Layers of complexity and exemptions
Conveyancers and tax practitioners preparing contracts of sale for foreign property investors will need to assess whether the CGT withholding rate applies based on the reduced $750,000 threshold, and take into account increased state surcharges, ensuring both taxes are paid correctly to avoid settlement delays.
The Foreign Investment Review Board (FIRB) is responsible for applications from foreign nationals to buy Australian residential and commercial property. Anyone who is not an Australian citizen is considered a foreign national.
Exceptions to the rule include New Zealand citizens and permanent residency visa holders. They are exempt from seeking FIRB approval and are subject to the same tax arrangements as Australian citizens if they are residing in Australia. Likewise, the spouses of Australian citizens, New Zealand citizens, and holders of Australian permanent visas do not require foreign investment approval if they want to invest in real estate as joint tenants.
Foreign nationals who are permitted to buy Australian property will also need to determine their tax residency status, which can be complicated considering it’s not the same as their residency status. This means that you may be treated as a tax resident for income tax purposes, but not as a permanent resident under immigration laws.
As a temporary resident, most of your foreign income is not taxed in Australia, but you will be subject to tax on income derived from your Australian property and CGT derived from the sale of that property.
Foreign investors have been slugged hard by the federal and NSW governments in an effort to rein in burgeoning property prices. Whether these moves have any real effect, or whether other Australian states will follow NSW’s lead, remains to be seen.
To read more about tax changes affecting your investments, check out these helpful resources.