In a government-led effort to reduce housing affordability pressures, foreign property buyers will be hit with increased taxes and charges expected to generate more than $600m over the next four years.
The biggest blow will come in the form of changes to current capital gains tax (CGT) concessions. Under the new rules, foreign and temporary tax residents will no longer be exempt from CGT when selling their main residence in Australia, whilst existing properties held prior to this date – May 9th – will be grandfathered until 30 June 2019.
Beginning on 1 July, the withholding rate on CGT that foreigners must pay when they sell property will increase from 10% to 12.5%.
Moreover, under the government’s new rules, this will apply to the sale of properties worth $750,000 or more, up from the previous benchmark of $2m or more. This will significantly widen the pool for revenue collection.
Industry professionals have objected to these new changes, including Real Estate Institute of Australia’s (REIA) President Malcolm Gunning who argued the incoming threshold of $750k is too low and will create additional work and headaches for agents and conveyancers.
“Based on data in the latest Foreign Investment Review Board (FIRB) Annual Report, 76 per cent of foreign purchasers bought in NSW and Victoria, and the average purchase price was $1.6 million.”
Queensland accounted for a further 17 per cent of properties at an average price of $2.5 million.
“The remainder of the states and territories account for 7 per cent of properties purchased by foreign owners and the average price across Australia was $1.8 million”
“The proposed $750,000 threshold means that half the properties sold in Melbourne and Sydney will be subject to the withholding provisions yet foreign investors are buying properties at double this value.”
These changes will lead to an increase in the number of agents needed to be employed and extensive education to be administered to help agents understand how the new rules work.
“This isn’t simply a case of letting agents know of a new threshold. There are a whole new set of agents in additional markets involved,” Mr Gunning said.
The REIA has urged the Federal Treasurer Scott Morrison to reconsider the threshold.
The Labor government has also introduced new impositions on foreign buyers including a charge of $5,000 for vacant residential properties.
“This measure is intended to encourage foreign owners or residential property to make their properties available for rent when they are not used as a residence and so increase the number of dwellings,” Morrison said.