Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Jim Chalmers MP)Chapter 1: Amendments of the Act
Outline of chapter
1.1 Schedule 1 to the Fees Imposition Bill amends the Act to increase the fee cap, the maximum fee that can be imposed by the Regulations, to $7,000,000. The fee cap is raised to facilitate the increases to fees in Australia's foreign investment framework in Schedule 2 to the Fees Imposition Bill.
1.2 Schedule 1 to the Fees Imposition Bill also amends the indexation provisions that apply to the fee cap to ensure a consistent and coherent indexation process for the fee cap and all fee amounts in the foreign investment framework.
1.3 The amendments implement changes to the fees in the foreign investment framework announced by the Government on 10 December 2023.
Context of amendments
1.4 Foreign investment plays an important and beneficial role in the Australian economy. However, it is necessary to regulate certain kinds of foreign investment to ensure that proposed investments are not contrary to Australia's national interest.
1.5 An overarching principle of Australia's foreign investment policy is that investment in residential land should increase Australia's housing stock (by creating at least one new additional dwelling). The amendments support this policy principle by enabling changes that encourage investors to purchase new dwellings (which supports construction) rather than established dwellings.
1.6 The FATA requires foreign persons to seek approval before taking a notifiable action (such as acquiring interests in residential land). The FATA also imposes obligations on foreign persons who acquire interests in residential land (including requiring foreign persons with interests in residential dwellings to lodge vacancy fee returns). Residential land is land in Australia where there is at least one dwelling on the land (or the number of dwellings that could reasonably be built on the land is less than 10) and does not include land that is used wholly and exclusively for a primary production business or on which the only dwellings are commercial residential premises.
1.7 Part 6A of the FATA provides that a foreign person is liable to pay a vacancy fee if they acquire a residential dwelling and the dwelling is residentially occupied for less than 183 days in any year (called the vacancy year). Vacancy fees are payable in relation to residential land acquired on or after 7.30 pm on 9 May 2017.
1.8 The Act imposes, as taxes, fees in relation to actions and vacancy fees payable under the FATA. The amount of fees imposed are prescribed through the Regulations. The fees are subject to indexation under Part 5 of the Regulations.
1.9 On 10 December 2023, the Treasurer announced that the Government would adjust the foreign investment framework to boost Australia's housing stock and provide more homes for Australians by making changes which include:
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- a tripling of foreign investment fees for the purchase of established dwellings; and
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- a doubling of vacancy fees for all foreign-owned dwellings purchased on or after 7.30 pm on 9 May 2017 (which together with the tripling means a six-fold increase in vacancy fees for future purchases of established dwellings as the vacancy fees are calculated based on the foreign investment fees for the purchase of the dwelling).
Summary of new law
1.10 Schedule 1 to the Fees Imposition Bill increases the fee cap from $1,119,100 (current indexed amount) to $7,000,000. The increase is six times the current indexed amount, rounded up to the nearest $1 million.
1.11 The increased fee cap reflects changes to the fee amounts in the Regulations (including the six-fold increase for vacancy fees for established dwellings purchased from the commencement of the Fees Imposition Bill). The rounded fee cap amount allows further indexation to be applied to the fee cap in the future without requiring further legislative amendments to the Act, thereby simplifying future indexation processes.
1.12 Schedule 1 to the Fees Imposition Bill also amends the indexation provisions that apply to the increased fee cap to ensure a consistent and coherent indexation process for the fee cap and all fee amounts in Australia's foreign investment framework.
Detailed explanation of new law
1.13 The Act specifies the maximum fee that can be imposed by the Regulations. The amount of a fee prescribed in the Regulations cannot exceed the fee cap amount in the Act.
1.14 Amendments to the Regulations, in Schedule 2 to the Fees Imposition Bill, triple application fees for the purchase of established dwellings and double vacancy fees for residential dwellings. Together, these changes result in a six-fold increase in vacancy fees for established dwellings which are purchased from the commencement of the Fees Imposition Bill, and a doubling of future vacancy fees for all dwellings (including established dwellings) purchased on or after 7.30 pm on 9 May 2017 (including future purchases of new dwellings). The amendments to the Act in Schedule 1 to the Fees Imposition Bill increases the maximum fee cap to enable the operation of the amendments to the Regulations in Schedule 2 to the Fees Imposition Bill.
1.15 The amendments to the fee amount in the Act reflect the operation of the existing fee cap and update the applicable figures and references in the legislation.
1.16 Schedule 1 to the Fees Imposition Bill makes the following amendments to the Act:
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- Updates the legislated text of the fee cap from $1,045,000 to $7,000,000. The previous fee cap of $1,045,000 was first adjusted by the cumulative total of indexation that has occurred to 1 July 2023 to total $1,119,100. The fee cap was then increased by six times the current indexed amount and rounded up to the nearest $1 million; [Schedule 1 to the Fees Imposition Bill, item 1, subsection 6(3) of the Act]
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- updates the indexation date to 1 July 2024; and [Schedule 1 to the Fees Imposition Bill, item 2, subsection 7(1) of the Act]
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- updates the denominator of the indexation factor formula to equal the sum of the index number for the four quarters in the year ending on 31 March in the financial year before the financial year in which this subsection commences. The previous denominator was the sum of the index numbers for the four quarters in the year ending on 31 March 2022. This sum is replaced as it is no longer relevant nor current.
1.17 The increased fee cap will be indexed by multiplying it by the indexation factor. The indexation factor is:
The sum of the index numbers for the four quarters in the year ending on 31 March just before the start of the relevant financial year
Divided by:
The sum of the index number for the four quarters in the year ending on 31 March in the financial year before the financial year in which this subsection commences. [Schedule 1 to the Fees Imposition Bill, item 3, subsection 8(1) of the Act]
1.18 For example, if subsection 8(1) of the Act commences in the 2023-24 financial year, indexation of the fee cap would first occur on 1 July 2024. In this circumstance, the indexation factor is:
The sum of the index numbers for the four quarters in the year ending on 31 March 2024
Divided by:
The sum of the index number for the four quarters in the year ending on 31 March in the 2022-23 financial year (that is, 31 March 2023).
Commencement, application, and transitional provisions
1.19 Schedule 1 to the Fees Imposition Bill commences on either the day after Royal Assent or 1 April 2024, whichever occurs later. [Section 2 of the Fees Imposition Bill]
1.20 The amendment made by item 1 of Schedule 1 to the Fees Imposition Bill applies in relation to a fee that becomes payable on or after the commencement of this Schedule.
1.21 For the avoidance of doubt, if items 2 and 3 of Schedule 1 to the Fees Imposition Bill commence after 1 July 2024, the indexation required by subsection 7(1) of the Act, as amended by this Schedule, applies on the first 1 July that occurs after that commencement. For example, if Schedule 1 to the Fees Imposition Bill commences on or after 1 July 2024 and within the 2024-2025 financial year, then indexation of the increased fee cap will only apply from the next 1 July (that is, 1 July 2025). [Schedule 1 to the Fees Imposition Bill, item 4, application provision]