What is the Foreign Investment Review Board (FIRB)?
Australia has a foreign investment approval regime that regulates certain types of acquisitions by 'foreign persons' of equity securities in Australian companies and trusts, and of Australian businesses and Australian real property assets.
The Foreign Investment Review Board (FIRB) is a non-statutory body that advises the Government on foreign investment policy and its administration. The Board examines proposals by foreign interests to undertake direct investment in Australia and makes recommendations to the Government on whether those proposals are suitable for approval under the Government's policy.
Why does the Government monitor foreign investment?
The Government monitors the foreign investment to ensure that the investment will benefit Australia. In particular, foreign investors are limited to investing in "new" properties so that their investment adds to the existing housing stock in Australia. This is to prevent speculation, which has little benefit for the Australian economy, and that could result in escalating housing prices.
Did you know that the Government approves the vast majority of FIRB approval applications? If you meet the guidelines provided on their website, then there are very few reasons that could cause your application to be declined.
Below we've covered the following points:
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Who needs FIRB approval?
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Who doesn't need FIRB approval?
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Buying as an investment or owner-occupied?
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How is tax treated for an investment property?
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Will I be hit with the foreigner stamp duty surcharge?
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What you can do about foreign surcharges?
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How do I lodge a FIRB application?
Who needs FIRB approval?
Temporary residents
Temporary residents generally need to apply for and receive foreign investment approval before purchasing any residential real estate in Australia.
If you're on a temporary visa such as a spouse visa, 457 work visa, a Temporary Skill Shortage (TSS) visa or student visa:
- You need approval from the FIRB.
- You can only buy one established dwelling, and it must be to live in; however, you will be required to sell it once you do not live there anymore.
- You can buy an investment property; however, it must be a new property or vacant land to build a new property.
- You don't need FIRB approval if you're buying the property with an Australian citizen as joint tenants and you're in a spousal relationship. This means it doesn't apply to other relationships like business partners, mother/father, and child, siblings, friends, or relatives.
Who is a temporary resident?
A temporary resident is an individual who:
- holds a temporary visa that permits them to remain in Australia for a continuous period of more than 12 months (regardless of how long remains on the visa); or
- is residing in Australia has applied for a permanent visa and holds a bridging visa which permits them to stay in Australia until that application has been finalised.
Example 1
Ingrid holds a skilled worker visa that permits her to remain in Australia for a continuous period of three years. Even though Ingrid has already been in Australia for more than two years and has less than 12 months remaining on her visa, she is still considered a temporary resident.
Example 2
Jane holds a student visa that permits her to remain in Australia for a continuous period of nine months. Jane is considered a foreign non-resident, rather than a temporary resident.
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Foreign investors
Foreign investors are foreign persons looking to invest in Australia. A foreign person is defined as:
- an individual not ordinarily resident in Australia; or
- a corporation in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or
- a corporation in which two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold a substantial aggregate interest; or
- the trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or
- the trustee of a trust in which two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold a substantial aggregate interest; or
- a foreign government; or
- any other person, or any other person that meets the conditions, prescribed by the regulations.
Under Australia's foreign investment framework, foreign persons generally need to apply for foreign investment approval before purchasing residential real estate in Australia.
The Government's policy is to channel foreign investment into new dwellings as this creates additional jobs in the construction industry and helps support economic growth. It can also increase government revenues, in the form of stamp duties and other taxes, and from the overall higher economic growth that flows from the additional investment.
Foreign investment applications are therefore generally considered in light of the overarching principle that the proposed investment should increase Australia's housing stock (by creating at least one new additional dwelling).
Consistent with this aim, different factors apply depending on whether the type of property being acquired will increase the housing stock or whether it is an established dwelling.
If you're a foreign investor, you need approval from the FIRB for:
- The investment property must be a new property or vacant land to build a new property.
- Foreign persons generally need to apply and receive foreign investment approval before purchasing new dwellings and vacant residential land for development. Applications to purchase new dwellings are usually approved without conditions. Applications to purchase vacant land are typically accepted subject to construction being completed within four years (to prevent land banking). Once new dwellings are built or purchased, they may be rented out, sold, or retained for the foreign investor's own use.
- Land that has previously had an established dwelling on it would generally not be treated as vacant land for the purposes of Australia's foreign investment framework.
- A single dwelling that has been built to replace one or more demolished established dwellings would generally not be considered a new dwelling for the purposes of Australia's foreign investment framework.
- You can't buy an established dwelling as an investment property.
Non-resident foreign persons are generally prohibited from purchasing established dwellings in Australia. However, reflecting the fact that foreign persons who are temporary residents need a place to live during their time in Australia, temporary residents can apply to purchase one established dwelling to use as a residence while they live in Australia. The purchase of an established dwelling in these circumstances would generally be conditional on the foreign person selling the property when they leave Australia or cease being a temporary resident and do not become a permanent resident or an Australian citizen. Temporary residents cannot acquire established dwellings to rent out or for use as a holiday home.
Consistent with the aim of increasing the housing stock, foreign persons (both temporary residents and non‑residents) can apply for approval to purchase an established dwelling for redevelopment (that is demolishing the dwelling and constructing new residential dwellings in its place). These applications are typically approved on the condition that at least two dwellings are built for the one demolished.
They can buy a new property in their name and rent it out to their child that is on a temporary visa.
Exceptions for foreign citizens
There are some circumstance that exempt foreign investors from having to get FIRB approval:
- The property developer has obtained an exemption certificate for the new property that you are buying. Developers may hold a new (or near-new) dwelling exemption certificate that allows them to sell new (or near-new) dwellings in the development specified in the certificate to foreign persons. Where a developer has this certificate, the foreign resident may not require separate approval.
- Foreign non-resident should ask the developer for a copy of the exemption certificate for the development in which they intend to purchase. If the exemption certificate covers their intended purchase, they do not need to seek separate foreign investment approval.
- You inherited the property.
- You were awarded the property by a court order.
- You were awarded the property in a divorce settlement.
Exempt Actions
Foreign persons, regardless of citizenship or residency, do not require foreign investment approval to acquire an interest in residential real estate that is a new (or near-new) dwelling purchased from a developer that holds a new (or near-new) dwelling exemption certificate that allows the developer to sell dwellings in the specified development to foreign persons;
The foreign person should ask for a copy of the exemption certificate for the development in which they intend to purchase and then consider if it covers their intended purchase.
- An aged care facility, retirement village, or specific student accommodation provided the interest is not above the relevant threshold.
- A timeshare scheme where the foreign person's total entitlement (including any associates) to access the land is no more than four weeks in any year;
- acquired by will or devolution of law;
- acquired directly from the Commonwealth, a State, a Territory, or local governing body, or an entity wholly owned by the Commonwealth, a State, a Territory or a local governing body; and
- an interest in specific residential real estate in designated Integrated Tourism Resorts.
The foreign investment framework provides for some other exemptions; however, these are not outlined here. Not all exemptions are available to foreign government investors.
Example 3
Jin is a foreign person who inherits a dwelling in Australia through the operation of his grandmother's Australian will. As the dwelling has been left to Jin in a will, the acquisition is exempt under the foreign investment framework, and Jin does not need to apply for foreign investment approval before acquiring the dwelling.
Exemption certificates
If you don't have a specific property identified for purchase, an exemption certificate allows you to purchase one property in a specified state or territory without having to apply for individual approval for each property you are interested in.
Temporary residents can use an exemption certificate to purchase a single established dwelling to live in. Foreign non-residents can use an exemption certificate to buy a new or near-new dwelling or a single block of vacant land for development.
An exemption certificate enables you to make multiple attempts to acquire one property without having to seek individual approval for each property you are interested in
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jolene.teo@areproperty.com
Who doesn't need FIRB approval?
Australian citizens
If you're an Australian expat living overseas or Australian Citizen living in Australia:
- You don't need approval from the FIRB.
- You can buy a new property, existing property or vacant land.
- You can live in the property, or it can be an investment.
Australian permanent resident
If you're a foreign national who has a permanent residency visa:
- You don't need approval from the FIRB.
- You can buy a new property, existing property or vacant land.
- You can live in the property, or it can be an investment.
New Zealand citizen
If you're a New Zealand citizen:
- You don't need approval from the FIRB.
- You can buy a new property, existing property or vacant land.
- You can live in the property, or it can be an investment.
- You are not required to be in the country at the time of contract exchange or settlement; however, you may incur a foreigner stamp duty surcharge if you are not in the country at the time of contract exchange. Requirements vary, so it's best to speak to your relevant state revenue authority for up-to-date information.
Temporary resident buying with Australian citizen spouse
If you're on a temporary visa such as a spouse visa, 457 work visa, or student visa and are buying the property with your Australian citizen spouse*:
- You don't need FIRB approval if you are purchasing the property as joint tenants and you're in a spousal relationship. This means it doesn't apply to other relationships like business partners, mother/father, and child, siblings, friends, or relatives.
- You'll need FIRB approval if you are buying the property together as tenants in common.
- You can buy a new property, existing property or vacant land.
- You can live in the property, or it can be an investment.
*Includes de facto partner (both same-sex and different-sex).
Foreigner buying a home with an Australian citizen
- You're buying a house together as joint tenants and in a spousal relationship.
- This exemption doesn't apply to investment properties.
- You must be in a marital or de facto relationship i.e., can't be two family members or relatives.
- You must not be purchasing as tenants in common
Foreigner buying a home with an Australian permanent resident
- You're buying a house together as joint tenants and in a spousal relationship.
- This exemption doesn't apply to investment properties.
- You must be in a marital or de facto relationship
- You must not be purchasing as tenants in common.
Types of properties you can buy
Investment properties: In most cases, the Australian Government will approve applications to buy an investment property on the condition that it is a new property. You can often keep an investment property if you leave Australia.
Home (owner-occupied): If you're buying a home, then you may be able to buy an established property (one that wasn't recently built). You'll have to sell your property when your visa expires, and you leave Australia.
Vacant land (investment): In most cases, the Australian Government will approve applications to buy vacant land on the condition that you commence construction of a dwelling on the land within 24 months. You can often keep a property that you build as an investment property if you leave Australia.
Are you buying as an investment versus owner-occupied?
As a general rule, investment properties are accepted more readily.
If you're on a temporary visa or work visa then you can:
- Usually, buy a new property or an established property.
- Will usually be required to sell your home when you leave Australia.
- If you obtain citizenship or permanent residency, then you won't have to sell your property.
If you're a foreign citizen living overseas then you:
- Are unlikely to be allowed to buy a property to live in Australia. This is because you don't have a valid visa which allows you to stay in Australia.
- If you've been granted a temporary residency visa, then you may be able to buy a home before you move.
If you're an Australian living overseas, you can:
- Buy a property to live in Australia as long as you can prove to your lender that you'll be able to afford the debt.
- Either you'll need to prove that you'll continue your job in Australia or that you have another income source.
How is tax treated for an investment property?
If you acquire an investment property in Australia, you will need to declare the income on your Australian tax return. You can generally claim a deduction for expenses associated with the maintenance of the property, including the interest on finance.
The treatment of tax for your investment will depend on whether or not your property is positively or negatively geared. You may also need to pay capital gains tax (CGT) when you sell the asset.
You must include in your tax return the full amount of rent and any other rental-related income you receive – whether paid to you or your agent.
Rental-related income includes:
- rental bond money you become entitled to retain – such as when a tenant defaults on the rent or damage to your rental property requires repairs or maintenance
- insurance payouts in some circumstances – such as where you receive an insurance payment to compensate for damage to your property or for lost rent, letting and booking fees you receive associated payments you receive, or become entitled to, as part of the normal, repetitive and recurrent activities through which you intend to generate profit from the use of your rental property (if these payments are in the form of goods and services you'll need to work out their monetary value) reimbursement or recoupment for deductible expenditure – for example:
- if you receive an amount from a tenant to cover the cost of repairing damage to your rental property and you can claim a deduction for the cost of the repairs, you need to include the whole amount in your income
- if you receive a government rebate for the purchase of a depreciating asset, such as a solar hot-water system, you may need to include an amount in your income
- Any excessive deductions for capital allowances involving your rental property where a limited recourse debt is terminated without you paying it in full.
- A lump-sum payment, where the nature of the payment is a substitute for or prepayment of rental income (and thus ordinary income) on any capital gain earned after 8 May 2012.
Difference between joint tenants and tenants in common
With few exceptions to requiring approval from FIRB, the devil is in the detail when it comes to buying as joint tenants versus tenants in common.
What's the difference between the two?
Joint tenants
This is by the most common way for partners to buy property, and it's where you and your partner own equal portions in the property (50/50).
The main benefit has to do with estate planning in that in the event either you or partner dies, the survivor will automatically receive the other parties' portion.
Tenants in common
This is where you specify the portion that you will own in the property and, therefore, this dictates your contributions to the mortgage and dividends from any sale.
This is most common when buying with a friend, business partner, or even a relative, rather than a spouse because it offers a level of asset protection.
Rather than the other property owner receiving your portion upon your death, you have the option to nominate someone else.
Will I be hit with the foreigner stamp duty surcharge?
Most Australian states (other than Tasmania and Northern Territory) have introduced a foreign stamp duty surcharge as well as a hike on land tax (for some locations).
Generally speaking, the surcharge applies to foreigners or temporary Australian residents, but there are exceptions to these rules. When you buy or acquire property in Victoria, you may have to pay land transfer duty (also known as stamp duty).
If you are a foreign purchaser and you acquire residential property, as well as land transfer duty you may have to pay foreign purchaser additional duty on the share of the property you purchased.
If the property you acquired is exempt from land transfer duty, the additional duty does not apply. If the property you purchased is eligible for a land transfer duty concession, the additional duty is calculated on the dutiable value of the property before the concession is applied.
Foreign corporations and foreign trusts may, in some circumstances, be eligible for an exemption from additional duty. It's best you refer to the foreign citizen stamp duty page for specific information around this extra tax.
The contract you're signing must have the clause "subject to FIRB approval," allowing for 30 days for a FIRB decision.
At this point, it's vital to check with your conveyancer or solicitor that the clause is stated in such a way to ensure that if your FIRB proposal is rejected, you won't lose your deposit.
A FIRB application is simple to do and will usually be taken care of by your conveyancer.
You may need to provide a copy of the approval to your lender before your loan being advanced.
When does additional duty apply?
The additional duty applies to any arrangement or transaction involving the transfer of an
interest in residential property to a foreign purchaser, including:
- Buying a residential property at, for example, auction or by private sale.
- Buying a non-residential property with the intention of converting it to residential property.
- Being given a residential property as a gift.
- Specific leasing arrangements in respect of the residential property.
The additional duty applies to the acquisition of residential property (or a relevant asset in a landholder that holds residential property) on or after 1 July 2015. However, you will not pay additional duty if the acquisition is the result of a contract you entered into on or before 30 June 2015. It applies even if you only acquire part of, or a part interest, in the property. Where a contract to purchase residential property is entered into before 1 July 2015, and you are nominated to take the transfer of the property on or after 1 July 2015, additional duty may apply to the transfer.
Exemption if you buy with your spouse or partner
If you are a foreign purchaser, you may be entitled to an exemption from additional duty if you purchase a principal place of residence jointly with your spouse/domestic partner who is an Australian citizen, permanent resident or New Zealand citizen who holds a special category visa.
You must, however, live in the property as your principal place of residence for a continuous period of 12 months, starting within 12 months of becoming entitled to possession of the property. You can ask us to vary this requirement to:
- Reduce the 12 month residency period.
- Determine that a temporary absence from the residence does not break the continuity of residence.
- Extend the period in which the residence must begin.
- This exemption is available for transfers from 14 June 2018.
- Rates of additional duty
For contracts, transactions, agreements, and arrangements entered into on or after:
- 1 July 2015 but before 1 July 2016 (even if the settlement date is on or after 1 July 2016), the additional duty rate is 3 percent.
- 1 July 2016, the additional duty rate is 7 percent.
- 1 July 2019, the additional duty rate is 8 percent.
Calculating additional duty
The additional duty is calculated on the dutiable value of your share of the residential property, which is the greater of the price you pay for, or the market value of, the property before any land transfer duty concessions being applied.
You can calculate your total duty, including additional duty, by:
- Calculating the land transfer duty in the usual way, applying any relevant concessions.
- Calculating the additional duty on the dutiable value of the property (ignoring any concessions that reduce dutiable value).
- Adding the land transfer duty amount in step 1 to the additional duty amount in step 2 to determine the total duty amount payable for the transfer.
When you make a relevant acquisition in a landholder, duty is charged on the unencumbered value of the total landholdings of the landholder. If you make a relevant acquisition as a foreign purchaser, the additional duty surcharge will only apply to the interest you acquired in the landholder proportional to the landholder's landholdings which comprise residential property.
What you can do about foreign surcharges
Any potential action that could be taken with respect to foreign surcharges depends on the type of entity acquiring or holding the relevant land, and the use of that land.
For example, for discretionary trusts (like family trusts) that intend to acquire residential property, we strongly recommend reviewing your trust deed and the residency of its beneficiaries to determine whether it may attract the application of the duty surcharge. For instance, in Victoria, the duty surcharge can apply on a dutiable transaction when the trustee can distribute over 50% of the trust capital to foreign persons (on an associate-inclusive basis) that fall within the pool of beneficiaries referred to in the deed. This means that the surcharge can be applied despite the trustee having no history of distributing to a foreign person and no intention to do so in the future.
If there is a risk that a discretionary trust deed will satisfy the requirements of the duty surcharge, the trust deed can generally be amended to manage this risk (subject to the trustee having the authority to change the deed and there being no excessive duty or capital gains tax implications of doing so).
For any other type of entity, an exemption from the duty or land tax foreign surcharge may be sought, based on the type of entity, the type of property, or the discretion allowed to the revenue office to grant an exemption.
Discretionary exemptions allowed to revenue offices generally apply to companies or trusts that are partially or wholly owned by foreign persons but where day-to-day management is undertaken in Australia and the taxpayer is making a significant contribution to the local economy through property development or business activities.
Does FIRB charge application fees?
The FIRB charges an application fee to all foreign investors who want to buy property in Australia unless you're buying a property with an Australian citizen or permanent resident or a New Zealand citizen.
You can expect to pay around $5,000-$100,000 depending on your situation, the property value, and property type. As a rule of thumb, residential property or land will cost less than an investment property.
For instance, if you're acquiring residential property where the price of the acquisition is between $1 million to $2 million, the application fee is $10,000. On the other hand, if you were acquiring an interest in agricultural land where the acquisition price is between $2 million and $3 million, you would pay a $20,000 application fee.
The only exception to this is if you're an Australian citizen, a Permanent Resident, or a NZ citizen.
Fees can vary depending on the value of the residential property or land that you want to purchase:
- $1 million or less: $5,600
- $1 million to $1,999,999: $11,300
- $2 million to $2,999,999: $22,700
- $3 million to $3,999,999: $34,000
- $4 million to $4,999,999: $45,400
- $5 million to $5,999,999: $56,700
- $6 million to $6,999,999: $68,100
- $7 million to $7,999,999: $79,500
- $8 million to $8,999,999: $90,900
- $9 million to $9,999,999: $102,300
- $10 million or higher:
Please contact the Australian Taxation Office for a fee estimate (fees are tiered per million).
Typically, residential land will cost less than the fees for buying a business, commercial property, or farmland.
How do I lodge a FIRB application?
You can lodge your application on the Australian Tax Office's Residential Real Estate Application Form.
You'll need to provide your contact details, full legal name, address of the property, and pay the required FIRB approval fee.
Have your passport and Australian visa (if applicable) handy as you'll need to enter those details.
If you don't know the title details of your property, then you can leave these blank. For new properties, they often do not have title details until a few weeks before they are complete.
At what stage do I need to contact FIRB for approval?
You can't apply for FIRB "pre-approval" so you should refer to the FIRB guidelines before you begin looking for Australian property. You can only apply for FIRB approval when you have chosen a specific property to buy. In the contract of sale, you should include a clause that allows you to withdraw from the purchase if the FIRB approval is not granted.
As long as you're following the FIRB's rules, then it is highly likely that your investment will be approved. Once you find a property, then you can sign the contract of sale with the condition that allows you to back out of the purchase if FIRB approval is not granted.
However, you can get pre-approval for the mortgage itself before you find a property.
LOOKING TO INVEST IN AUSTRALIA?
REACH OUT FOR A FREE CONSULTATION
ARE are Property Advisers that specialize in Australian property investments with offices in Melbourne & Kuala Lumpur.
Kuala Lumpur - WhatsApp +6012 633 1006 | Melbourne +61 0399 981940
jolene.teo@areproperty.com
