In brief - Backdated fees now to be payable for near-new dwelling exemption certificate sales

Developers of residential premises can obtain exemption certificates under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) to allow for sales of new and near-new dwellings to foreign persons. Those exemption certificates are administered by the Australian Taxation Office (ATO). 

There are two key takeaways from this article:

  1. there are FIRB Fees for each "binding" sale of a New Dwelling irrespective of whether the sale settles, and 

  2. FIRB Fees are now payable for sales of Near-New Dwellings from 1 July 2017 

Section 15(5) of the FATA defines "acquiring or selling an interest". In essence, a binding sale occurs once one or more conditions contained in the agreement are met.

Near-New Dwelling Exemption Certificates were introduced to allow developers to re-sell dwellings where the first binding contract failed to settle.

This article does not apply to developers who hold an AOTP - Advanced Off-the-Plan Approval issued by FIRB. AOTPs were issued prior to 1 December 2015, and if still in force, should not have any associated fees. This article should also be read subject to the terms of any specific approval held by a developer. 

FIRB exemption certificates

There are currently two types of FIRB exemption certificates: 

  1. New Dwelling Exemption Certificates (NDEC) - available since 1 December 2015. FIRB fees for each sale are set out below, and 

  2. Near-New Dwelling Exemption Certificates (NNDEC) available since 1 July 2017 

The advantage for developers in obtaining FIRB exemption certificates is that individual sale contracts do not need to be subject to specific FIRB approval. Since 1 December 2015, there is a significant up-front fee payable to obtain the exemption certificate - currently $26,600. The developer is required to report on sales to foreign persons on a six monthly basis and pay the appropriate fees (currently $5,700 for each New Dwelling sale under $1 million (FIRB Fee)). (Refer to FIRB Guidance Note GN29 for a full list of the fees for the 2019/2020 financial year. The fees change each year.)

The biggest downside for developers obtaining their own exemption certificates, aside from the up-front fee, is that FIRB Fees are payable by the developer for each unconditional sale to a foreign person, irrespective of whether that sale settles. Multiple FIRB fees could be payable by the developer in respect of multiple "binding" sales of the same dwelling. 

Relevance of FIRB changes for developers 

  • Developers should check that they have both types of exemption certificates - NDEC and NNDEC. These certificates need to be disclosed to foreign buyers and are usually in the off-the-plan sales contracts or accompanying disclosure documents.

  • Under the FATA, if a binding contract failed to settle, that dwelling is still considered to have been sold. Because it is no longer "new", that dwelling can no longer be sold to a foreign person under a NDEC. 

  • FIRB Fees are still payable in relation to binding contracts which fail to settle.

  • Until recently, FIRB regulations hadn't caught up with imposing fees for NNDEC sales. From January 2020, developers who have been re-selling under a NNDEC will have any unpaid FIRB Fees backdated to 1 July 2017 when they next report. 

(Refer to Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Act 2019 (Cth), assented to on 12 December 2019, amending the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 (Cth))

  • The ATO will be contacting individual developers with NNDECs to alert them to the changes and to make payment arrangements. The ATO anticipates that some developers will have a significant payment due, and may not have been reporting correctly. 

  • As a result of the above, there could be two or more FIRB Fees payable for the one property: one fee payable under the NDEC (for the first round of binding contracts even if they failed to settle); and a subsequent fee/s payable should that property be resold under a NNDEC. 

  • Developers should keep track of when they are required to report to the FIRB under their NDEC and NNDEC, and the likely fees that may be payable - especially if there are likely to be a large number of backdated payments due under the NNDEC as a result of the legislative changes in December 2019. 

  • The ATO will consider FIRB Fee waiver applications on an individual basis. The fact that multiple fees are potentially payable in respect of sales and re-sales of the same dwelling is intentional, and not by itself likely to be grounds for a successful waiver. We understand that a developer was able to obtain a credit of FIRB Fees paid when a particular development didn't proceed at all. 

The ATO have a dedicated enforcement team to audit developers' six monthly FIRB Reports to reconcile the sales and ensure that the appropriate fees are being paid. 

There are a number of consequences of the above: 

  • Developers (and their advisors) should keep records of which dwellings have been sold under a binding contract, but which failed to settle. Those dwellings are Near New.

  • Exposure to FIRB Fees may be reduced if Near-New dwellings are prioritised for sale to persons who are not foreign persons. 

  • FIRB Reporting is required on a six monthly basis separately for New Dwellings and Near-New Dwellings. The terms of the exemption certificates issued by the ATO will specify when the reporting is required. 

  • FIRB Fees are payable for each "binding" sale to a foreign person, irrespective of whether that sale settles. Multiple FIRB fees are payable in respect of multiple unsuccessful binding sales of the same dwelling. 

This article is current as at the date of publication. FATA regulations and fees change regularly. This summary is not intended as specific advice or to cover every situation, but as information to alert persons potentially affected to obtain advice specific to their individual situation. 

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2020.

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