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).
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: