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Change to rules for foreign investors

18 May 2017

The change in the threshold for foreign resident capital gains tax (CGT) withholding to $750,000 from the current $2 million "is not welcome and could be considered misguided".

This is according to the Real Estate Institute of Australia President Malcolm Gunning, in response to the Federal Budget which introduced a range of measures for foreign investors.

This includes increasing the withholding rate from 10% to 12.5%, which along with the new CGT threshold will apply from 1 July 2017.

The Government will also stop foreign and temporary tax residents from claiming the main residence CGT exemption when they sell property in Australia. Foreign and temporary tax residents who held a property on 9 May 2017 can continue to claim the exemption until 30 June 2019.

Mr Gunning said: “The change in the threshold for foreign resident capital gains tax withholding is not welcome and could be considered misguided as most foreign investors buy higher valued properties in Sydney and Melbourne and to a lesser extent in Brisbane.

“It is more red tape and not necessary, and the REIA will be taking this up with the Government. With the median house price of $743,776 across Australia this will mean most properties will be subject to this requirement and results in more work for sales agents and conveyancers.

“Further, depending on the workload this presents for the Australian Tax Office it may even delay settlements.”

The latest Foreign Investment Board Annual Report for 2015-16, showed that 76% of foreign purchasers bought in NSW and Victoria and that the overall average price was $1.8 million. 

Other measures introduced for foreign investors, include:

Limiting foreign ownership in new developments

The Government is introducing a 50% cap on pre-approved foreign ownership in new developments. Developments have to be multi-storey and have at least 50 dwellings. 

This will be applied through conditions imposed on New Dwelling Exemption Certificates. Currently certificates do not limit the proportion of dwellings that may be sold to foreign investors.

Charging foreign owners who leave their residential properties vacant

The Government is now applying an annual charge of at least $5,000 (reflecting the original application fee) to foreign owners who leave their properties unoccupied or unavailable for rent for six months or more each year. This will be administered by the ATO.

For more information on the new rules, please visit here.