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Taxes on Foreign Property Investors

Tuesday, November 13, 2018

Taxes on Foreign Property Investors: a summary for estate agents


A raft of tax legislation changes in recent years by the Queensland Government has meant that foreign property investors are at a disadvantage with regards to purchasing residential land in Queensland. These measures have been criticised in the property industry for their negative impact on investment in Queensland property and, as a result, their effect on Queensland’s economy.



The first hurdle faced by overseas purchasers is being cleared by the Foreign Investment Review Board (FIRB), which imposes restrictions on certain classes of overseas purchasers. Most overseas investors will require clearance by the FIRB which typically costs approximately 1% of the purchase price.



In addition to this clearance process, overseas purchasers are subject to higher duty tax than Australian purchasers on residential premises. All purchasers including Australian tax residents must pay duty on the transfer of property in Queensland, which is calculated on a sliding scale. Foreign purchasers must then pay an additional 7% duty on top of the regular duty. This is called Additional Foreign Acquirer Duty (‘AFAD’). AFAD was introduced at 3% in 2016 and increased to 7% earlier this year.



The AFAD has been met with criticism, with concerns that the extra money raised by the increase in tax will be considerably outweighed by a lack of interest from foreign investors. Foreign investment is responsible for rs to be turned into residential developments, as a reduction of foreign investors in this area would reduce job opportunities, housing availability and affordability.



The Government is now considering providing an exemption to foreign investors where the property is a ‘significant development’ (minimum 50 lots) or in a rural setting, which it’s hoped will benefit the local economy surrounding the development. However, these exemptions have not been formalised and it is unclear under what other kinds of conditions the exemption might be granted.



Finally, foreign investors are also subject to a capital gains tax withholding obligation for properties over $750,000. In sales of property over this price, the buyer is required to remit 12.5% of the purchase price to the ATO. This can have serious effects on the vendor’s cash flow.



As a real estate agent acting for a foreign investor it is important to be aware of these various tax rules and to inform the client of these. In relation to the CGT withholding obligation this must be reflected in the sale contract, so it is particularly important that the agent ensure this section is filled out correctly and the obligations are met, so as not to jeopardise their commission.