2017/18 Budget - How does it affect Foreign Property Investors

May 10, 2017

The budget attacked foreign resident property owners imposing significant new taxes and restrictions.

Loss of Main Residence Exemption

Under existing rules a foreign or temporary resident may be entitled to claim an exemption from capital gains tax when they sell a property that was their main residence even though they no longer live there. From 9/5/17, any new property purchases will not be eligible for the exemption when sold by a foreign or temporary resident. Existing property owners will no longer be able to claim the main residence exemption if they are a foreign or temporary resident from 30 June 2019. **UPDATE 3/4/2019 - This measure did not proceed through parliament prior to the election and will therefore not proceed in it's current form**

Vacant Property Charge

A new charge will apply to foreign persons who make a foreign investment application for residential property from 9/5/17. If the property is not occupied or available for rent for at least six months in each year a vacancy charge of at least $5,000 will apply. The levy amount will be equivalent to the relevant foreign investment application fee imposed when the property was purchased.

Limiting Foreign Ownership in New Developments

From 9/5/17, new multi-storey developments which have at least 50 dwellings will be limited to 50% foreign ownership.

Foreign Resident Capital Gains Tax Withholding

From 1/7/17 the existing withholding rules will be tightened so that whenever a property owned by a foreign resident is sold for $750,000 or more, the purchaser needs to pay 12.5% of the purchase price to the ATO for withholding tax. Foreign residents will then be able to use this credit to reduce their actual capital gains tax bill when they lodge their Tax Return. Further details on the existing tax can be found in our previous article: Buyer Beware: You may need to withhold tax when settling a property purchase

Limiting Tax Deductions

New rules applying from 1/7/17 affect all property investors, preventing them from claiming tax deductions for travel to their rental property and from claiming tax deductions for depreciation on plant & equipment that was purchased by a previous owner of the property.

You should seek advice before taking action regarding any of the above proposals