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Annual Vacancy Charge by ATO – A developer’s perspective

Foreign Investment Review Board (FIRB) approvals in relation to the acquisition of residential real estate are administered by the Australian Tax Office (ATO).

An annual vacancy fee may apply to foreign persons who make a foreign investment application for the acquisition of residential property from 7.30pm (AEST) on 9 May 2017.

In summary, the annual vacancy fee is levied on foreign owners of residential real estate where the property is not occupied or genuinely available for rent for at least 6 months in a 12-month period. The amount of the annual vacancy charge is the residential application fee that was paid by the foreign person at the time the application for FIRB approval was made (i.e. at the time of the original acquisition).

The annual vacancy may therefore be relevant where the developer:

  • is a foreign person;
  • purchases existing residential real estate (for example, a built house) for development purposes; and
  • makes a FIRB application to the ATO for the acquisition of the residential real estate after 7.30pm on 9 May 2017.

There are some exemptions to the annual vacancy fee. For example:

  • the development has not commenced (as one usual condition of ATO approval is that the existing residential real estate cannot be occupied or rented out pending development); and
  • the construction of the new residential real estate has not been completed.

A question which has arisen is whether the annual vacancy charge will apply to such foreign developers following completion of the development, where there are remaining unsold units. Will the developer need to make those unsold units available for rent to avoid the vacancy charge?

It appears the current view of the ATO is that the annual vacancy charge will likely apply. This seems onerous on the developer if the units are proposed for sale, and are not in a ‘build to rent’ situation. However, the ATO does have power to waive or remit the whole or part of a vacancy fee if the ATO is satisfied that it is not contrary to the national interest to do so.

It is therefore important for foreign developers buying existing residential land for development to bear this in mind, and to consider applying for a waiver of the annual vacancy charge for unsold units post-completion.

Author
Chong Ming Goh | Partner
+61 3 9258 3537
chongming.goh@maddocks.com.au

Foreign Investment Review Board (FIRB) approvals in relation to the acquisition of residential real estate are administered by the Australian Tax Office (ATO).

An annual vacancy fee may apply to foreign persons who make a foreign investment application for the acquisition of residential property from 7.30pm (AEST) on 9 May 2017.

In summary, the annual vacancy fee is levied on foreign owners of residential real estate where the property is not occupied or genuinely available for rent for at least 6 months in a 12-month period. The amount of the annual vacancy charge is the residential application fee that was paid by the foreign person at the time the application for FIRB approval was made (i.e. at the time of the original acquisition).

The annual vacancy may therefore be relevant where the developer:

  • is a foreign person;
  • purchases existing residential real estate (for example, a built house) for development purposes; and
  • makes a FIRB application to the ATO for the acquisition of the residential real estate after 7.30pm on 9 May 2017.

There are some exemptions to the annual vacancy fee. For example:

  • the development has not commenced (as one usual condition of ATO approval is that the existing residential real estate cannot be occupied or rented out pending development); and
  • the construction of the new residential real estate has not been completed.

A question which has arisen is whether the annual vacancy charge will apply to such foreign developers following completion of the development, where there are remaining unsold units. Will the developer need to make those unsold units available for rent to avoid the vacancy charge?

It appears the current view of the ATO is that the annual vacancy charge will likely apply. This seems onerous on the developer if the units are proposed for sale, and are not in a ‘build to rent’ situation. However, the ATO does have power to waive or remit the whole or part of a vacancy fee if the ATO is satisfied that it is not contrary to the national interest to do so.

It is therefore important for foreign developers buying existing residential land for development to bear this in mind, and to consider applying for a waiver of the annual vacancy charge for unsold units post-completion.

Author
Chong Ming Goh | Partner
+61 3 9258 3537
chongming.goh@maddocks.com.au