In Australia, property owners are obligated to pay taxes. However, the amount of these expenses differs depending on whether they are tax residents or non-tax residents.
Income Tax for Foreigners in Australia
Non-residents are only required to file a tax return in Australia if they earn income from within the country, such as prevailing wages, business income, and capital gains from Australian land and buildings. Non-residents may claim certain property-related expenses as deductions to reduce their tax liability.
The income tax rate for non-residents is generally higher than for tax residents. Below is the income tax table for non-residents in Australia for the 2022-2023 financial year according to the Australian Taxation Office:
Understanding Capital Gains for Non-Residents
If you’re a non-tax resident in Australia, you must pay capital gains tax when selling assets or property. The amount of tax will depend on the income you earned in Australia during the financial year of the sale.
Unlike Australian citizens who have lived in their primary residence for over 12 months and are eligible for an exemption, non-residents do not qualify for this tax exemption. If you’re a foreign resident selling an Australian property worth over $750,000, the buyer must withhold 12.5% of the purchase price and send it to the Australian Taxation Office. You can claim this amount back when filing your Australian tax return. This process is called ‘Foreign Resident Capital Gains Tax Withholding.’
The following types of property are considered taxable for non-residents in Australia:
- Capital gains tax assets used to run a business through a permanent establishment in Australia
- Houses, apartments, land, or commercial buildings
- Prospecting, quarrying, or mining rights
- Contracts for off-plan property purchases
Foreign Citizen Stamp Duty
In Australia, stamp duty is mandatory for all property transactions, and no exemptions exist. Foreigners are subject to surcharge rates that vary among different states.
In recent years, state governments have imposed additional stamp duty charges to curb the rising demand for foreign investment in residential properties and increase tax revenue. This surcharge is levied on top of the standard stamp duty charge.
Other developed countries have implemented similar measures to control housing affordability and generate additional tax revenue. Currently, the Foreign Buyers’ Stamp Duty applies in New South Wales and Victoria at 8% and in most other states at 7%. However, it doesn’t apply to property purchases in the Northern Territory or the Australian Capital Territory.
Land Taxes
Non-residents who own investment properties in Australia are required to pay annual land taxes, which are calculated based on the taxable value of the property and the state in which it is located.
However, the Northern Territory doesn’t impose this tax. This tax applies to all property types, including holiday homes, company units, residential properties, and vacant land. However, some properties, such as farms, charity lands, and primary residences, are typically exempt from land tax charges.
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