By Robin Lonergan, Special Counsel

Changes to foreign investment in real estate were announced in the 2017-18 Australian Federal Budget.  The most significant changes for foreign investors being reduced capital gains tax benefits, the introduction of an annual levy for unoccupied or under-utilised residential real estate and a cap on the number of residences in new developments available for purchase by foreign investors.

Reduced Capital Gains Tax Benefits

The capital gains tax main residence exemption will no longer apply to foreign and temporary tax residents on selling property in Australia.   An expansion of the foreign resident capital gains tax withholding regime was also announced.  The withholding rate has increased from 10% to 12.5% of the total amount paid for the real estate.  In addition, the threshold amount for the capital gains tax withholding regime to apply to the sale has reduced from $2 million to a new threshold amount of $750,000.

Annual Charge for Unoccupied or Under-utilised Residential Real Estate

Foreign owned residential real estate properties that are either unoccupied or unavailable to rent for six months or more each year will be subject to an annual charge.  The annual charge for unoccupied or under-utilised properties is expected to be at least $5,000.

New Developments – 50% Foreign Investment Approval Cap

Foreign investment approval for the purchase of residences in new developments by foreign investors will be capped at 50%.  This measure restores the government’s previous 50% foreign investment approval cap requirement and removes the current 100% approval level.