The vacancy fee is part of the Government’s comprehensive housing affordability plan that was announced on 9 May 2017. This measure is intended to encourage foreign owners of residential dwellings to make them available for rent where they are not used as a residence.
On 30 November 2017 the Treasury Laws Amendment (Housing Tax Integrity) Act 2017 received royal assent. The Act amends the Foreign Acquisitions and Takeovers Act 1975 to require foreign owners of residential dwellings to annually inform the ATO whether the dwelling is residentially occupied or genuinely available on the rental market as a residence for at least six months per year.
The vacancy fee applies to foreign persons who make a foreign investment application for residential property from 7:30PM (AEST) on 9 May 2017 and to foreign persons who are purchasing in a development that has a New Dwelling Exemption Certificate which was applied for after 7:30PM (AEST) on 9 May 2017.
Foreign owners of residential real estate will be required to lodge an annual vacancy fee return with the Australian Taxation Office (ATO) after the end of the 12 month period (vacancy year) in which the foreign person may be liable for the vacancy fee for their property.
What does residentially occupied or genuinely available mean?
For the purpose of the vacancy fee, foreign owned residential real estate is considered residentially occupied if for at least 6 months (equivalent to 183 days) in a 12 month period (vacancy year), it can be proved that:
- the property owner or a relative of the owner genuinely occupied the property as a residence; or
- the property was genuinely occupied as a residence subject to lease/s or licence/s (with minimum durations of 30 day terms); or
- the property was made genuinely available as a residence on the rental market (with minimum durations of 30 day terms).
The vacancy fee return
Within 30 days after the end of a vacancy year, foreign owners must submit a ‘vacancy fee return’ to the Australian taxation Office (ATO).
The period for which the ATO will assess liability is the vacancy year, that is the 12 months after the first day the foreign person acquires the right to occupy the property (for example, the date of settlement or receipt of an occupancy certificate). This is also the date from which the liability to pay the fee arises in future years. This means that if the property is settled on 8 August 2017, it will need to be occupied or genuinely available for six months or more from that date to 8 August 2018.
A vacancy fee return must be lodged even if there is no liability for the vacancy fee.
A failure by a person to lodge a vacancy fee return will result in:
- a civil penalty of 250 penalty units is attracted, and
- the person is taken to be liable to pay a vacancy fee in relation to the dwelling on the basis that it was not residentially occupied for any period during the vacancy year.
Vacancy fee payable
The fee will be equal to the fee that was payable at the time a notice was submitted to the Foreign Investment Review Board to acquire the land (this fee currently starts at $5,500 for properties valued at less than $1m, and increases based on property value.
There are a number of exemptions from being liable to pay the vacancy fee. In order to benefit from an exemption, foreign investors may be required to provide acceptable supporting evidence that they were unable to occupy the dwelling.
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