Over the past 5 years, there has been extensive coverage in the media about Sydney’s housing affordability crisis. With ever-increasing property values and soaring rental prices, more Sydneysiders are opting to invest in property with the goal of renting the property out.
One of the sweeping reforms announced in the 2017 budget was the Vacancy Tax. If a foreign investor leaves a property vacant for at least 6 months in a calendar year, they will now be required to pay an annual charge equal to their foreign investment application fee. That’s either $5,000.00 or $10,000.00 per year depending on when they purchased the property.
The logic behind the Vacancy Tax is to ease the rental property shortage in urban areas which have seen weekly rents jump by more than $500.00 by increasing the supply of properties in the rental market.
The pain doesn’t stop there though
In addition to the Vacancy Tax, foreign investors will now be slugged with a further surcharge land tax of 0.75% on the taxable value of the land that is above the threshold value of $549,000.00.
For instance, on a property with a land value of $700,000.00, the total land tax is payable as follows:
Land tax payable on $700,000 is $2516.00.
The surcharge payable at 0.75% of $700,000 is $5250.00.
Foreign investors will also be unable to claim the principle place of residence exemption. This means that even if they live in the property, they will still be required to pay the surcharge land tax.
The bulk of measures announced by the State and Federal Governments are intended to reduce pressure on housing markets and make it easier for domestic home buyers to purchase their first property. The flipside is that this also puts pressures on foreign investors to sell their properties.
If you are a home buyer or seller looking for clarification of the recent changes to the housing market, or are thinking of buying or selling and want to ensure that you comply with all of the requirements to sell or buy a property, please contact one of our specialist Property Lawyers.
