In Australia, a foreign owner who holds a residential property but does not use it for rental income, leaving it vacant, may face higher costs, because to increase the number of “usable” homes on the market, the Australian federal government levies an Annual Vacancy Fee on all foreign owners of residential property. The foreign owner is responsible for lodging a return and paying the fee themselves, and failing to lodge or pay on time results in an additional penalty. This article looks at how the vacancy fee works — how it is calculated, when the vacancy year starts, how to lodge a return, and, most importantly, in which circumstances a residential property is liable for the fee.
The Federal Annual Vacancy Fee for Foreign Owners
A foreign owner of Australian residential property who leaves it vacant for too long in a year will be charged the federal residential Annual Vacancy Fee, levied by the Australian Taxation Office (ATO). Under the relevant law, if a foreign owner of Australian residential property does not have the dwelling occupied or rented out for more than 183 days (six months) within a year, they must pay the Annual Vacancy Fee. The fee has applied to foreign owners across all of Australia since December 2017. The purpose is to increase housing supply in each area, so that residential properties are put to fuller use.
Calculating the Vacancy Year
A property’s vacancy year is not calculated on the calendar year or the tax/financial year, but from the date the owner formally took ownership of the property — this can be either Settlement Day or the date the Occupancy Certificate was issued — with the vacancy year being the 12 consecutive months from when the property began being occupied. Each residential property therefore has its own vacancy year.
What Counts as Occupation
The Australian government has defined the circumstances that count as a property being occupied; meeting any one of the following is treated as occupation:
- The owner or a relative of the owner genuinely lives in the property as their home
- The property is genuinely rented out as a residence for a term of at least 30 days
- The property is genuinely available for rent on the rental market as a residence for a term of at least 30 days
The minimum standard of at least 183 days of occupation does not need to be one single continuous period. Across the whole vacancy year, the total number of days of occupation can be made up of several separate periods, each at least 30 days long. Housing offered only on short-term lets of less than 30 days (including, but not limited to, short-let accommodation websites) is not counted as occupation, and will therefore also incur the vacancy fee.
The following three conditions must all be met for a property to count as genuinely available for rent on the rental market:
- Available for rent on the rental market
- Publicly advertised and viewable by the public
- Priced at a market rent
As long as a property meets all three of these conditions, it is treated as meeting this occupation category and should not be counted as a vacant day. However, the owner must be able to provide evidence that the property was occupied.
Exemptions
If an owner can show that, within a vacancy year, there were at least 183 days when it would not have been possible for the property to be occupied, they can apply for an exemption from the vacancy fee. The following four situations can all be grounds to apply for an exemption:
- The dwelling has been damaged and is unfit for residential use, or its safety is in question
- The dwelling is undergoing major repair or renovation work
- A federal, state or territory court or law restricts the dwelling’s use for residential purposes
- The usual occupant cannot live in the dwelling due to long-term hospitalization, medical care, or a need for residential care
As long as the owner can demonstrate one of the above reasons and provide supporting evidence, they can apply to the ATO for an exemption from the vacancy fee.
In addition, if the owner holds land rather than a completed building, they do not need to pay the vacancy fee before construction is complete — but once building on the land is finished, a vacancy fee return must be lodged for each new residential unit built.
Calculating and Lodging the Vacancy Fee
The vacancy fee is usually the same amount as the foreign investment application fee the foreign owner paid to FIRB, and the ATO will advise the exact figure when the return is lodged, depending on the transaction price of the property itself. A foreign owner must proactively lodge a return with the government when they buy a property, and before lodging must first register with the Land and Water Register. After registering, the owner receives a land registration number, which is used to lodge the vacancy fee return. Owners must lodge a return with the ATO within 30 days after the end of each vacancy year. After lodging, the owner receives an email confirming the reasons for the fee, the amount payable, an itemized breakdown and the payment deadline.
In Summary
Australia’s residential vacancy fee is a federal-government fee that applies across all of Australia. We recommend that owners consult a suitably qualified professional, such as an accountant, before buying a property. The underlying reason for the fee is that it forms part of the Australian government’s “housing affordability reform,” aimed at increasing the number of homes available to be lived in. It is therefore important for foreign investors to understand local rental conditions in the surrounding area before buying, so as to avoid unknowingly setting a rent that is out of step with the market and ending up liable for the vacancy fee as a result.
Have a question about this guide? Leave a comment below, or ask Zagdim directly.
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