Understanding Foreign Transfer Duty

Foreigners can acquire property in Australia. But, because foreign property purchases are regulated by the Foreign Investment Review Board (FIRB), foreigners wishing to buy land in Australia must first apply for approval through this body. Subject to this approval, 'foreign persons', as they are classified, may also be liable to pay ‘Foreign Transfer Duty’ in addition to Land Transfer Duty.

If you are a foreigner interested in acquiring land in Australia, this blog explains Foreign Transfer Duty and how it might apply to your particular situation. We break down the different government rates across each State depending on effective date of contract. Plus, we include additional information to help you determine whether or not you are exempt from paying this duty. 

Who are ‘foreign persons?’

'Foreign person' is an umbrella term used to describe three foreign entities - Individual, Corporation and Trustee.

1. Foreign Individual

  • A citizen or permanent resident of Australia
  • A New Zealand citizen with a Special Category Visa (Subclass 444)

2. Foreign Corporation

  • A corporation that was incorporated outside Australia; or
  • A corporation in which foreign persons have a controlling interest.

3. Foreign Trustee

  • A discretionary trust controlled by a foreign person; or
  • A discretionary trust where one or more foreign persons that are takers in default, together with their associates, hold at least 50% interest in the discretionary trust; or
  • A trust other than a discretionary trust where one or more foreign persons, together with their associates, hold beneficial interests in at least 50% of the income of the trust.

What is Foreign Transfer Duty?

Foreign transfer duty is an additional tax on the dutiable value for certain transactions and landholder acquisitions involving ‘foreign persons’ acquiring residential property in Australia.

The following table shows the applicable tax rates attributable to the ‘foreign persons’ ownership stake.

State

Effectivity date for contracts

signed on or after...

Rate of additional duty

VIC

1 July 2019

8%

NSW

01 July 2017

8%

QLD

01 July 2018

7%

SA

01 January 2018

7%

WA

01 January 2019

7%

TAS

01 April 2020

8%

When does Foreign Transfer Duty apply?

Foreign Transfer Duty applies if you are:

  • a ‘foreign person’ who signed a contract to purchase a property on or after the effectivity date stated on the table above.
  • acquiring a property together with another party who is considered a ‘foreign person’, Foreign Transfer Duty will apply to the extent of the purchase by that foreign entity.

For example:

Say you are an Australian citizen who has a foreign spouse, and together you purchase a property for $500,000, with an equal 50 percent share in Western Australia. In this example, the foreign buyers tax payable is $17,500. Seven percent Foreign Buyers Tax will only apply to the 50 percent share that is being purchased by your foreign spouse, which is $250,000.

Therefore, the tax owed: ($500,000 x 50%) x 7% = $17,500.

Exemptions

Certain exemptions to Foreign Transfer Duty may apply in the following ways. 

1. Land acquired by ‘foreign persons’ for residential developments is chargeable with Foreign Transfer Duty. However, if the development will produce 10 or more residential dwellings, or lots on which 10 or more dwellings can be constructed, the foreign transfer duty paid may be reassessed and refunded.

2. Nominal duty or transfer duty exemptions:

Most transactions that would be eligible for nominal duty or an exemption from transfer duty will be exempt from foreign transfer duty if the person receiving the residential property is foreign. This includes:

  • transfers involving matrimonial or de facto instruments (family court orders)
  • deceased estate transfers
  • partitions or subdivisions of property eligible for nominal duty
  • transfers changing trustees

3. If you are a foreign person who signed a contract to purchase a property before the effectivity date, but the property settles after that date, you won't be liable for the additional duty if the names of the transferees on the transfer are the same as the names of the purchasers on the agreement or contract.

4. If you sign an agreement to buy the property before you obtain Australian Citizenship but are granted citizenship prior to settlement and then transfer the property, you will be eligible for a reassessment and refund of the foreign transfer duty charged on the agreement.

How we can help

If you’re considering buying a property in Australia, you need to consider all the costs and for traditional Expats that have a non-resident spouse there may be a way to avoid foreign transfer duty through the structure of ownership.

If you are considering investing in a property in Australia and require lending to support the purchase, we can help.

Get in touch today and let’s discuss your many options. 

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