What is the WA Foreign Buyer Duty all about?
From 1 January 2019, the WA state government introduced a foreign buyer surcharge, known as the Foreign Buyers Duty.
You might have heard this be referred to as the WA foreign buyer tax, foreign buyer duty or foreign buyers surcharge.
The foreign buyers tax applies to all residential properties purchased by non-Australian Citizens or permanent residents. Although, there are some exclusions, which we’ll touch on below.
How much is the Foreign Buyer Duty?
In addition to the usual transfer duty that is payable on the purchase, foreign buyers will be charged an extra 7% of the value of the property.
The value of the property is usually considered to be the purchase price, unless the transfer is between related parties.
For a purchase of a $500,000 house by a foreign buyer, they will be charged duty totalling $52,765.00.
This is made up of:
- $17,765.00 transfer duty (previously called stamp duty)
- plus $35,000.00 foreign buyers tax
What do they mean by Residential Property?
The Duties Act defines residential property as:
- Property that is, is capable of being or is intended to be, used solely or predominantly for residential purposes.
- Vacant land that is zoned as residential.
- Any estate or interest in the types of land described above.
In simple terms, we’re talking about houses, units, apartments and any other property type that you could or would live in or plan to live in. The foreign buyer tax includes vacant land that a house could be built on.
Who is considered a Foreign Person?
Anyone who is not an Australian Citizen, Permanent Resident or Special Category Visa (for New Zealand Citizens) is classed as a Foreign Person under the new requirements.
The changes also apply to companies and trusts who buy residential property. Companies and trusts controlled by a foreign person(s) are also liable for the additional foreign buyer surcharge.
I’m not a foreign buyer – do these changes affect me?
All buyers of any type of property in WA must complete a Foreign Transfer Duty Declaration.
This form is completed regardless of whether the buyer is foreign or the property being purchased is residential.
Buyers will receive an extra form from their settlement agent, to declare whether they are a foreign person or not.
It’s important to return this form to the settlement agent within two months of signing the contract. Returning the form late will incur late lodgement penalty tax.
What exemptions apply to the Foreign Buyer Duty?
Transfer between spouses
If a foreign buyer enters into a contract to purchase a residential property, they will be charged the foreign buyer duty.
If they then substitute or transfer part or all or their share to their foreign spouse, they can apply for an exemption from paying the foreign transfer tax again. This is provided the foreign buyer duty was paid in full on the original contract.
Residential Developer Exemption
If a property is acquired by a foreign person for the purpose of developing the property into 10 or more homes, the foreign buyer tax may be reassessed or refunded.
The re-assessment form can be downloaded from Office of State Revenue’s website.
If you have a court order in place, due to a relationship breakdown, the transfer of property will usually be subject to nominal ($20) duty.
In the event that the person receiving the property in the court order is foreign, they will be exempt from paying the foreign buyers surcharge.
A beneficiary under a will is usually subject to nominal ($20) duty when the property is transferred to them.
In the event that the beneficiary is foreign, they will be exempt from paying the foreign buyer tax.
There are other instances where nominal duty or duty exemption applies. This includes eligible partitions or subdivisions and transfers to change trustee. Most of these transactions will be exempt from the Foreign Buyer Duty.
I am an Australian Citizen but my husband is not – will we be charged the foreign buyer duty?
If one or more buyers is considered a foreign person, then they will be charged Foreign Buyer Duty on their share of the purchase price.
It is important to note that whilst certain couples may not require FIRB approval, one of the buyers may still be liable for the foreign buyer surcharge. For example:
Mary & John Smith purchase a home for $800,000. They will each own an equal share.
Mary is an Australian Citizen; however, John is a foreign person.
They will pay the usual transfer duty on the full purchase, being $32,315.50.
John will also pay an additional 7% on his share of the property ($400,000), being $28,000.00.
Mary does not have to pay the additional 7% on her share, as she is an Australian Citizen.
The total duty Mary & John will pay on their purchase is $60,315.50.
How are First Home Owners affected?
Whilst a first home owner may purchase a property and claim the first home owner rate of duty, they could still incur foreign transfer duty if one or more of the buyers is a foreign person.
This means that although they may not have to pay any transfer duty, the foreign buyer duty could still be charged. For example:
Kate & Bob Jones are first home owners who buy a unit for $400,000. They will each own an equal share.
Bob is an Australian Citizen; however, Kate is a foreign person.
As eligible first home owners, they can claim the First Home Owner Rate, and are exempt from paying transfer duty.
However, Kate will still be charged Foreign Buyer Duty on her share of the property ($200,000), being $14,000.00.
I am a foreign buyer who has purchased off-the-plan – will I have pay the Foreign Buyer Duty?
No, provided you signed your contract prior to 1 January 2019, you will not be affected by the foreign buyer surcharge WA, regardless of when settlement takes place.
Can I add my foreign partner to the purchase before we settle?
Any changes made to contracts after 1 January 2019 will be subject to the foreign buyer surcharge.
If you change the buyer (e.g. add your foreign partner) to the contract after 1 January 2019, you will incur the additional 7% tax on the foreign person’s share of the property. This applies even if you originally signed by to buy the property before 1 January 2019.
I was foreign when I signed the contract, but now I am a Permanent Resident – do I still have to pay?
If a foreign buyer enters into a contract to buy a home, and then prior to settlement, becomes a Permanent Resident, they will no longer have to pay the Foreign Buyers Duty.
However, if they do not become a Permanent Resident until after settlement takes place, they would not be entitled to any refund or re-assessment.
Where can I go to get more information?
For more information about the foreign buyer surcharge WA, Office of State Revenue has a dedicated section on their website to deal with the Foreign Buyer Duty. This includes fact sheets, FAQs and links to the relevant legislation.
If you have any specific questions about how you might be impacted, please call the team at Metro Settlements on +61 8 6210 0888.