A vacant property can create a costly compliance issue for some foreign owners of Australian residential property. The key risk is not only the vacancy fee itself. Failing to lodge the required annual return on time can result in a vacancy fee being imposed even where the property was occupied or genuinely available for longer-term rent for enough days during the year.
This guide explains how Australia’s Commonwealth vacancy fee works, who it is likely to affect, what counts as occupation, and the practical steps that can help prevent avoidable fees and penalties.
What the vacancy fee is, and who needs to consider it
The Commonwealth vacancy fee is part of Australia’s foreign investment framework. It is not a general tax on every empty home in Australia, and it should not be confused with any state-based vacant-property levy that may apply in particular locations.
It can apply where a foreign person acquires an interest in residential land with a dwelling, or a dwelling to be built, and the acquisition was subject to the foreign investment notification rules or would have been subject to those rules but for an exemption certificate. The Australian Taxation Office administers the vacancy-fee regime.
For affected owners, the obligation is ongoing. A vacancy fee return generally needs to be lodged for each dwelling for every relevant 12-month vacancy year while the interest is held. This remains important even if the owner believes the property has been used sufficiently and no fee should be payable.
The rules can be relevant to individuals, companies and trustees that are foreign persons for foreign investment purposes. Ownership through a company, trust or other structure does not automatically remove the need to consider the rules. The ownership structure, acquisition history and foreign investment approval documents should all be reviewed together.
For many Australian citizens and permanent residents, the Commonwealth vacancy fee will not be the relevant issue. However, property owners should not make that assumption simply because they live in Australia, have an Australian business, or lodge Australian income tax returns. Foreign investment status is determined under a separate legal framework from income tax residency.
The 183-day occupancy test in plain English
The central question is whether the dwelling was “residentially occupied” for at least 183 days during the applicable vacancy year. The vacancy year is not necessarily the financial year or calendar year. It is generally a rolling 12-month period beginning from the relevant occupation day for the dwelling.
A day can count towards the occupancy requirement where:
- the foreign owner, or their relative, genuinely lives in the dwelling as a residence;
- the dwelling is genuinely occupied as a residence under a lease or licence with a term of 30 days or more; or
- the dwelling is genuinely available for residential occupation under a lease or licence with a term of 30 days or more.
This means the property does not need to be continuously occupied by one tenant for the whole period. Owner occupation, qualifying long-term tenancies and genuine availability for qualifying rentals can be combined across the vacancy year.
However, there is an important distinction between a property being listed somewhere and being genuinely available for an eligible residential tenancy. Short-stay arrangements of less than 30 days do not satisfy the statutory test. A property used mainly for holiday accommodation, short bookings or flexible owner use may therefore fall short even if it is occupied frequently over the year.
Similarly, an owner should be cautious about calling a property “available for rent” where it is marketed at an unrealistic price, subject to restrictions that effectively prevent a tenant moving in, or withdrawn from the market for extended periods. The position should be supported by evidence, rather than an assumption based on an online listing.
Why lodging the annual return matters just as much as occupancy
A common and expensive misunderstanding is that no return is needed if the property meets the 183-day test. That is not correct for an owner within the vacancy-fee regime.
The law requires the vacancy fee return to be given to the Commissioner of Taxation within 30 days after the end of the vacancy year. If the Commissioner is satisfied that the return was not lodged as required, the owner can be treated as liable for the vacancy fee regardless of how many days the property was residentially occupied.
In other words, timely reporting is not simply an administrative formality. It is a separate compliance obligation.
The legislation also provides for a civil penalty of 500 penalty units for failing to lodge the return. The same maximum civil penalty applies where a person gives a materially false or misleading vacancy fee return.
For jointly held property, there are rules designed to avoid duplicate returns in some circumstances. Broadly, if another foreign joint owner with the same vacancy year lodges the required return, the obligation can cease for the other joint owner. Joint owners should still confirm who is responsible for lodging, rather than assuming that a spouse, co-owner, property manager or adviser has completed it.
A sensible approach is to set a recurring reminder well before the vacancy-year anniversary. Keep the reminder with the property’s foreign investment approval records, rather than relying on a general tax calendar or BAS due-date system.
How the fee is worked out and why it can be substantial
The vacancy fee is not based on the property’s rent, current market value or estimated capital gain. Instead, the amount is linked to the foreign investment fee associated with the relevant acquisition.
Under the current regulations, the vacancy fee is generally double the relevant foreign investment application fee. The precise calculation depends on how the property was acquired, including whether the acquisition was notified directly, covered by an exemption certificate, or dealt with through another foreign investment decision.
This is why a vacancy fee can be significant. A larger property acquisition may have involved a higher foreign investment fee at the outset, and the vacancy fee can reflect that amount. Owners should not assume the annual cost will be modest simply because the property was only vacant for part of the year.
If a vacancy fee is assessed, the owner must be given written notice stating the amount and the reasons for liability. The payment date stated in that notice must be at least 21 days after the notice is given.
Unpaid vacancy fees may be recovered as a debt due to the Commonwealth. The law also allows for a charge over Australian land in certain circumstances, so ignoring the issue is not a sound strategy.
Keep records that prove the property’s use
Good records are the strongest defence against both an incorrect result and a stressful compliance review. An affected owner must keep records that explain transactions and other acts relevant to their vacancy-fee liability, and retain them for at least five years after the end of each vacancy year. Records must be in English, or readily accessible and easily convertible into English.
Useful records may include:
- settlement documents and the foreign investment approval or exemption-certificate records;
- a diary or spreadsheet showing the relevant vacancy-year start and end dates;
- tenancy agreements, lease renewals and tenant correspondence;
- property-manager statements and rental ledgers;
- evidence that rent was received;
- advertising records showing when the property was available for qualifying longer-term rental;
- screenshots or reports demonstrating listing dates and rental terms;
- evidence of owner or relative occupation, where relevant;
- insurance records, utility bills and other supporting documents; and
- records explaining periods when the dwelling could not be occupied.
A property manager may hold some of these documents, but responsibility ultimately stays with the owner. Ask for a complete annual rental and marketing file, particularly where several agents have been used or where the property has moved between long-term and short-term rental platforms.
It is also wise to reconcile the occupancy record with the information used in the owner’s Australian income tax return. While the vacancy fee and income tax are different regimes, inconsistent rental periods or rental income records may prompt questions that take time and cost to resolve.
Limited exemptions may apply, but they do not remove the lodgment obligation
The regulations provide relief in limited situations where a dwelling was occupied for fewer than 183 days because it was incapable of being occupied as a residence, or because an ordinary occupant was absent to receive medical care or residential aged care supported by evidence.
A property may be incapable of occupation where it is damaged, unsafe, unsuitable to live in, undergoing substantial repairs or renovations, or where occupation is prohibited or made impracticable by a court or tribunal order or by Commonwealth, state or territory law.
These provisions should not be treated as a broad exemption for ordinary vacancy, cosmetic works, a slow leasing market or a decision to hold the property for personal use. The facts, timing and evidence matter.
Most importantly, these exemptions do not excuse a failure to lodge the vacancy fee return. The regulations specifically preserve the annual-return and record-keeping obligations. If a return is not lodged on time and the owner is treated as liable because of that failure, the exemption does not apply.
There is also a power for the Treasurer to waive or remit all or part of a vacancy fee where doing so would not be contrary to the national interest. That is not a substitute for managing the property properly or lodging the annual return by its due date.
A practical example: short stays can create an unexpected result
Consider an overseas-based investor who bought a newly completed apartment through a developer arrangement. During the relevant vacancy year, the investor stayed in the apartment for several weeks, then offered it through a short-stay platform for much of the rest of the year.
The apartment had guests on many nights. However, the bookings were generally for less than 30 days at a time. The investor also left periods open for personal visits, rather than making the apartment genuinely available for an eligible longer-term residential tenancy.
In this situation, the short stays would not count towards the occupancy test. If the owner also fails to lodge the vacancy fee return within 30 days after the end of the vacancy year, they could face a fee even if they believed the total number of guest nights was sufficient.
A better process would be to identify the vacancy-year dates at settlement, decide whether the property will be used personally, leased long term or held for a qualifying tenancy, and maintain records throughout the year rather than trying to reconstruct them at lodgment time.
A simple compliance checklist for foreign property owners
To reduce the risk of an avoidable vacancy fee or penalty:
Confirm whether the vacancy-fee regime applies to your acquisition. Review the foreign investment approval, exemption certificate and ownership structure.
Identify the correct vacancy year. Do not assume it follows the financial year or calendar year.
Track qualifying days as they occur. Record owner occupation, long-term leases and periods of genuine availability for eligible tenancies.
Check the rental terms. Short-term bookings of less than 30 days do not count towards the statutory occupancy test.
Keep supporting documents in one place. This should include leases, property-manager reports, rental advertisements and records of unusual vacancy periods.
Lodge the annual vacancy fee return on time. This is required even where no fee is expected to be payable.
Seek advice early if the property was damaged, renovated, unavailable for medical reasons, held through a trust or company, or has changed use during the year.
The key takeaway is straightforward: for foreign owners within the regime, vacancy-fee compliance is about both property use and annual reporting. Meeting the occupancy requirement is important, but lodging a complete, accurate return on time and retaining clear evidence are equally important.
This article is general information only, not personal financial or tax advice. Vacancy-fee outcomes can depend on the acquisition documents, ownership structure and the way the property was used. Speak with a registered tax agent or accountant, such as, for advice tailored to your circumstances.