The Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2024 (Fees Imposition Bill) and Treasury Laws Amendment (Foreign Investment) Bill 2024 (Foreign Investment Bill) have recently been introduced by the Federal Government to again change the foreign investment legislation.
These Bills will have a substantial impact on foreign buyers acquiring Australian residential land, regardless whether you are a natural person or a property developer.
We explain the changes in further detail below and comment on how they will impact you as a developer.
What are they and their status?
On 7 February 2024, the Fees Imposition Bill was introduced. It seeks to amend the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 (Cth) and the Foreign Acquisitions and Takeovers Fees Imposition Regulations 2020 (Cth). It is proposed to commence on the later of 1 April 2024 and the day it receives the Royal Assent.
The Foreign Investment Bill was introduced with the Fees Imposition Bill. It seeks to amend the International Tax Agreements Act 1953 (Cth). It is proposed to commence on the day it receives the Royal Assent.
Both the Fees Imposition Bill and the Foreign Investment Bill have passed the House of Representatives on 14 February 2024 and are, as at the date of this article, before the Senate.
Purpose, as announced by the Federal Government
The Fees Imposition Bill is expressed to be introduced to “adjust the foreign investment framework to help boost Australia’s housing stock and provide more homes for Australians”. This change is an attempt to “channel foreign investment into new residential dwellings (such as off the plan apartments) as opposed to established dwellings”. The following suggests otherwise.
The Foreign Investment Bill is introduced to “clarify the relationship between foreign investment fees and other similar state and territory taxes with Australia’s double tax agreements with other countries”. It is a response to the uncertainty which arose on introduction of the NSW surcharge purchaser duty and surcharge land tax as they were seen to be inconsistent with a number of international tax treaties entered into by the Australian Government with other countries.
That is, the Bill provides that where there is an inconsistency between a tax treaty and a Commonwealth, state or territory law (tax), that provision of the tax treaty will not operate to the extent of the inconsistency, with the aim that the Commonwealth, state or territory law (tax) will apply, for example, foreign investment fees, surcharge purchaser duty and surcharge land tax.
Key amendments
The proposed key amendments are briefly summarised in the table below.
| Proposed amendments | Effect | |
| Fees Imposition Bill | ||
| 1. |
Tripling the fees for giving notice in relation to the acquisition of interest in Australian land on which there is at least one established dwelling
|
The purchase of an established dwelling has always been subject to FIRB approval. It is generally prohibited unless:
The application fee for a notice will generally depend on the value of the consideration. The fee tier constant for an acquisition of residential land is $1 million. Fees start from $14,100 for a single action and can rise to a maximum of $1,119,100 (the maximum cap). Under the Fees Imposition Bill, the minimum amount payable for an acquisition of residential land with at least one established dwelling will start from $42,300 (3 times the current $14,100) for a single action and can rise to a maximum of $7,000,000 (the new maximum cap – see below). The proposed changes also apply to foreign developers. |
| 2. | Doubling vacancy fees for established and new residential dwellings acquired on or after 7.30 pm on 9 May 2017 |
An annual vacancy fee is levied on foreign owners of residential property if their property is not residentially occupied or genuinely available on the rental market for at least 183 days (approximately six months) in a 12-month period. The vacancy fee applies regardless whether an application fee is waived or not, or whether the acquisition was made by way of a no-objection notification or an exemption certificate, as long as the acquisition was made on or after 7:30PM (AEST) on 9 May 2017. The vacancy fee is:
The vacancy fee also applies to foreign developers but, given the commercial objectives of developers, is less likely to occur in the real world. Under the Fees Imposition Bill, the vacancy fee will be doubled. This means a six-fold increase in vacancy fees for future purchases of established dwellings by foreign persons who need FIRB approval. |
| 3. | Increase in fee cap
|
The fee cap applies to application fees payable under Part 6 for a notice for an action or an exemption certificate) or Part 6A of the Foreign Acquisitions and Takeovers Act, all application fees and vacancy fees. The fee cap is $1,119,100. Under the Fees Imposition Bill, the cap will be increased to $7,000,000. This is slightly more than six-times the existing fee cap. |
| Foreign Investment Bill | ||
| 4. |
International tax agreement provisions now subject to Australian (Commonwealth, state or territory) legislation |
Provisions of international agreements mentioned in section 5 of the International Tax Agreements Act 1953 (Cth) are subject to anything inconsistent with provisions contained in an Australian legislation that imposes a tax other than Australian income or fringe benefits tax. This applies retrospectively to taxes payable on or after, or is in relation to tax periods that end on or after, 1 January 2018. |
Other proposed amendments
Build-to-rent projects
The Federal Government has announced in late 2023 that it will cut application fees for foreign investment in Build to Rent (BTR) projects by applying the commercial land rates.
Key points made in the announcement are:
- the application fee will be “at the lowest commercial level – no matter the kind of land involved”; and
- the fee will apply to all future BTR projects after 14 December 2023.
There have not been any legislative changes to reflect the above at this stage.
What does it mean to you as a foreign developer?
It is common for foreign property developers to acquire existing residential dwellings for redevelopment purposes.
The substantial increase in fees for acquisition of residential land, without excluding its application from foreign property developers, is concerning. This seems to be inconsistent with the objective of creating more residential development unless the proposed development involves a BTR component.
We also query the effect the Foreign Investment Bill will have on the position of surcharge land tax and surcharge duty under State law, particularly given it may apply retrospectively from 1 January 2018. Our understanding is that the input of the states is as yet to be considered.
Developers who are liable to pay higher FIRB fees as a result of the proposed changes will likely endeavour to pass on these costs to the purchasers by increasing property prices if the market allows, but more likely given prices are market driven, the increased fees will just erode the return in real terms of the developer or make a proposed development not feasible.
Not only are we doubtful that the proposed legislative changes will significantly assist in improving housing affordability unless developers are exempted from them or are subject to a lower FIRB rate generally, but on any reasonable view the increase in fees is counter-productive to promoting residential development, particularly at a time when the development and building industries are struggling and foreign development can contribute to the housing needs.
In terms of foreign investment fees, the changes to the BTR investment rates are however strongly welcomed. BTR housing will contribute to resolving Australia’s housing crisis and should be encouraged, and we look forward to seeing further details on the proposed changes. For example, at the moment, there is no definition of what a BTR project is under the FIRB legislation and guidance notes. It is also unclear what it means by the “lowest commercial level”.
If you have any questions, please do not hesitate to contact Yanlie Leung, Senior Associate and Mike Ellis, Partner.