax - Victoria also have a vacant residential land tax which can apply to anyone, including citizens who leave properties vacant for more than half a year that are located in certain inner and middle Melbourne suburbs. The charge is based on the capital (improved) value of the property rather than land value so apartments, which generally have a low land value, incur comparatively more vacant residential land tax than land tax. Although this tax is called a land tax it does not apply to vacant land. It only applies to residential buildings or land on which a former residence is demolished and a new residence is being constructed.

Income Tax - If you rent your property, you may be subject to income tax on the net earnings (after deductions).

Selling Costs

Capital Gains Tax - When you sell a property in Australia you are liable to pay Capital Gains tax on any gain that is made unless you are exempt. The main exemption is the main residence exemption. Non-residents for income tax purposes are no longer entitled to the main residence exemption if they sell a property while they are a non-resident after 30 June 2020. Residents are entitled to a 50% reduction of their capital gain if they hold the property for more than 12 months but non-residents are not. The 50% reduction generally doesn't apply to developments as these are taxed as ordinary income.

Foreign Capital Gain Withholding Tax - This is not an extra tax, but rather a collection in advance of Capital Gains Tax payable. This was brought in to avoid non-residents escaping their capital gains tax obligations. On any sale of property of over $750,000, the purchaser will withhold 12.5% of the proceeds as a withholding tax if they are buying from a non-resident. The non-resident then either needs to submit a variation to the ATO before settlement or lodge a Tax Return to declare how much their actual capital gain is. If tax on the actual gain is more than the withheld amount, further tax is payable. If tax is less than the amount withheld then you'll get a refund.

GST - If you are selling commercial property, new residential premises or vacant land, GST may be payable on the sale proceeds. Other residential sales are generally exempt.

Below is a table comparing what property taxes might apply to you in different states:

State

Stamp Duty

Foreign Residential Stamp Duty Surcharge

Land Tax

Foreign Land Tax Surcharge

Vacant Residential Land Tax

Annual Vacancy Fee

SA

Yes (but not on commercial property)

Yes - 7%

Yes

No

No

Yes

NSW

Yes

Yes - 8%

Yes

Yes - 2% of land value on residential

No

Yes

VIC

Yes

Yes - 8%

Yes

Yes - 2% of land value on all land types

Yes - 1% of capital value

Yes

QLD

Yes

Yes - 7%

Yes

Yes - 2% of land value on all land in excess of $350,000 plus higher tax rates apply

No

Yes

WA

Yes

Yes - 7%

Yes

No

No

Yes

TAS

Yes

Yes - 3% (also 0.5% on Primary Production)

Yes

No

No

Yes

ACT

Yes

No

Yes

Yes - 0.75% of land value

No

Yes

NT

Yes

No

No

No

No

Yes

Each state has different definitions, treatments, groupings and rates for property taxes. Some examples include:

  • Different grouping rules for Jointly held land and land held by Companies. SA recently introduced aggregation rules which add jointly held holdings to individually held holdings which is in line with treatments in NSW and Victoria.
  • Land Tax surcharges may be applicable for land held in a Trust in SA, NSW, VIC and Queensland while Queensland also applies a surcharge to land held by Companies.
  • Different thresholds and rates mean that some states and territories such as Tasmania and the ACT tax entities with lower property values significantly higher than other states while South Australia's rate scale taxes land holders with higher value land higher than other states (even after cutting the top rate from 3.7% to 2.4% recently). WA has the highest top tax rate in the Country but because it doesn't apply until total land value reaches $11m, land owners with lower value holdings are taxed less than elsewhere.
  • The definition of a foreign person for determining whether you are liable for a Stamp Duty surcharge or a Land Tax Surcharge differs between states which means you may be foreign in one state but not in another. Generally for an individual you wont be foreign if you are a citizen or permanent resident, except for NSW where permanent residents need to be in Australia for more than 200 days each year to avoid being treated as foreign.
  • In most states a Corporation is foreign if 50% or more of their shareholders (including associates of foreigners who are not foreign) are foreign, while NSW has a much lower threshold of 20% foreign for one group or 40% foreign overall. In Victoria, a Corporation is foreign if more than 50% of shareholders are foreign but it may still be determined to be foreign if certain holders, despite holding 50% or less of shares, are able to influence the outcome of decisions.
  • For discretionary trusts, the definition of a foreigner is different in every state but this measure is the most dangerous for Australian citizens. In NSW, Victoria and Tasmania, unless your Deed specifically excludes any potential foreign beneficiary, your Trust will be considered a foreign trust even if you have never distributed to a foreign person. Queensland, SA and WA require a foreigner to be specifically named in varying capacities before the trust is treated as foreign. In Victoria there is a different definition for stamp duty and land tax purposes. For land tax purposes in Victoria, a trust is foreign if a specified beneficiary is an absentee person. Therefore a Trust could simultaneously be foreign for Stamp Duty purposes but not foreign for land tax purposes in Victoria.
  • Care needs to be taken in South Australia, Queensland and Tasmania where an entity becomes foreign within three years of a residential property purchase, as a stamp duty surcharge will become payable. On a more positive note, in South Australia, if an entity ceases to be foreign within 12 months of purchase, you can apply for a refund of the stamp duty surcharge. In Queensland if the entity is not foreign at settlement, a refund can be applied for.
  • The land tax surcharge for Victoria and Queensland applies to all types of property, not just residential property

Below are examples of how much land tax we estimate would be payable in different states for different types of entities and different residency statuses as at the date of writing. This comparison only applies to land held with a value of $1m as rates differ between states at different levels. For a different value, a state may look better or worse in comparison than below.

Estimate of Land Tax Payable on $1m of total land value held at Ordinary Rates

State

Individual Owner

Corporate Owner

Discretionary Trust Owner

SA

$4,588

$4,588

$9,587

NSW

$4,356

$4,356

$16,000

VIC

$2,975

$2,975

$6,438

QLD

$4,500

$12,500

$12,500

WA (Metro)

$2,730

$2,730

$2,730

TAS

$11,588

$11,588

$11,588

ACT

$10,593

$10,593

$10,593

NT

Nil

Nil

Nil

* In Western Australia, land held in the metropolitan area is taxed 0.14% higher for every dollar above $300,000 than land held in country areas.

Estimate of Land Tax Payable on $1m of total land value held at Foreign Entity Rates

State

Individual Owner

Corporate Owner

Discretionary Trust Owner

SA

$4,588

$4,588

$9,587

NSW

$24,356

$24,356

$36,000

VIC

$22,975

$22,975

$26,438

QLD

$25,500

$25,500

$25,500

WA

$2,730

$2,730

$2,730

TAS

$11,588

$11,588

$11,588

ACT

$18,093

$18,093

$18,093

NT

Nil

Nil

Nil

In addition to the above, certain owners could be liable for a Vacant Residential Land Tax in Victoria or the Federal Vacancy fee.

Property tax legislation is complex and differs between states. Outcomes will also vary depending on the value of land held, the entity it is held in and residency status. There are also other factors such as income tax planning and expected investment returns that need to be considered in property decisions. If you need advice on any of the tax issues above please contact us.