Australia: Recent and proposed changes to taxation of Australian assets owned by foreign residents

In 2024, foreign resident landowners have already seen changes made by two Australian states, New South Wales (NSW) and Victoria, that have had impact on them:

• In Victoria, the absentee owner land tax surcharge (which is applicable to foreign residents owning land or property in Victoria) increased from 2% to 4% from the 2024 land tax year.
• In New South Wales, the NSW government has increased the foreign owner surcharge land tax from 4% to 5% from the 2025 land tax year onwards. In addition, the federal Parliament passed the Treasury Laws Amendment (Foreign Investment) Act 2024 on 8 April 2024 which adopted a position that the double tax agreements entered by the federal government with other countries did not affect state duties and taxes. This effectively reverses the previous position taken by Revenue NSW in 2023 that citizens of New Zealand, South Africa, Germany, Finland, Japan, Norway, India and Switzerland were exempt from paying the foreign owner surcharge land tax (which is applicable to foreign residents owning residential land or residential property in NSW) because of inconsistencies with the Non-Discrimination Article in the double tax agreement signed between Australia and those countries. 

On top of the abovementioned changes which have happened at the state level, the Australian federal government announced several measures in improving the integrity of the foreign resident capital gains withholding (FRCGW) as part of its 2023-24 Mid-Year Economic and Fiscal Outlook and the 2024-25 Budget. The following proposed measures are not passed yet:

1. Increasing the FRCGW rate for relevant capital gains tax (CGT) assets from 12.5% to 15% and removing the current A$750,000 threshold before which withholding applies for transactions involving either taxable Australian real property or an indirect Australian real property interest that provides company title interests. These changes if passed will apply to acquisitions of relevant CGT assets made on or after the later of 1 January 2025 and the commencement of this measure.

2. Clarifying and broadening the types of assets on which foreign residents are subject to CGT by:

         a. extending the CGT regime to asset types with a close economic connection to Australian land and/or natural resources including the following which are not               currently covered:

               i. agreements to use land giving rise to emission permits;

               ii. Australian water entitlements;

               iii. Infrastructure and machinery installed on Australian land including:

• energy infrastructure assets such as wind turbines, solar panel arrays, batteries, transmission lines and sub-stations;
• telecommunications infrastructure, particularly transmission towers;
• water infrastructure assets, particularly pipelines;
• transport infrastructure such as rail networks, ports and airports; and
• mining infrastructure such as heavy machinery (eg, mining drills and ore crushers) installed on land use in mining operations

     The Australian government believes that the proposed change will bring foreign residents’ CGT outcomes with respect to Australia’s unique land and natural resources       into closer alignment with the tax treatment for Australian residents, and with international tax best practice.

           b. amend the point-in-time principal asset test to a 365-day testing period for the purposes of determining whether a company or trust is ‘land rich’. The Australian                government believes that this will improve the reliability of the test and bring into line with the current OECD Model Tax Convention.

3. Requiring foreign residents disposing of shares and other membership interests exceeding A$20 million in value to notify the Australian Taxation Office, prior to the transaction being executed.

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Reference/ Citation

Absentee owner surcharge | State Revenue Office (sro.vic.gov.au)

Foreign owner surcharge | Revenue NSW

Explanatory Memorandum to Treasury Laws Amendment (Foreign Investment) Bill 2024

Explanatory Memorandum to Treasury Laws Amendment Bill 2024: Foreign Resident Capital Gains Withholding Payments

Australian Treasury, Strengthening the foreign resident capital gains tax regime Consultation Paper, July 2024

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