Are you a foreign property investor in Australia or exploring investment opportunities? If so, you may be subject to an annual vacancy fee. The Australian government introduced an annual vacancy fee for foreign owners of residential property in December 2017.
The annual vacancy fee is a mechanism to encourage foreign property investors to contribute to the housing market by ensuring their properties are put to productive use.
Understanding the implications of this fee is crucial for maximising your investment returns. Let’s break down the vacancy fee and vacancy fee return for foreign owners in Australia to make the most of your investments.
The Vacancy Fee is an annual charge imposed on foreign owners of Australian residential properties that remain unoccupied for more than half of the year (183 days).
This fee aims to address the issue of housing affordability and encourage foreign property owners to make their properties available for rental or sale, rather than leaving them vacant.
Until April 2024, the vacancy fee has been the same as the amount of the foreign investment application (FIRB) fee paid when submitting a foreign investment application.
Note that starting April 9, 2024, the vacancy fee is twice the original foreign investment application fee.
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Who Is Liable to Pay Vacancy Fee?
You may be eligible for an exemption and not be liable to pay the vacancy fee if the dwelling:
- is damaged, unsafe or is unsuitable to be occupied as a residence
- is undergoing substantial repair or renovation
- is legally prohibited from being occupied as a residence
- if the person who normally occupies the dwelling was absent due to receiving long term in-patient medical care or treatment.
A vacancy fee return must still be lodged to claim an exemption, and you may be required to provide supporting evidence.
Is there a Vacancy Fee Waiver Available?
Fee waivers and remissions are limited. Typically, fees won’t be refunded if your application is unsuccessful, you change your mind, or the final investment value is lower than initially estimated.
How Much Is Vacancy Fee?
The vacancy fee depends on the value of the property you’re applying for. The application fee for acquisitions in new or near-new residential dwellings or vacant residential land from 1 July 2024 to 30 June 2025 is as follows:
- For properties less than $75,000, the fee is $4,300.
- For properties between $75,000 and $1 million, the fee is $14,700.
- For properties between $1 million and $2 million, the fee is $29,500.
- For properties between $2 million and $3 million, the fee is $59,000.
- For properties between $3 million and $4 million, the fee is $88,500.
Example of Vacancy Fee in Australia 2023 and More
For example, Alex bought a townhouse in Australia for $850,000 as an investment and paid a $13,200 foreign investment fee when settling on 5 August 2023. Each August, Alex must submit a vacancy fee return.
- For 2023–2024: The vacancy fee starts from $13,200 per year for property over $75,000, same as the FIRB application fee for residential properties.
- For 2024–2025: The vacancy fee doubles if the property remains vacant.
This increased fee structure ensures properties are actively used and available, helping address Australia’s housing needs.
This fee aims to encourage foreign property owners to either occupy or make their properties available for rental, thereby contributing to the housing market and addressing housing affordability issues.
Foreign property owners need to understand their obligations and comply with the vacancy fee requirements to avoid penalties or legal consequences.
Example of Vacancy Tax for $1 Million Property
Alex, a foreign investor, plans to purchase a newly built luxury apartment in Sydney valued at $1 million. In April 2024, they apply for a residential property exemption certificate, paying a $14,700 application fee.
After approval, Alex has a year to finalise the purchase. They complete the transaction on 2 November 2024, and immediately lists the apartment for rent.
Alex’s vacancy year will end on November 1st annually. He must submit a vacancy fee return by 1 December 2025. If the apartment remains unoccupied for more than six months (183 days), Alex will owe a hefty $29,400 vacancy fee – double the initial application fee.
Are There Any Exemptions Available?
You may be eligible for an exemption and not be liable to pay the vacancy fee if the dwelling:
- is damaged, unsafe or is unsuitable to be occupied as a residence
- is undergoing substantial repair or renovation
- is legally prohibited from being occupied as a residence
- if the person who normally occupies the dwelling was absent due to receiving long term in-patient medical care or treatment.
A vacancy fee return must still be lodged to claim an exemption and you may be required to provide supporting evidence.
Selling Australian property this tax season?
Non-resident CGT rules apply differently on your FY2025-26 return.
Considerations For Foreign Owners
Foreign investors need to fill in the vacancy tax return each year of vacancy. Here are some considerations you should be mindful of.
- Filing the Return: Foreign investors must file a return with the ATO by the specified deadline of 31 October each year. This return provides details on the occupancy status of the property and determines whether the vacancy fee applies.
- Online Lodgment: Foreign owners can file the vacancy fee return online through the ATO’s online services or by mail.
- Financial Impact: The vacancy fee can be a significant cost for foreign owners of residential property in Australia. It is important to consider this fee when evaluating the financial feasibility and profitability of your investment.
- Occupancy Strategies: To avoid the vacancy fee, foreign investors can explore various occupancy strategies. These may include renting out the property, using it for personal use or business purposes, or engaging property management services to ensure continuous occupancy.
- Plan Ahead: Before investing in Australian property, thoroughly research the vacancy fee regulations and their potential implications. Understanding the obligations and costs associated with foreign property ownership will help you make informed decisions and minimise surprises.
How to File a Vacancy Fee Return in Australia
Filing a vacancy fee return in Australia is a requirement for foreign owners of residential property. Here is a step-by-step guide on how to complete this process through the Australian Taxation Office (ATO).
Step 1: Access Online Services for Foreign Investors
To begin, visit the ATO’s Online Services for Foreign Investors. You’ll need to log in using your myGovID credentials. If you haven’t yet set up a myGovID, follow the instructions on the ATO website to create one.
Step 2: Navigate to the Vacancy Fee Return Section
Once logged in, go to:
- Lodgments > Vacancy Fee Return or
- Select the Lodge or Pay Vacancy Fee Return quick link on the dashboard.
This section is where you will start your vacancy fee return.
Step 3: Complete the Return
After entering the vacancy fee return section, click Add and then Start to begin filling in the necessary details. The form will ask for:
- The vacancy return year (for example, 2024).
- The number of days the property was occupied for residential purposes (whether this was more or less than 183 days).
- Occupancy dates and any other relevant information.
Review the information entered to ensure it is accurate before submitting the form.
Step 4: Pay the Vacancy Fee (if Required)
Once you submit the vacancy fee return, the system will indicate if a fee is payable. You have the option to pay immediately or to schedule payment for later. For payment methods and instructions, refer to the ATO’s payment guidelines.
Important Reminders
- Lodging Timeline: The vacancy fee return must be submitted within 30 days of the end of each vacancy year.
- Recordkeeping: Keep records of the property’s occupancy status, as you may need to provide evidence to the ATO.
- Updating Details: If there have been changes to your contact details or property status, update them before filing the return.
For more detailed information and support, visit the ATO’s Vacancy Fee Return page.
How to Avoid the Vacancy Fee in Australia
You can avoid the Australian vacancy fee or reduce its impact by using the following strategies.
Rent Out Your Property
Ensure that your property is rented out for at least 6 months within a calendar year. By maintaining a consistent occupancy, you can meet the minimum requirements and avoid the vacancy fee.
Have a Family Member Occupy the Property
If a family member occupies your property, it may be exempt from the vacancy fee. Ensure that the occupancy meets the specific criteria set by the ATO to qualify for this exemption.
Maintain Your Property’s Readiness
Keep your property in good condition and ready for rental. Regularly conduct maintenance, repairs, and necessary updates to attract potential tenants and minimise periods of vacancy.
If you’re unable to avoid the vacancy fee, you may be able to reduce the amount of the fee by claiming certain expenses, such as the cost of property management or the cost of repairs.
Speak With a Registered Tax Agent About Your Non-Resident Tax
Navigating the complexities of the Australian Vacancy Fee can be daunting. Our tax agents at Odin Tax are here to alleviate your concerns.
We’ll guide you through the process, and help you meet your Australian tax obligations. Let us handle the complexities so you can focus on your investments with peace of mind.
Contact our tax specialist today, and we will be more than happy to assist you with your inquiries and help you navigate the process smoothly.
FAQs about the Vacancy Fee Return for Foreign Owners
What is the vacancy fee?
The vacancy fee is a charge imposed on foreign owners of residential property in Australia who do not occupy or rent out their properties for more than 183 days in a calendar year.
Is there a vacancy tax in Australia?
Yes, Australia has a vacancy fee, often referred to as a “vacancy tax.” This applies to foreign owners of residential property who fail to occupy or rent out their property for more than six months of the year. This policy is aimed at increasing housing availability.
Who is liable to pay the vacancy fee?
Foreign owners of residential property in Australia are liable to pay the vacancy fee if they do not meet the occupancy requirements.
How is the vacancy fee calculated?
Generally, Permanent residents (PR) of Australia are not subject to the annual vacancy fee. This fee is specifically designed for foreign investors who are not Australian citizens or permanent residents.
PRs in Australia who own residential properties that remain vacant for more than 183 days in a year may be required to pay a vacancy fee. The fee applies to foreign owners of residential dwellings but may have specific exemptions depending on individual circumstances.
How do I register and report for the vacancy fee?
Foreign property owners must register their property with the Australian Taxation Office (ATO) and file a return by 31 October each year to report their occupancy status and determine the vacancy fee liability. The return can be filed online using Online Services for Foreign Investors.
What happens if I fail to comply with the vacancy fee requirements?
Failure to comply with the vacancy fee requirements may result in penalties and legal consequences. It is important to understand and fulfil your obligations to avoid any potential issues.
Do PRs need to pay a vacancy fee?
Yes, permanent residents (PR) in Australia who own residential properties that remain vacant for more than 183 days in a year may be required to pay a vacancy fee. The fee applies to foreign owners of residential dwellings but may have specific exemptions depending on individual circumstances.
Can foreigners buy vacant land in Australia?
Yes, foreigners can purchase vacant land in Australia, but they must receive approval from the Foreign Investment Review Board (FIRB) and comply with conditions, including completing residential development on the land within a specified timeframe.
Is the vacancy fee tax-deductible in Australia?
No, the vacancy fee is not tax-deductible as it is considered a penalty rather than a typical property expense. Therefore, property owners cannot claim it as a deduction on their Australian tax return.
Are there any exceptions to paying a vacancy fee?
Yes, there are specific exemptions to the vacancy fee. Exemptions may include situations where the property could not be occupied due to renovations, natural disasters, or legal restrictions. Owners may need to provide evidence to claim an exemption.
What are the residential property application fees?
Foreign buyers applying to purchase residential property in Australia must pay application fees, which vary based on the value of the property. These fees are collected by FIRB and are separate from any potential vacancy fee that might apply later.
Is vacancy fee tax deductible?
No. A property that is vacant and not genuinely available for rental income cannot be claimed as a deductible expense. Such costs contribute to the property’s cost base, relevant for Capital Gains Tax calculations.
