Developers on Notice as ATO’s Land Banking Clampdown Gets Results

The Australian Taxation Office clampdown on foreign buyers owning undeveloped land has intensified. The ATO secured wins in the Federal Court last month when two foreign buyers were ordered to pay a combined $878,000 in penalties for breaking strict rules on land banking by failing to complete a home on vacant land within the four-year period. Both cases were deliberate attempts to make an example, M+H Private director James Hoeft tells The Urban Developer . “Someone who buys a block and sits on it is taking a lot out of the supply pipeline and adding nothing. “With housing affordability as politically sensitive as it is, the government wants to be seen enforcing the rules and the ATO has been funded to do it.” ▲ M+H Private director James Hoeft: Political pressure is high and the ATO is willing to enforce compliance. The latest Federal Court cases are the first court-imposed penalties the ATO has achieved under this regime, but it had signalled its intention for several years, Holding Redlich partner Jeanne Vallade says. “The new element is the regulator’s willingness to litigate it to judgment,” she says. It appears to be working. According to a Foreign Investment Review Board (FIRB) report from the Australian Treasury released this month, foreign residential real estate investment totalled $4.7 billion. That’s down 4 per cent from $4.9 billion the year before, and down from $6.6 billion in 2023-24. China was the biggest investor in Australian residential real estate, investing $900 million. But that was down from $1.4 billion last year and $2.6 billion in 2023-24. Approved residential investment 2025-26 ▲ Source: Treasury, Juwai IQI Asian real estate technology gorup Juwai IQI co-founder Daniel Ho says investment by those who don’t have residency or citizenship has hit a multi-year low. “Australia’s restrictions, duties, and fees have become prohibitive to most foreign buyers,” Ho says. “Buyers from China still love Australia. They value its universities, its lifestyle, and its stability. “What has changed is not their interest in Australia but the way they buy. Most now wait until they hold permanent residency, which removes the FIRB process, the foreign buyer fees, and the FIRB application fees.” Detracting foreign buyers The nationwide crackdown has snowballed in recent years. Fees doubled for vacancy years starting after April 2024, and NSW increased surcharge purchaser duty to 9 per cent and surcharge land tax to 5 per cent from 2025, Holding Redlich partner for tax Dhanushka Jayawardena says. From January 2025, foreign resident capital gains withholding increased from 12.5 per cent to 15 per cent and the $750,000 threshold was removed, so it now applies to every sale of Australian property by a foreign resident. The 2026-27 Budget also extended a ban on foreign individuals and foreign-owned entities buying established residential properties to the end of June 2029. The Treasury and the ATO have been allocated approximately $6 million over four years to strengthen enforcement targeting non-compliance and land banking, Vallade says, and the ATO is now auditing every foreign investment approval requiring residential land development. ▲ Holding Redlich partner Jeanne Vallade: The aim is to channel foreign investment into new housing stock and prevent land banking. In the Li case, the court found more than 2300 contraventions over six-and-a-half years, Hoeft says. The Court imposed the maximum penalty for a single contravention—double the capital gain on disposal. “What stood out to me was the penalty formula. It is calibrated to strip out the profit, so land banking doesn’t work as an investment strategy,” Hoeft says. And it’s hard to hide. FIRB approvals—which fell to 2979 in 2025-6 from 3922 last year and 5581 two years ago—come with conditions and deadlines, and the ATO has access to mountains of data on state land title, transfer duty and visa records. “The common triggers are a build deadline passing with no completed dwelling, a missing vacancy fee return, a temporary visa holder whose visa has expired but still owns the home, and a title transfer to someone with no matching FIRB approval. Tip-offs can also play a part,” Hoeft says. What it means for developers There are exemptions to the established homes ban for foreign buyers—if, for example, the project involves a large-scale redevelopment that adds at least 20 homes. Exemptions also include acquisitions that support housing on a commercial scale such as build-to-rent, retirement villages and student accommodation—although a general “redevelopment” intention is not enough. This protects a lot of foreign investment, especially in larger-scale development projects. ▲ The ATO has signalled it is willing and able to prosecute foreign buyers on vacant land, having already banned ownership of existing homes. But while buyers are largely responsible for the build condition, developers carry their own exposure. Developers can apply and hold exemption certificates to sell new or near-new homes to foreign buyers, Vallade says. “Where they do, the purchaser generally does not need separate approval, meaning the developer owns compliance with that certificate’s conditions, including marketing and reporting requirements,” she says. A “failing to advertise new dwellings” offence targets developers who market off-the-plan stock to foreign buyers without first making it genuinely available to Australian buyers. Transparency with foreign buyers and ATO critical Dhanushka says that from a tax perspective, developers should disclose foreign purchaser surcharges and vacancy fee in sales material and obtain an accurate foreign person declaration from each buyer before exchange. “A buyer incorrectly assessed as Australian faces surcharge duty plus interest and penalty tax after settlement,” Dhanushka says. Beyond that, agents, accountants and lawyers can also be implicated if they knowingly help a foreign buyer breach the rules. House-and-land packages help because the build is part of the deal, but the risk hasn’t gone, Hoeft says. ▲ Holding Redlich partner Dhanushka Jayawardena: Disclosing the potential fees to buyers is important. “Builder insolvencies and construction delays have been real, and if the home isn’t finished in time it’s the buyer who’s in breach,” Hoeft says. “If a project looks like it will run late, the buyer should apply to vary the condition early. The ATO is far more reasonable with someone who comes forward than with someone it finds.” As for legal cases against foreign buyers, they will no doubt continue, Hoeft says, and transparency with buyers and the ATO is critical. “Protecting the buyer protects the project’s reputation,” he says.

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Clare Burnett
Fri 23 Oct 26

Developers on Notice as ATO’s Land Banking Clampdown Gets Results

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