Impact
Missing the issue could prove expensive with FIRB Application fees for the acquisition of residential property starting at $5,500 per property under $1million, $11,100 between $1 to 2million in value and with an additional fee per $1million of value thereafter. FIRB fees are updated in line with CPI in July each year.
If an acquisition is made without the required approvals, both civil and criminal penalties can apply with hefty fines of up to $787,500 or 10 per cent of the property value. The ATO has responsibility for policing the FIRB regulations for residential property and collecting the various fees and charges.
The issue has now been amplified with the 2017 Budget Announcements on the “Vacancy Tax” which were included in the Housing Affordability measures. Properties acquired on or after 9th May, 2017 by “foreign persons”, (which could inadvertently include your family trust as the definition refers back to the FIRB rules), will be subject to an annual vacancy charge where the property is not rented out or occupied for more than six months per year.
Recommendations
As such, you should review the position of any trusts holding property. It may be appropriate to amend the relevant trust deed to prevent any distributions to any person who is not ordinarily resident in Australia. This may also be something to consider when establishing new discretionary trusts or if there is potential for further property acquisitions.
FIRB have advised that they will not seek to impose penalties for trusts that may have foreign beneficiaries but had purchased the property prior to the new rules being implemented. However those that have transacted in residential property since the introduction of the regulations may need to consider if a voluntary disclosure and retrospective application is required.
Contact your advisors to discuss if there are any doubts about the list of potential beneficiaries in your trust or their residency status.
