The Assistant Treasurer, Chris Bowen MP, announced on 18 December 2008 administrative changes to the Government's foreign investment guidelines for acquisitions of residential real estate by foreign persons.

Currently, all foreign persons and non-residents including businesses must notify the Foreign Investment Review Board (the FIRB) of their intention to acquire residential real estate, and must comply with postpurchase conditions on its use, development and resale.

Proposed changes to the foreign investment screening arrangements include:

  1. The definition of "temporary resident" for FIRB purposes as a person with a visa of at least 12 months duration will be updated to cover temporary residents with shorter term visas and long term bridging visa holders. Short term visitors, for example, with tourist or certain classes of business visas will continue to not be considered as temporary residents.
  2. The restriction preventing student visa holders from purchasing a property valued at over $300,000 will be removed. The rule preventing temporary residents from purchasing more than one established dwelling will be maintained.
  3. Temporary residents will be exempted from notification of proposed acquisitions of established residential real estate for their own residence, new residential real estate and vacant residential land.
  4. Streamlined administrative procedures will be established to facilitate non-resident foreign persons notifying and receiving approval for acquisitions of vacant residential land and new dwellings. Streamlined notification arrangements will replace the current administrative system which takes up to 30 days for approval.
  5. The definition of "new dwelling" will be extended to include those that have not been sold but that have been rented for no more than 12 months. This will provide more flexibility to developers to temporarily rent out units until buyers are found.
  6. Foreign companies will be allowed to purchase established dwellings for the use of their Australian based staff.

The changes will be implemented progressively, with all changes in force by early 2009. Additional details can be found on the Foreign Investment Review Board website at www.firb.gov.au.

Impact on temporary residents and their employers:

  • In an environment where real estate prices appear to be falling and interest rates have decreased, it may be tempting for your expatriates to look at buying property in Australia.
  • If the assignee is receiving a Living Away From Home Allowance (LAFHA) and they purchase and reside in a property, the LAFHA may lose its tax exempt status.
  • If the assignee buys an Australian property as an investment:
  • The rental income and expenses are taken into account in determining their taxable Australian income. Negative gearing losses will be available and this may have implications especially where the assignee is tax equalised on their employment income.
  • The rental property will be treated as "taxable Australian property" and will be subject to Australian capital gains tax (CGT) at the time the property is sold. It remains subject to CGT irrespective of the assignee's Australian tax status.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.