Once they obtain PR, many people’s next top priority is buying a home, because in our “common sense” understanding, once you hold that green card you are no longer a “Foreign Person”. At least not in property transactions. And one of the biggest differences when purchasing property is that you no longer need to pay foreign stamp duty.

However, today NS Legal wants to let everyone know that even after obtaining PR, when buying property you may still be defined as a Foreign Person and therefore required to pay foreign stamp duty.

1. The stamp duty you often hear about

Stamp duty, as the name suggests, is a tax the government levies on property sales and purchases. The exact amount and when it is payable depend mainly on three factors:

– Status (local resident / foreign person)

– Purpose of purchase (investment / owner-occupied)

– The state, the purchase price, and the settlement date.

Taking NSW established-home purchases as an example: NSW law requires stamp duty on a property purchase to be paid within 3 months of contract exchange. If settlement occurs within that 3-month window, the stamp duty must be paid before settlement. If settlement occurs more than 3 months after contract exchange, it must be paid within 3 months.

Depending on the property value, stamp duty is calculated using specific formulas. But generally speaking, local buyers pay around 4% of the property value, and foreign persons need to pay an additional ~8% on top of the local rate, for a total of around 12%.

NSW currently exempts first home buyers who are local residents from stamp duty on properties under $650,000.

2. Definition of a Foreign Person

A Foreign Person is not necessarily a “person” — it also includes companies, foreign governments, trusts and partnerships, among others.

– For an individual, it means an individual who does not ordinarily reside in Australia.

(Of course, if you are an Australian citizen — however citizenship was obtained, for example through any of the various migration grant pathways — no matter how long you live anywhere else in the world, as long as you hold the citizenship you will not be counted as a Foreign Person.)

– For a company, if individual shareholders who do not ordinarily reside in Australia, foreign-company shareholders, or foreign-government shareholders hold 20% or more of the company’s shares; or if there are two or more foreign shareholders who together hold 20% or more of the shares, the company is treated as a “Foreign Person”. (Trusts work similarly — just swap the company for the trustee company or the beneficiaries.)

– For a partnership: if a foreign company, foreign government, or an individual who does not ordinarily reside in Australia holds 20% or more of the interests in a limited partnership; or if there are multiple foreign partners who together hold 40% or more of the interests.

So as an Australian PR holder, you need to hold that green card AND ordinarily reside in Australia to avoid being a “Foreign Person”. That raises the question: how long do you have to live here to count as “ordinarily resident”?

3. How “ordinary” is ordinarily resident?

An Australian ordinarily resident is defined as someone who:

First: has lived in Australia for 200 days or more within the 12 calendar months immediately before a given date;

Second: holds a visa that places no restriction on their continuing to remain in Australia.

Both conditions must be satisfied. The second point clearly rules out temporary-visa holders such as 491/489/485/500 (in NSW, 309/820 are non-PR visas but are treated as PR for the purposes of property purchase).

If you are a PR but do not meet the 200-day requirement, buying an investment property means you will be treated as a Foreign Person ↓↓↓

For example:

Xiao Xing obtained PR at the end of 2019. He returned to China in January 2020. Although his Australian PR allowed him to re-enter Australia during that period, he did not do so because of quarantine and safety concerns. After Australia reopened its borders at the end of 2021, he returned to Australia in January 2022 and wanted to buy an investment property, planning to sign the purchase contract on 22 February 2022 (meaning the date of contract exchange — the date both buyer and seller formally sign and which is written into the contract).

Counting back 12 months from 22 February 2022, Xiao Xing has not lived in Australia for at least 200 days, so at the time of signing this purchase contract he will be defined as a “Foreign Person”. Since 21 June 2016, under NSW rules, “quasi-PRs” who hold a green card but cannot meet the ordinarily-resident requirement must also pay an additional 8% foreign stamp duty on top of the base stamp duty.

Please note: if a green-card holder has not lived in Australia for 200 days in the 12 months preceding contract signing, but the property is to be owner-occupied and they in fact live in it for 200 consecutive days from the date of signing the contract, foreign stamp duty is still not payable — only the normal local stamp duty applies.

4. FIRB

FIRB is Australia’s Foreign Investment Review Board. In simple terms, foreign persons and Australian temporary residents buying property in Australia must obtain FIRB approval. Purchase applications being rejected is not common in Australia. For foreign persons, the buyer’s lawyer will generally recommend inserting a foreign-person approval clause (Subject to FIRB Approval) into the purchase contract, so that if the clause is included and the buyer’s FIRB application is refused, they can terminate the contract under that clause.

What does FIRB require?

First, pure foreign persons and Australian temporary residents may purchase new or off-the-plan properties in Australia.

Second, foreign persons cannot buy established homes to live in, whereas temporary residents can buy an established home as their own residence, but with a few conditions: 1. only one property; 2. it cannot be used as an investment, so it cannot be rented out.

This property must be the foreign buyer’s primary residence in Australia — if they stop living there, it must be sold within 3 months. If they later become a citizen or PR, they no longer have to sell. Also, if the buyer’s temporary resident visa expires and they have not transitioned to citizenship or PR, they must likewise dispose of their owner-occupied property.

For ordinary residential-property purchase applications, approval is usually granted within 30 days of lodging the application.

Overall — the purchase process

Choose area and view properties (commonly called “house hunting”) → arrange finance (if needed) → sign the contract (generally the stage a lawyer becomes involved) → settlement

Lastly — things to watch for when signing the contract

Things to watch for when signing the contract:

Overall, whether you are a pure foreign person, a long-term temporary-visa holder residing in Australia, a PR, or a citizen, as a buyer the following items in the contract deserve your attention:

– First decide whether the purchase is in a single name or joint names

– Pay attention to the cooling-off period in the contract

– Pay attention to the finance clause in the contract (Subject to Finance)

– And the foreign-person approval clause (FIRB) mentioned above (Subject to FIRB Approval)

If you have any questions, please feel free to leave a comment. If you need help with property conveyancing or any other legal matters, you are also welcome to contact NS Legal.