Beware of the liability of the annual Vacancy Fee (the so-called “ghost tax”)

Tax Insights

The 2017 Federal Budget introduced measures requiring foreign persons acquiring Australian residential property to lodge an annual Vacancy Fee Return and to pay a Vacancy Fee if a residential property is not occupied, or genuinely available on the rental market, for at least 6 months in the preceding 12-month period.

The fees are not extreme, but they are nevertheless noteworthy.  The minimum annual amount payable is $6,350 (for properties up to $1 million in value) and the maximum annual amount payable is $503,000.  These payments are non-deductible for tax purposes.  While it’s a pain, the system is intended to encourage foreign owners of residential property to make their properties available for rent when they are not occupied as a residence, thereby increasing the number of properties available for Australians to live in.

The Vacancy Fee and Annual Return only APPLY to foreign owners. Vacancy Fee Return

Foreign owners generally require investment approval before acquiring an interest in residential land and buildings, regardless of the value.

The Vacancy Fee applies to foreign persons who make a foreign investment application for residential property after the 9, May 2017. Importantly, it will also apply to foreign persons who are purchasing in a development that has a new dwelling exemption certificate which was applied for after the 9May 2017.

While Australian citizens who live outside Australia are considered foreign owners, the above criterion does not include people who do not have to apply for FIRB approval to buy residential property.

Owners who have temporary residence under Australian tax rules are considered foreign owners for the purposes of the Vacancy Fee rules.

New Zealand citizens who are not ordinarily residents in Australia are generally considered to be foreign owners for the purposes of the foreign investment framework in the same way as citizens from other countries.

However, New Zealand citizens who hold, or are eligible for, a special category visa are exempt from requiring foreign investment approval with respect to the acquisition of residential land. Accordingly, the vacancy fee regulations should not apply in the above circumstances.

Foreign corporations (that is a corporation established or incorporated outside of Australia) are classified as a foreign person for the purposes of the Vacancy Fee rules, notwithstanding that its shares may be owned by Australian persons or entities. 

All foreign owners of residential property need to file the Vacancy Fee Return, regardless of whether the property is occupied or vacant.

The Return should be filed within 30 days after the anniversary of your property purchase.

Any liability is based on the use of the property over the preceding 12 months. If the ATO determines, based on an exemption, that no Vacancy Fee is payable based on the return, no payment will be required.real estate, new house, property

The exemptions available from liability for the Vacancy Fees include:

  • The dwelling is damaged, unsafe or is otherwise unsuitable to be occupied as a residence
  • The dwelling is undergoing substantial repairs or renovations
  • Occupation of the dwelling as a residence is prohibited or legally restricted by an order of a Court or Tribunal
  • A person who ordinarily occupies the dwelling is absent due to long-term medical issues

    For more information

For more information on Vacancy Fees, contact your local RSM adviser who can guide you through the process.

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