Malaysian property investors with assets in Australia are facing a more complex and costly tax landscape following recent changes announced in the Australian Federal Budget.
These new regulations, combined with existing rules, could lead to substantial financial penalties and reassessments for those unaware of their tax obligations.
Beginning January 1, 2025, the Foreign Resident Capital Gains Withholding (FRCGW) tax will increase from 12.5% to 15%, with the transaction threshold reduced from $750,000 to $0.
This means that all property sales by foreign residents, regardless of value, will be subject to the withholding tax.
Dominic Murphy, an international taxation specialist at TJD Accounting Australia, highlighted the significant impact of this change: “For example, if your property sells for $600,000, $90,000 of tax will be withheld by the Australian Tax Office (ATO). This is a major increase that you need to prepare for.”
Land Tax Surcharges and Reassessments
In addition to the withholding tax increase, investors are also facing high land tax rates and the risk of reassessments. State Governments may reassess property owners at higher rates if they are found to be non-residents, potentially applying the absentee rate retroactively for up to five years.
Murphy said, “We’ve had Malaysian clients receive reassessment tax bills ranging from $60,000 to over $100,000. They are often shocked as they were unaware of their tax status for years.”
Growing Market Interest Despite Challenges
Despite the increasing tax burdens, interest from foreign investors, including Malaysians, continues to grow. Data from the ATO shows that 5,360 properties worth $4.9 billion were purchased by foreign investors in 2022-23, up from 4,228 properties valued at $3.9 billion in 2021-22.
However, Stephen Bailey, a property consultant at Blue Crest Property Solutions, reports that 94% of non-resident investors, including Malaysians, are unaware of their tax obligations in Australia.
Advice for Investors
Murphy advises that Malaysian investors take proactive steps to ensure compliance with Australian tax laws. He recommends filing annual tax returns, even retroactively, to potentially offset gains with any losses and reclaim withheld taxes.
“It’s crucial for investors to apply for an Australian tax file number (TFN) and start filing tax returns from the year they purchased the property,” Murphy advised.
He also suggested that setting up discretionary or corporate trusts in Australia could help reduce tax liabilities, though professional guidance is essential.
“The financial consequences of non-compliance are severe and immediate. Investors should seek professional advice to navigate these complex regulations and protect their investments,” Murphy added.
