Individuals/organizations/companies can invest in Australian real estate either directly or indirectly via the ownership of membership interests in an interposed entity holding the Australian real estate. The indirect investment in Australian real estate can be via an Australian or foreign entity.
Last modified 31 Aug 2020
Stamp duty is payable in all Australian States and Territories on the purchase of Australian real estate, including the following types of duty:
Goods and Services Tax (GST), similar to VAT in Europe, of 10 percent may also be payable.
Last modified 31 Aug 2020
The sale of real estate by businesses which are registered for Goods and Services Tax (GST) (the equivalent of VAT) is generally subject to GST at a rate of 10 percent. However, there are a number of exceptions:
Generally, where the sale is subject to GST and the purchaser is also a registered business, the purchaser is ordinarily entitled to claim back the element of GST as a credit against its overall liability for GST in its GST return. This is normally lodged monthly or quarterly depending on turnover. No credit is available to the purchaser where GST was calculated under the margin scheme, or for residential premises which will be leased to tenants.
Last modified 31 Aug 2020
Other costs include the fees of professional advisors.
Foreign persons must generally seek approval from the Foreign Investment Review Board (FIRB) for proposals to acquire Australian real estate unless certain exclusions apply (See Australia – Corporate Vehicles). In order for FIRB to consider an application for such approval, application fees must first be paid to FIRB. These fees range from AUD5,000 up to AUD25,000 with a non-capped fee applicable to acquisitions of Australian residential land worth AUD3,000, 000 or more.
Also, the purchaser may be required to pay a fee to register the acquisition of the real estate with the Department of Land Titles. The amount of fee payable depends on the Australian state or territory in which the property is located and the value of the property.
Last modified 31 Aug 2020
Land tax may be payable annually by the land owner depending on the unencumbered value of the real estate. The amount of land tax payable depends on the Australian state or territory in which the property is located and various other factors including, among others, the land value and the type of corporate vehicle which owns the land (eg trust or company). For example, in New South Wales land tax is levied at the rate of 1.6 percent to 2 percent of the land value.
Foreign owners of land may also be subject to additional land tax surcharges in New South Wales (for residential property) and Victoria (for all property).
Also, certain exemptions are available in most Australian states/territories (eg land used for primary production such as forestry plantations).
Last modified 31 Aug 2020
Council rates and water charges may be payable during the ownership of real estate. These costs and charges are payable regardless of the type of entity holding the real estate. The amounts payable depends on the Australian state or territory and council area in which the property is located.
Last modified 31 Aug 2020
Income is generally received by the corporate vehicle from rentals. However, profits from developing and/or trading land can also be taxed as income (as opposed to capital gains).
Generally, if the real estate is held by a company, then investors can expect to receive dividends. Alternatively, if the property is held through flow through or tax-transparent entities (such as certain trusts and partnerships) then the income derived from the real estate (eg rentals and trading profits) generally flow through to the investors.
Last modified 31 Aug 2020
If the investor directly holds real estate, the investor will be taxed at their marginal tax rate in respect of the income received. The rate applicable (maximum 51 percent, including the Medicare levy surcharge, for Australian resident investors and 47 percent for non-Australian investors) depends on the type of investor and the amount of taxable income derived during the income year.
Income received by a company is taxed at the corporate tax rate of 30 percent after allowing for deductions.
Australian resident investors are taxed at their marginal tax rates on distributions (dividends) received from a company and offsets (referred to as ‘franking credits’) may be available to Australian resident investors for the tax already paid by the company on the profits from which the distributions are paid. Due to the availability of the offsets, effectively, Australian resident investors pay tax in respect of the distributions on the difference between their marginal tax rate and the 30 percent tax already paid by the company.
Payments of fully franked dividends (that is, dividends fully paid out of profits which have already been subject to taxation in Australia) from a company to non-Australian resident investors are not subject to further Australian income or withholding tax. Payments of unfranked dividends (that is, dividends which have not been subject to taxation in Australia) from a company to non-Australian resident investors are generally subject to Australian withholding tax of 30 percent. This withholding tax rate may decrease (to between 0 percent and 15 percent) where the non-resident investor resides in a country with which Australia has a double tax agreement.
For flow through or tax-transparent entities (such as certain trusts and partnerships), Australian resident investors are taxed at their marginal tax rates in respect of their share of the income derived by the entity. Non-Australian resident investors are subject to Australian withholding taxes in respect of certain distributions (such as, dividends and interest) and are generally taxed at their own marginal tax rates (up to 47 percent) in respect of other taxable distributions. For trusts, the Australian trustee generally withholds the tax payable from distributions made to non-resident investors. As discussed above in respect of dividends, the rate of Australian withholding tax may be lowered in respect of distributions of dividends where the non-Australian resident investor resides in a country with which Australia has a double tax agreement. Certain concessions allow distributions from qualifying withholding managed investment trusts (MIT) to non-Australian resident investors who reside in an effective tax information exchange country (such as the US, UK etc) of rental income and capital gains to be taxed at 15 percent or 10 percent if the MIT owns newly constructed energy efficient/environmentally sustainable commercial buildings. Otherwise, a 30 percent tax rate applies for distributions by qualifying MITs.
The flow through entity itself is generally not subject to taxation.
The owner of real estate may reduce or offset the taxes payable by claiming deductions for capital allowances (effectively a depreciation allowance) or interest or other related expenditure. The amount of capital allowance able to be claimed depends on the type of asset and its estimated effective life. However, the cost of land cannot be depreciated. Interest costs may also be deductible subject to the restrictions imposed by the thin capitalization rules and certain other integrity provisions (eg transfer pricing).
Further, the owner of real estate may realize losses which may be carried forward in certain circumstances, if certain tests are satisfied, to offset future income.
Rent received is generally subject to Goods and Services Tax (GST) (the equivalent of VAT). However, residential rent (as opposed to commercial rent) is input taxed. Dividends and distributions do not attract GST.
Last modified 31 Aug 2020
Australian resident investors are taxed at their tax rates on distributions (dividends) received from a company and credits (referred to as 'franking credits') may be available to Australian resident investors for the tax already paid by the company on the profits from which the distributions are paid. Due to the availability of the credits, effectively, Australian resident investors pay tax in respect of the distributions on the difference between their tax rate and the 30 percent tax already paid by the company.
Payments of fully franked dividends (that is, dividends paid out of profits which have already been subject to taxation in Australia) from a company to non-Australian resident investors are not subject to further Australian income or withholding tax. Payments of unfranked dividends (that is, dividends which have not been subject to taxation in Australia) from a company to non-Australian resident investors are generally subject to Australian withholding tax of 30 percent. This withholding tax rate may decrease (between 0 percent and 15 percent) where the non-resident investor resides in a country with which Australia has a double tax agreement.
For flow through or tax-transparent entities (such as certain trusts and partnerships), Australian resident investors are taxed at their marginal tax rates in respect of income received by the entity. Non-Australian resident investors are subject to Australian withholding taxes in respect of certain distributions (such as, dividends and interest) and are taxed at their individual tax rates (up to 45 percent) in respect of other taxable distributions. For trusts, the Australian trustee generally withholds the tax payable from distributions made to non-resident investors. As discussed above in respect of dividends, the rate of Australian withholding tax may be lowered in respect of distributions of dividends and interest where the non-Australian resident investor resides in a country with which Australia has a double tax agreement. Recent changes allow distributions from managed investment trusts to non-Australian resident investors who reside in an effective information exchange country (such as the US, UK etc) of rental income and capital gains to be taxed at 15 percent (from 1 July 2012 and onwards). Otherwise, a 30 percent tax rate applies.
The flow through entity itself is generally not subject to taxation.
Last modified 31 Aug 2020
There may be fees of real estate agents, legal and other professional advisors in connection with the ongoing management of the property.
Last modified 31 Aug 2020
No.
Last modified 31 Aug 2020
If the real estate is held by a flow-through or tax-transparent entity (such as, certain trusts and partnerships) the income or capital gains on the sale of the real estate flows through to the investors and tax is payable on these gains at the investor’s marginal tax rate. If the real estate is held by a company, the company is liable to pay tax at 30 percent on the capital or income gain from the sale (after deductions).
If the vendor is an individual, trust or complying superannuation entity and the real estate is held on capital account for at least 12 months by the vendor, the tax payable on the gain may be discounted. A discount of 50 percent applies for individuals and trusts. This discount is not available for non-resident investors.
The capital gain (or loss) is generally equal to the capital proceeds received (eg sale price) less the cost base (eg original purchase price and other costs of acquisition).
From 1 July 2016, disposals of direct or indirect interests in Australian real estate by foreign residents will be subject to a non-final 10 percent capital gains withholding tax. Purchasers will be required to withhold this amount from the purchase price and remit payment to the Australian Taxation Office by the settlement date. In certain circumstances, the withholding tax rate can be varied, including to nil (eg where the vendor will not make a capital gain from the sale).
Last modified 31 Aug 2020
If the real estate is sold by a real estate agent, the agent may charge commission for the services provided and for any associated costs such as advertising. Legal fees may be payable to a solicitor for implementing the transfer of the property.
If the property is subject to a mortgage or charge, the seller may have to pay a fee to remove the mortgage or charge over the property upon completion.
Last modified 31 Aug 2020
What taxes are payable on the sale of real estate and can these be reduced or offset in any way?
If the real estate is held by a flow-through or tax-transparent entity (such as, certain trusts and partnerships) the income or capital gains on the sale of the real estate flows through to the investors and tax is payable on these gains at the investor’s marginal tax rate. If the real estate is held by a company, the company is liable to pay tax at 30 percent on the capital or income gain from the sale (after deductions).
If the vendor is an individual, trust or complying superannuation entity and the real estate is held on capital account for at least 12 months by the vendor, the tax payable on the gain may be discounted. A discount of 50 percent applies for individuals and trusts. This discount is not available for non-resident investors.
The capital gain (or loss) is generally equal to the capital proceeds received (eg sale price) less the cost base (eg original purchase price and other costs of acquisition).
From 1 July 2016, disposals of direct or indirect interests in Australian real estate by foreign residents will be subject to a non-final 10 percent capital gains withholding tax. Purchasers will be required to withhold this amount from the purchase price and remit payment to the Australian Taxation Office by the settlement date. In certain circumstances, the withholding tax rate can be varied, including to nil (eg where the vendor will not make a capital gain from the sale).
Last modified 31 Aug 2020