As at 1 July 2018, a foreign ownership surcharge is imposed under the Land Tax Act 2004 on residential property owned by a foreign person including a foreign individual, corporation or trustee of a foreign trust.   

In the Australian Capital Territory if you’re not an Australian citizen or resident of Australia, you are considered a foreign person and you need to pay the foreign ownership surcharge. If you’re a foreign person who owns residential land in the ACT, you must pay a land tax surcharge of 0.75% of the Average Unimproved Value per year from July 2018 onwards.

The surcharge is on top of the land tax you must pay if a property isn’t your principal place of residence. You are liable for the surcharge if you are a foreign individual, foreign corporation or trustee of a foreign trust on the first day of each land tax quarter, beginning from the first quarter following settlement.  A foreign citizen is able to claim the principal place of residence exemption.

In general, you don’t have to pay the surcharge if:

you’re an Australian citizen or Australian resident

you’re a foreign citizen, but you live in the ACT home as your principal place of residence

the principal place of residence requirement has been satisfied by another owner of the property.

Who pays Land Tax?

Land tax applies to residential properties that are not used as principal places of residence including all residential properties owned by a trust or a company. Land tax does not apply to commercial properties.

Buying a property and land tax

From 1 July 2018, when buying a residential property you’ll be asked whether the property will be your principal place of residence and when you plan to move in. You must move into the property within 3 months after settlement.

Owning a property and land tax

If you own a property that becomes liable for land tax – for example, because you’ve moved out of your home to turn it into a rental property – you have 30 days to notify the ACT Revenue Office.shutterstock_1168862053

Rented secondary dwellings

If there’s another dwelling on the same parcel as your principal place of residence, such as a granny flat, you only have to pay land tax while the other dwelling is being rented. The land tax payable is a proportion based on the rented floor area.

Rates

Marginal rates that apply to property AUV

AUVPercentage (%)
Up to $150,0000.50% of the base value
From $150,000 to $275,000$750 plus 0.60% of the part of the base value that is more than $150,000
From $275,001 to $2,000,000$1,500 plus 1.08% of the part of the base value that is more than $275,000
$2,000,000 and higher$20,130 plus 1.10% of the part of the base value that is more than $2,000,000

A foreign person can be a foreign individual, a foreign company or the trustee of a foreign trust.

Foreign individuals

You’re a foreign individual if you’re not an Australian citizen, a permanent resident, a New Zealand Citizen with a Special Category Visa, or a person ordinarily resident in Australia.

A foreign individual does not include a foreign citizen who ordinary resides in Australia. To decide whether you’re ordinarily resident, we’ll consider a number of things including:

  •    the period of your physical presence in Australia
  •    your intention or purpose for being in Australia (including your visa status)
  •    your family and business or employment ties
  •    the maintenance and location of your assets
  •    your social and living arrangements

You may be ordinarily resident in Australia even if you’re temporarily absent from the country.

Foreign corporations

A foreign corporation is a corporation that’s incorporated outside Australia or in which one or more foreign people hold a controlling interest. A controlling interest is constituted by controlling 50 per cent or more of the shares or voting power.

Foreign trusts

A foreign trust is a trust in which one or more foreign people, and people associated to foreign people, hold a controlling interest as beneficiaries.

A controlling interest for a trust is 50 per cent or more of the interests in the trust as beneficiaries. However, for a discretionary trust, a foreign person can only hold a controlling interest if the person is specifically named in the trust deed as someone to whom a distribution can be made.

When am I liable for the foreign ownership surcharge?

You are liable for the surcharge if you are a foreign individual, foreign corporation or trustee of a foreign trust on the first day of each land tax quarter, beginning from the first quarter following settlement. See “Who is a foreign person?” for more information.

Am I classified as a foreign owner if I move or I am posted overseas? Can I still claim the property as my principal place of residence in Australia?

You are not considered a foreign owner if you are posted overseas. You may however be required to pay land tax on your property if you are on a long term posting.

Can a foreign citizen claim the principal place of residence exemption for land tax?

Yes, a foreign citizen is able to claim the principal place of residence exemption.

Exemptions

Some properties may be exempt from land tax. The majority of exemptions are self-assessed. This means that you are required to determine your own eligibility and notify our office if you are not liable to pay land tax. There are also a number of exemptions which you will need to apply to our office to receive.

Self-assessed exemptions are as follows:

  •    Principal place of residence

This is the main land tax exemption and applies to a property that’s your principal place of residence – that is, your main home. See circulars GEN011 Principal Place of Residence and LTA001.1 Land Tax Exemptions for further information.

You don’t have to pay land tax on your principal place of residence if you were residing in it on the first day of the quarter (1 July, 1 October, 1 January or 1 April).

  •    Moving into your home

When you buy a home as a principal place of residence, the home is exempt from land tax for the first full quarter after settlement. You must move into the home within 3 months of that date. You can leave the home vacant before you move in, but it cannot be rented.

The exemption also applies if you stop renting a home to make it your principal place of residence. You must move into the home within 3 months of the date that it stops being rented.

  •    Moving out of your home

If you move out of your principal place of residence, it will remain exempt from land tax for the first full quarter after you move out. During this time, the property may be left vacant or sold, but cannot be rented to a tenant.

  •    Deceased estates and life tenants

The former principal place of residence of a deceased owner is exempt from land tax for up to 2 years after the date of the owner’s death, or until it is transferred to a beneficiary of the deceased owner’s estate or becomes rented.

Homes occupied by a person with a life or term interest under a will are exempt from land tax.

  •    Unfit for occupation

A home that is unfit for occupation as a place of residence is exempt from land tax. This exemption applies if your home is under construction, being significantly renovated, or has been damaged. The home must be unable to be lived in or rented during this time.

  •    Nil or nominal rent arrangement

If your home is occupied by a person rent-free, it is exempt from land tax. This includes any family members, friends or guests that live in the property for free.

If the occupant does pay you rent, the rent must only cover the cost of rates, repairs, maintenance or insurance in relation to the property. Payments for other expenses, such as the mortgage, will be taken to be a rental arrangement and land tax will apply. As qualified and professional accountants we work with you to achieve your goals and minimize your tax. Feel free to contact us at anytime. We are a team of professional and affordable business tax accountants Melbourne providing a complete range of accounting, taxation and business services to clients throughout Australia.

Exemption – Land use

shutterstock_1212811474The following parcels of land are exempt from land tax in accordance with sections 10 and 11 of the Land Tax Act 2004.

  •    rural land
  •    land owned by the Housing Commissioner
  •    Transfers etc. to entities for community housing
  •    retirement villages
  •    nursing homes
  •    religious accommodation
  •    land used for prescribed purposes
  •    development leases (broad acre subdivisions)
  •    land owned by a not-for-profit housing corporation

Further Information

If you have any queries about the imposition of land tax please call our team on 1300 023 782 or email team@cdrta.com.au

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Craig is the principal consultant of C&D Restructure and Taxation Advisory and has been working in the industry since 1999. Having established C&D Commercial Partners in 2015 the precursor to the current business.

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Post Author: Craig Dangar

Craig is the principal consultant of C&D Restructure and Taxation Advisory and has been working in the industry since 1999. Having established C&D Commercial Partners in 2015 the precursor to the current business.

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