Explanatory Memorandum
(Circulated by authority of the Minister for Housing and Assistant Treasurer, the Hon Michael Sukkar MP)Chapter 3 - Near-new dwelling interests
Outline of chapter
3.1 On 24 June 2017 amendments were made to the Foreign Acquisitions and Takeovers Regulation 2015. As part of these amendments a near-new dwelling exemption certificate was introduced.
3.2 The introduction of the near-new dwelling exemption certificate creates flexibility for property developers and enables them to sell near-new dwellings (dwellings that have previously been subject to a failed settlement) to foreign persons under the Foreign Acquisitions and Takeovers Act 1975.
3.3 These exemption certificates broadly mirror the new dwelling exemption certificates that are available to developers under section 57 of the Foreign Acquisitions and Takeovers Act 1975.
3.4 Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 and the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2019 create a reconciliation mechanism to ensure that where a near-new dwelling is sold by a developer to a foreign person, the developer provides a reconciliation payment in respect of that sale.
Context of amendments
3.5 Consistent with the process for payment under a new dwelling exemption certificate, these amendments introduce a reconciliation payment for the near-new dwelling exemption certificate by which developers pay additional fees for each near-new dwelling that was sold to a foreign person by the developer under the exemption certificate.
3.6 This ensures equivalent treatment as that given under the new dwelling exemption certificate, which allows property developers to sell new dwellings to foreign persons, paying a reconciliation fee for each sale under the exemption certificate.
3.7 Property developers are unable to sell a near-new dwelling to a foreign person under their new dwelling exemption certificate.
3.8 Prior to the introduction of a near-new dwelling exemption certificate, a foreign person had to submit an individual application for approval to purchase the near-new dwelling.
3.9 Practically, issues arose when a developer managed to exchange contracts with a person in respect of a new dwelling, but then the sale of the new dwelling did not reach settlement. Such dwellings were considered to have been sold, and therefore unable to be sold under a new dwelling exemption certificate, even though they had not changed ownership and were still able to be seen as new.
3.10 On 24 June 2017, near-new dwelling exemption certificates were introduced for developers to allow them to sell a near-new dwelling (a dwelling that had not reached settlement under a previous contract of sale) in the same way as they sell new dwellings.
Summary of new law
3.11 These amendments create a reconciliation mechanism to require developers to make six monthly payments to the Treasurer (or his or her delegate, currently the Commissioner of Taxation) under the Foreign Acquisitions and Takeovers Fees Imposition Act 2015.
Comparison of key features of new law and current law
| New law | Current law |
| The new law will replicate existing requirements for developers to make reconciliation payments for new dwellings they sell to foreign persons under a new dwelling exemption certificate. Developers who sell a near-new dwelling to a foreign person under a near-new dwelling exemption certificate will be required to make a reconciliation payment for each sale of a near-new dwelling to a foreign person. | Six monthly fees are payable by developers who sell a new dwelling to a foreign person under a new dwelling exemption certificate obtained under section 57 of the
Foreign Acquisitions and Takeovers Act 1975.
The current provision doesn't extend to cover developer sales of near-new dwellings to foreign persons under near-new dwelling exemption certificates. |
Detailed explanation of new law
3.12 Reconciliation payments are a necessary mechanism to ensure that developers pay the same fee as would be payable if a foreign person directly applied to the Foreign Investment Review Board for the acquisition. Without reconciliation payments, foreign persons would be able to acquire dwellings without the Commissioner of Taxation receiving any additional fees with respect to those individual applications. Fees would only be incurred with respect to the application for the exemption certificate.
3.13 To create a reconciliation payment applying to sales of dwellings made under a near-new dwelling exemption certificate, new definitions have been added to the Foreign Acquisitions and Takeovers Act 1975 including a definition of near-new dwelling acquisition, near-new dwelling interest and residential land (near-new dwelling interests) certificate. [Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019, items 1 and 10, section 4 and paragraph 115C(3)(b) of the Foreign Acquisitions and Takeovers Act 1975]
3.14 Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 also inserts a new definition at subsection 113(4A) of the Foreign Acquisitions and Takeovers Act 1975 to define near-new dwelling acquisition. A near-new dwelling acquisition is, for the purposes of the foreign investment regime, any acquisition covered by a residential land (near-new dwelling interests) certificate provided to a developer. [Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019, item 9, subsection 113(4A) of the Foreign Acquisitions and Takeovers Act 1975]
3.15 The Foreign Acquisitions and Takeovers Act 1975 is amended to establish the near-new dwelling exemption certificate reconciliation payment for developers. As a result of these changes, a developer will remit their near-new dwelling fees every six months. [Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019, items 2 to 8, section 113 of the Foreign Acquisitions and Takeovers Act 1975]
3.16 If a developer receives the near-new dwelling exemption certificate after this legislation is enacted then the first reconciliation fee is payable at the end of the six month period after they received the near-new exemption certificate. The first reconciliation fee will include any fees payable from sales made by a developer under a near-new dwelling exemption certificate within that six month period.
3.17 If a developer received the near-new dwelling exemption certificate before this legislation was enacted then the developer will pay the first reconciliation fee at their first reporting date after 30 days of the commencement of this legislation. The first reconciliation fee will include any fees payable from sales made by the developer under a near-new dwelling exemption certificate since the certificate was obtained. [Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019, items 11 and 12]
3.18 For subsequent reconciliation payments, developers are required to pay the reconciliation fee for sales of residential land under near-new dwelling exemption certificates on a six monthly basis. [Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019, item 5, subsection 113(2A) of the Foreign Acquisitions and Takeovers Act 1975]
Example 3.1
Pablo is a property developer who has just completed an apartment complex on the Gold Coast. Pablo understands that his apartments may attract the interest of foreign investors so he obtains a new dwelling exemption certificate and a near-new dwelling exemption certificate on 1 August 2017.
Pablo makes a number of successful sales to foreign persons under the new dwelling exemption certificate. However, one of the sales fails to reach settlement and the dwelling is not sold.
Pablo finds another purchaser for the apartment, Wendy who is a foreign person under the Foreign Acquisitions and Takeovers Act 1975. Pablo is able to sell the dwelling to Wendy under a near-new dwelling exemption certificate.
Pablo and Wendy settle the sale of the apartment on 31 December 2017. Pablo is required to pay the Commissioner of Taxation (as the Treasurer's delegate) the reconciliation fee related to this sale on the first six monthly reporting period that falls at least 30 days after this legislation is enacted.
Consequential amendments
3.19 Consequential amendments are made by the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2019 to the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 in order to impose the amount of the fee payable by developers. [Schedule 1 to the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2019, item 4, subsections 6(5) and 6(6) of the Foreign Acquisitions and Takeovers Fees Imposition Act 2015]
3.20 Editorial amendments are made to the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 as a result of these changes. [Schedule 1 to the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2019, items 1, 2, and 3, section 6 (heading), subsection 6(1) and subsection 6(1) after note 2, of the Foreign Acquisitions and Takeovers Fees Imposition Act 2015]
Application and transitional provisions
3.21 Amendments to the Foreign Acquisitions and Takeovers Act 1975 apply from 1 July 2017. [Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019, item 11]
3.22 Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 establishes a transitional period to cover acquisitions made under near-new dwelling exemption certificates that were given to a developer after 1 July 2017 and before this legislation was enacted. The transitional provisions enable a developer to make a reconciliation payment at the end of the first reporting period that falls at least 30 days after the legislation was enacted. [Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019, item 12]
3.23 For subsequent reconciliation payments, they must be made six monthly. [Schedule 3 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019, item 5, subsection 113(2A) of the Foreign Acquisitions and Takeovers Act 1975]
3.24 Amendments to the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 apply from 1 July 2017 so that any sales of near-new dwellings made pursuant to a near-new dwelling exemption certificate are subject to a reconciliation payment by the developer who sold the near-new dwelling. [Schedule 1 to the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2019, items 5 and 6]
3.25 The amendments to both the Foreign Acquisitions and Takeovers Act 1975 and the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 are retrospectively applied from 1 July 2017 to align with the introduction of the near-new dwelling exemption certificate, as it was always the intention to apply a reconciliation fee for each sale of a near-new dwelling to a foreign person.
3.26 The retrospective application of this measure is consistent with the announcement of the near-new dwelling exemption certificate in the 2017-18 Budget announcement. Any adverse impact is expected to be minor, given the retrospective application was included in the Explanatory Statement that accompanied the regulations that introduced the near-new dwelling exemption certificate.
3.27 Page 5 of the Explanatory Statement of the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Fee Streamlining) Regulations 2017 (which introduced the near-new dwelling exemption certificate) made it clear that a reconciliation payment would apply for each near-new dwelling sold to a foreign person by the developer.
3.28 Transitional provisions apply for the first reconciliation payment for near-new dwelling exemption certificates given before this legislation was enacted. For these near-new dwelling exemption certificates, the transitional reconciliation fee period is the first reporting date that falls 30 days after the legislation commences. A fee is payable by a developer for each sale of a dwelling under the near-new dwelling exemption certificate within that period. [Schedule 1 to the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2019, item 6]