The annual vacancy fee: What you need to know

If you’re a foreign investor in the Australian residential property market, then you may be aware of the rules and regulations that apply to you. The Annual Vacancy Fee is one of them, although not many understand what it is, and how it works.

If you’re looking to decrease annual expenditure on your property though, there are several things you can do — and understanding how the Annual Vacancy Fee applies to you is key to this. Here, we’ve highlighted everything you need to know about the Annual Vacancy Fee, whether it applies to you, and what you can do to lessen — or even get rid of — these payments.

What is the annual vacancy fee?

The Annual Vacancy Fee was introduced by the Australian Taxation Office (ATO) in 2017 to help improve the affordability of housing for Australians. The fee entices foreign owners to rent out their vacant properties, thereby increasing the number of rental properties available. The Annual Vacancy Fee applies to all foreign owners of property in Australia, although there are exceptions, as you will see below.

Essentially, foreign owners of property in Australia are required to inform the ATO of the occupation status of their property(s). If the property is not inhabited (by either the owner or a family member of the owner, or renters) for 183 days of the year or more — six months, for those keeping track — then the ATO is able to charge the owners the Foreign Vacancy Fee.

Who does it apply to?

The Annual Vacancy Fee applies to all foreign persons — including individuals, corporations, trustees and governments — who own residential property in Australia. If the property is not occupied or genuinely available on the rental market for at least six months (or 183 days) in a twelve-month period, the owner has to pay the fee.

An important note about the renting out of the property: there can be many rental contracts within the 183 days, however each must last for at least 30 days each (so no Airbnb). This means that long-term tenants are favoured, an important feature of the legislation as it ties into why it was created in the first place: to increase the amount of available rental opportunities in Australia.

What are the exceptions?

There are some exceptions to the Annual Vacancy Fee. The primary exception is that if the property has been occupied or available on the rental market for at least six months, the owner of the property does not have to pay the fee. They are also exempt is the property is not a viable dwelling option throughout the 12-month period due to damage, undergoing substantial repairs/renovations, being vacant land, etc.

Another major exception is only available if the foreign owner was switched on back in 2017. If a foreign investment application was made before 7:30 PM AEST on the 9th of May, 2017, the foreign owners do not have to pay the Annual Vacancy Fee.

How much should I expect to pay?

The Annual Vacancy Fee payable is equal to the amount paid on application to the Foreign Investment Review Board (FIRB) when the property was initially purchased. For example, the FIRB application fee for an established dwelling where the purchase price was less than $1,000,000 is $5,600 (in 2018). If the FIRB application fee was waived, the vacancy fee is equal to the lowest fee payable for a residential property application, which is currently $5,500.

The primary thing to note is that the Annual Vacancy Fee for each property is calculated in arrears by reference to the 12 month period preceding the anniversary of the purchase of the property. You should have documentation highlighting how much was paid on application to the FIRB, but if not, contact a solicitor or the board itself for more clarification.

Of course, please remember that this is a guide. An in-depth talk with a solicitor is an ideal next step.

The Annual Vacancy Fee is a unique addition to the property market, increasing rental opportunities (and giving foreign investors extra money in their pocket, if they want!). Being aware of the legislation and how it applies to you is crucial, as avoiding paying the fee is as easy as living in your property or renting it out. How’s that for low maintenance!

Written: 29 October 2019, Updated: 23 October 2019

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