House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Jim Chalmers MP)

Glossary

This Explanatory Memorandum uses the following abbreviations and acronyms.

General outline and financial impact

Outline

The amendments in the Fees Imposition Bill and the Foreign Investment Bill encourage investment which will boost Australia's housing stock, while strengthening the integrity of Australia's foreign investment rules.

Schedules 1 and 2 to the Fees Imposition Bill amend the Act and the Regulations to triple fees for acquiring established residential dwellings and double vacancy fees in the foreign investment framework. The Foreign Investment Bill clarifies that these imposts, other foreign investment fees and similar state and territory property taxes, prevail in the event of any inconsistency with double tax agreements implemented domestically by the Agreements Act.

Proposal announced

Together, the Bills implement the 'Foreign Investment – raising fees for established dwellings' measure in the 2023-24 MYEFO.

Compliance cost impact

The measures in these Bills do not have any compliance cost impact.

Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2024 – Amendments of the Act and Regulations

Schedule 1 to the Fees Imposition Bill amends the Act to update the fee cap, which is the maximum fee that can be imposed by the Regulations. Schedule 1 to the Fees Imposition Bill also amends the relevant indexation provisions that apply to the fee cap. The amendments enable the tripling of fees for acquiring established residential dwellings and the doubling of vacancy fees in the foreign investment framework. These changes were announced by the Government on 10 December 2023.

Schedule 2 to the Fees Imposition Bill amends the Regulations to triple the fees for giving notice in relation to the acquisition of established dwellings, and double the vacancy fees for established and new residential dwellings acquired on or after 7.30 pm on 9 May 2017. Schedule 2 to the Fees Imposition Bill also updates the relevant indexation provisions to be consistent with the changes to the Act in Schedule 1 to the Fees Imposition Bill.

Date of effect

The Fees Imposition Bill commences on either 1 April 2024 or the day after that Bill receives Royal Assent, whichever occurs later.

Financial impact

The Fees Imposition Bill is estimated to increase receipts by $525.0 million over the five years from 2022-23.

All figures in the table below represent amounts in $m, rounded to the nearest tenth of a million each year.

Human rights implications

The Fees Imposition Bill raises human rights issues. See the Statement of Compatibility with Human Rights — Chapter 4.

Treasury Laws Amendment (Foreign Investment) Bill 2024 – International tax agreements

The Foreign Investment Bill amends the Agreements Act to clarify any uncertainty associated with the interaction between certain taxes, such as foreign investment fees and similar state and territory property taxes, and double tax agreements implemented domestically by the Agreements Act.

The amendment ensures that such taxes prevail in the event of any inconsistency with the Agreements Act. The amendment applies retrospectively for a period of six years. This time limitation broadly aligns with statute of limitation periods under state and territory legislation.

Date of effect

The Foreign Investment Bill applies to taxes (other than income taxes and fringe benefits tax) payable on or after 1 January 2018 and taxes (other than income taxes and fringe benefits tax) payable in relation to tax periods (however described) that end on or after 1 January 2018.

Financial impact

The Foreign Investment Bill is estimated to have nil or minimal financial impact.

Human rights implications

The Foreign Investment Bill does not engage any human rights issues. See the Statement of Compatibility with Human Rights — Chapter 4.

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:

•

a tripling of foreign investment fees for the purchase of established dwellings; and

•

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:

•

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]

•

updates the indexation date to 1 July 2024; and [Schedule 1 to the Fees Imposition Bill, item 2, subsection 7(1) of the Act]

•

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]

Chapter 2: Amendments of the Regulations

Outline of chapter

2.1 Schedule 2 to the Fees Imposition Bill amends the Regulations to triple foreign investment application fees for the purchase of established dwellings and double the vacancy fees for all foreign-owned dwellings purchased on or after 7.30 pm on 9 May 2017. These fee changes are designed to boost Australia's housing stock and provide more homes for Australians as announced by the Government on 10 December 2023.

2.2 Schedule 2 to the Fees Imposition Bill amends the relevant fee indexation provisions for consistency with changes to the fee cap indexation provisions in Schedule 1 to the Fees Imposition Bill.

2.3 All legislative references in this chapter are to the Regulations unless otherwise indicated.

Context of amendments

2.4 The amendments to the Regulations follow from the amendments to the Act in Schedule 1 to the Fees Imposition Bill.

2.5 Section 47 of the FATA provides that an action by a foreign person to acquire an interest in Australian land is a notifiable action.

2.6 Australian land includes residential land and other types of land. 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.

2.7 The FATA provides that a foreign person must seek approval before taking a notifiable action and must pay a fee as part of their application for approval. The FATA also imposes obligations on a foreign person who acquires an interest in residential land (including requiring foreign persons with interests in residential dwellings to lodge vacancy fee returns).

2.8 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.

2.9 A range of fees are payable by a foreign person under the FATA, and these are prescribed in the Act.

2.10 The Regulations provide methods for working out different fees as follows:

•

Part 2 – fees relating to various actions, such as an application for an exemption certificate, or giving notice of a notifiable action (section 6 of the Regulations sets out the fees covered under Part 2);

•

Part 3 – vacancy fees, which may arise when foreign persons do not utilise their residential property (section 42 provides for fees covered under Part 3); and

•

Part 4 – adjusting fees, which provides how a fee may be adjusted despite other parts of the Regulations.

2.11 On 10 December 2023, the Treasurer announced the Government's plan to adjust the foreign investment framework to encourage foreign investors to purchase new housing stock instead of established dwellings and to make their unused properties available to renters. The changes include:

•

a tripling of foreign investment fees for the purchase of established dwellings; and

•

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

2.12 Schedule 2 to the Fees Imposition Bill amends the Regulations to triple foreign investment application fees for the purchase of established dwellings.

2.13 In addition, Schedule 2 to the Fees Imposition Bill doubles the vacancy fees for all foreign-owned dwellings purchased on or after 7.30 pm on 9 May 2017. This results in:

•

a six-fold increase in vacancy fees (in conjunction with the tripling of the foreign investment application fees for the purchase of established dwellings) for established dwellings purchased after commencement of the Fees Imposition Bill;

•

a doubling of vacancy fees for established dwellings already purchased on or after 7.30 pm on 9 May 2017; and

•

a doubling of vacancy fees for new dwellings purchased on or after 7.30 pm on 9 May 2017 (including dwellings purchased after commencement of the Fees Imposition Bill).

Detailed explanation of new law

Updating fee figures to reflect indexed amounts

2.14 The Regulations prescribe methods for working out the amount of fees imposed by the Act. The fees relate to actions taken, or proposed to be taken, by foreign persons under the FATA.

2.15 Schedule 2 to the Fees Imposition Bill updates fee amounts across various sections of the Regulation (see Table 2.1), so that the text of the legislation reflects the current fee (including indexation that has been automatically applied prior to the commencement of the Fees Imposition Bill). These fees have not been increased, as the amendments are simply about incorporating prior indexation into the amount specified in the text of the legislation.

Table 2.1 Fee amounts reflective of indexation applied on 1 July 2023

[Schedule 2 to the Fees Imposition Bill, items 2 to 6, item 8, item 10, items 12 to 17, items 31 to 32, item 34, items 42 to 47, sections 10, 12, 16, 27, 28, 30, 31, 40, 41, 53, 54 and 55 of the Regulations]

Fees for giving notice of notifiable actions or notifiable national security actions

2.16 Division 2 of Part 2 to the Regulations sets out how to work out the fee for giving notice of a notifiable action or a notifiable national security action. Subdivision B covers fees for giving notice of notifiable actions.

Particular rules for notifiable actions

2.17 As a general rule, the fee for giving notice of a notifiable action is worked out using the method in section 10 of the Regulations, where the fee amount is worked out by comparing the fee constant to the value of the consideration for the action. The method for working out the fee payable depends on the type of interest acquired.

2.18 The amendments provide that the amount of the fee for an action to acquire an interest in residential land on which there is at least one established dwelling is triple the fee worked out using the method in subsection 10(1) of the Regulations. [Schedule 2 to the Fees Imposition Bill, item 7, subsection 10(2) of the Regulations]

2.19 The amounts in Example 2.1 below are based on current indexed amounts in Table 2.1 of this explanatory memorandum.

Example 2.1 – The fee payable for an acquisition of residential land on which there is at least one established dwelling is determined below:

For an acquisition with a consideration of $1 million or less: triple $14,100.

For an acquisition of more than $1 million, worked out as follows:

•

Step 1. Apply the following formula:

-

If the consideration for the acquisition is a multiple of the fee constant:

(Consideration of the acquisition-1)/1 million, rounding down to the nearest whole number

-

Otherwise:

(Consideration for the acquisition)/1 million, rounding down to the nearest whole number;

•

Step 2. Multiply the step 1 amount by $28,200.

•

Step 3. Triple the step 2 amount.

•

Step 4. The step 3 amount is the amount of the fee capped at $3,357,300 (which is triple the maximum fee of $1,119,100).

Particular rules for notifiable national security actions

2.20 The amount of the fee for giving notice of a notifiable national security action:

•

to acquire an interest in Australian land that, at the time of acquisition, is national security land and residential land on which there are no established dwellings is equal to the fee that would be worked out under Subdivision B of Division 2 for an action to acquire an interest in residential land on which there are no established dwellings; or

•

to acquire an interest in Australian land that, at the time of acquisition, is national security land and residential land on which there is at least one established dwelling is equal to the fee that would be worked out under Subdivision B of Division 2 for an action to acquire an interest in residential land on which there is at least one established dwelling. [Schedule 2 to the Fees Imposition Bill, item 9, section 13 (table items 3 and 3A) of the Regulations]

2.21 For the avoidance of doubt, the policy settings for notifiable national security actions that do not cover residential land (established dwellings) actions, are not changed by this amendment. The fee for notifiable national security actions that do cover residential land (established dwellings) is triple the fee worked out under subsection 10(1) of the Regulations.

Fees for giving notice of reviewable national security actions

2.22 The amount of the fee for giving notice of a proposal to take a reviewable national security action:

•

to acquire an interest in Australian land that is residential land on which there are no established dwellings is equal to 25 per cent of the fee that would be worked out under Division 2 for an action to acquire an interest in residential land on which there are no established dwellings; or

•

to acquire an interest in Australian land that is residential land on which there is at least one established dwelling is equal to 25 per cent of the fee that would be worked out under Division 2 for an action to acquire an interest in residential land on which there is at least one established dwelling. [Schedule 2 to the Fees Imposition Bill, item 11, subsection 17(1) (table items 3 and 3A) of the Regulations]

2.23 For the avoidance of doubt, the policy settings for reviewable national security actions that do not cover residential land (established dwellings) actions, are not changed by this amendment. The fee for notifiable national security actions that do cover residential land (established dwellings) is 25 per cent of triple the fee worked out under subsection 10(1) of the Regulations.

Fees for applications for exemption certificates

2.24 Subdivision A of Division 7 to Part 2 of the Regulations sets out how to work out the amount of the fee for an application for an exemption certificate.

Applications for exemption certificates generally

2.25 Fees for applications for exemption certificates are calculated by treating the same kinds of actions permitted under a certificate as if they were a single action.

2.26 The kinds of actions are as follows:

•

acquisition of an interest in residential land (including residential land on which there is at least one established dwelling and residential land on which there are no established dwellings);

•

acquisition of an interest in agricultural land;

•

acquisition of an interest in commercial land, tenements, businesses and entities; and

•

other actions (including starting a national security business and certain other reviewable national security actions).

Applications for exemption certificates under section 59 of the FATA (about established dwellings)

2.27 Section 32 of the Regulations covers the fee payable for applying for an exemption certificate under section 59 of the FATA (exemption related to established dwellings).

2.28 The fee for an application for an exemption certificate under section 59 of the FATA is equal to the fee that would be paid if the exemption certificate were not held. That is, the fee is equal to the fee worked out under Division 2 to Part 2 of the Regulations if the actions to be covered by the exemption certificate were covered by that Division.

2.29 This ensures that the amendments mentioned in paragraph 2.18 of the explanatory memorandum are picked up, such that the fee amount is triple the fee worked out using the method in subsection 10(1) of the Regulations.

2.30 For example, a foreign person proposes to acquire an interest in residential land with one or more established dwellings with a consideration of $10 million and applies for an exemption certificate under section 59 of the FATA. The fee for the application is equal to the fee for giving notice of a notifiable action to acquire an interest in residential land with one or more established dwellings for consideration of $10 million. The application fee is equal to triple $253,800 (fee worked out using method in subsection 10(1), based on current indexed amounts in Table 2.1 above), totalling a fee of $761,400.

Applications for most other kinds of exemption certificates

2.31 Schedule 2 to the Fees Imposition Bill repeals and replaces subsection 33(1) of the Regulations to clarify that the method for determining fees under section 33 applies to applications for the following types of exemption certificates:

•

exemption certificates under section 58 of the FATA (about acquisitions of interests in Australian land);

•

businesses or entities certificates;

•

tenements and mining, production or exploration entities certificates;

•

exemption certificates under section 43BA of the FATR (about notifiable national security actions); and

•

exemption certificates under section 43BB of the FATR (about reviewable national security actions). [Schedule 2 to the Fees Imposition Bill, item 23, subsection 33(1) of the Regulations]

2.32 The fee for an application for an exemption certificate specified in subsection 33(1) is the lesser of:

•

75 per cent of the sum of fees that would apply for the kinds of action covered by the certificate had the applicant applied for a single approval for each of those actions (the sum of fees method); and

•

if the actions to be covered by the exemption certificate do not include residential land (established dwellings) actions—75 per cent of the maximum fee specified in paragraph (b) of column 2 of item 2 of the table in subsection 10(1) (the maximum fee method); or

•

if the actions to be covered by the exemption certificate include residential land (established dwellings) actions—75 per cent of the adjusted maximum fee (the adjusted maximum fee method). [Schedule 2 to the Fees Imposition Bill, item 23, subsection 33(2) of the Regulations]

2.33 However, the fee for an application for an exemption certificate which covers only reviewable national security actions, is calculated differently. In this case, the fee is the lesser of:

•

25 per cent of the sum of the fees that would be worked out under Division 2 if the action was an action covered by that Division and of an equivalent kind (the reviewable sum of fees method); and

•

if the actions to be covered by the exemption certificate do not include residential land (established dwellings) actions—25 per cent of the maximum fee specified in paragraph (b) of column 2 of item 2 of the table in subsection 10(1) (the reviewable maximum fee method); or

•

if the actions to be covered by the exemption certificate include residential land (established dwellings) actions—25 per cent of the adjusted maximum fee (the reviewable adjusted maximum fee method). [Schedule 2 to the Fees Imposition Bill, item 23, subsection 33(2A) of the Regulations]

2.34 For the avoidance of doubt, the fee calculated under subsections 33(2) or 33(2A) may be adjusted if the person applies for another certificate within 14 days (per paragraph 2.53 of this explanatory memorandum).

2.35 For the avoidance of doubt, the maximum fee specified in paragraph (b) of column 2 of item 2 of the table in subsection 10(1) is subject to indexation. Further, the policy settings for exemption certificates that do not include residential land (established dwellings) actions, are not changed by this amendment. [Schedule 2 to the Fees Imposition Bill, item 23, subsections 33(2) and 33(2A) of the Regulations]

2.36 For the sum of fees method for reviewable national security actions, this is 25 per cent of the fees that are calculated under the general rule in Division 2 of Part 2, rather than under section 17 (which provides that the fee payable for giving notice of a proposal to take a reviewable national security action is 25 per cent of the fee for an equivalent notifiable action).

2.37 The table in subsection 33(3) of the Regulations sets out how to determine the sum of fees method and reviewable sum of fees method for each kind of action. [Schedule 2 to the Fees Imposition Bill, item 25, subsection 33(3) of the Regulations]

Other kinds of exemption certificate with residential land actions

2.38 Residential land actions are split into two kinds: actions involving acquisitions of interests in residential land on which there are no established dwellings (called residential land (other than established dwellings) actions) and actions involving acquisitions of interests in residential land on which there is at least one established dwelling (called residential land (established dwellings) actions). [Schedule 2 to the Fees Imposition Bill, item 25, subsection 33(3) of the Regulations]

2.39 Where an application for a residential land action exemption certificate does not cover residential land (established dwellings) actions, the amount of the fee for the actions is the amount that would be payable under Subdivision B of Division 2 if all of the actions of each kind covered by the exemption certificate were single acquisitions of that kind. The consideration for each single acquisition is the sum of the values of the consideration for all of the actions of that kind. For the avoidance of doubt, the policy settings for exemption certificates that do not cover residential land (established dwellings) actions, are not changed by this amendment. [Schedule 2 to the Fees Imposition Bill, item 25, subsection 33(3) (table item 1) of the Regulations]

2.40 There are two cases where an application for one of these kinds of exemption certificates may cover residential land (established dwellings) actions. The first case is where the application is only in relation to residential land (established dwellings) actions. The second case is where the application is in relation to different types of action including residential land (established dwellings) actions.

2.41 Where an application for one of these kinds of exemption certificates covers only residential land (established dwellings) actions, the amount of the fee for the actions is the amount that would be payable under Subdivision B of Division 2 if all of the actions of that kind was a single acquisition. The consideration for the acquisition is the sum of the values of the consideration for all of the actions of that kind. For the avoidance of doubt, the fee where all actions are residential land (established dwellings) actions, is triple the fee worked out under subsection 10(1) of the Regulations. [Schedule 2 to the Fees Imposition Bill, item 25, subsection 33(3) (table item 1A) of the Regulations]

2.42 Where one or more of the different types of actions to be covered by a certificate is a residential land (established dwellings) action (so that the certificate is a mixed-use established dwelling exemption certificate), the maximum fee under subsection 10(1) of the Regulations is adjusted to reflect the value of the consideration for the actions which are residential land (established dwellings) actions.

Adjusted maximum fee method and reviewable adjusted maximum fee method

2.43 The maximum fee under subsection 10(1) is adjusted through the introduction of an adjusted maximum fee (as described in paragraphs 2.45 to 2.48 of this explanatory memorandum). [Schedule 2 to the Fees Imposition Bill, item 26, subsection 33(4) of the Regulations]

2.44 This mechanism is necessary because:

•

if the tripled maximum fee applied to mixed-use established dwelling exemption certificates, the part of the application fee which is attributable to actions other than residential land (established dwellings) actions could be greater than the maximum fee for applications for exemption certificates which do not cover residential land (established dwellings) actions; and

•

if the maximum fee for applications for exemption certificates which do not cover residential land (established dwellings) actions applied to mixed-use established dwelling exemption certificates, the part of the application fee which is attributable to actions that are residential land (established dwellings) actions could be less than triple the earlier fee.

2.45 The adjusted maximum fee is worked out by adding together:

•

the established dwellings fee; and

•

the product of the maximum fee for actions that are not residential land (established dwellings) actions (the maximum fee (other than for established dwellings)) and the percentage of established dwellings maximum fee not charged (the maximum fee percentage not charged).

2.46 The established dwellings fee is the sum of fees that would apply for each residential land (established dwellings) action. This is worked out under column 2 of item 1A of the table in subsection 33(3).

2.47 The maximum fee (other than for established dwellings) is the maximum fee for actions that are not residential land (established dwellings) actions. This is the amount in paragraph (b) of column 2 of item 2 of the table in subsection 10(1). The amount is subject to indexation.

2.48 The percentage of established dwellings maximum fee not charged is the established dwellings fee as a percentage of the amount that is triple the amount in paragraph (b) of column 2 of item 2 of the table in subsection 10(1), subtracted from 100 per cent. [Schedule 2 to the Fees Imposition Bill, item 26, subsection 33(4) of the Regulations]

2.49 The amounts in Examples 2.2 to 2.6 below are based on current indexed amounts in Table 2.1 of this explanatory memorandum.

Example 2.2 – Calculating the percentage of established dwellings maximum fee not charged

A foreign person applies for a single exemption certificate under section 58 of the FATA to undertake a program of acquisitions of interests in Australian land. The person proposes to acquire up to $9 million in residential land with at least one established dwelling.

The established dwellings fee for the application is $676,800. This value is 20.16 per cent of the amount that is triple the amount in paragraph (b) of column 2 of item 2 of the table in subsection 10(1), which is $3,357,300 (subject to indexation). The percentage of established dwellings maximum fee not charged is 79.84 per cent.

Example 2.3 – Fee for applying for an exemption certificate that does not cover residential land (established dwellings) actions or reviewable national security actions

A foreign person applies for an exemption certificate under section 58 of the FATA to undertake a program of acquisitions of interests in Australian land. The person proposes to take notifiable actions to acquire up to $250 million in commercial land and $58 million in agricultural land.

The ordinary fee for this application is equal to 75 per cent of the sum of the fees for giving notice of notifiable actions to acquire $250 million in commercial land and $58 million in agricultural land. The ordinary fee payable is 75 per cent of $112,800 plus $789,600 (which is $677,800). This is less than 75 per cent of the maximum fee (other than for established dwellings) of $1,119,100 (which is $839,235). Therefore, the fee is $677,800.

Example 2.4 – Fee for applying for an exemption certificate that covers reviewable national security actions but does not cover residential land (established dwellings) actions

A foreign person applies for an exemption certificate under section 43BB of the FATR to undertake a program of acquisitions of interests in Australian land. The person proposes to take reviewable national security actions to acquire up to $10 million in agricultural land and $10 million in commercial land. All of the actions to be taken under the exemption certificate are reviewable national security actions.

The ordinary fee for this application is equal to 25 per cent of the sum of the fees for giving notice of notifiable actions to acquire $10 million in commercial land and $10 million in agricultural land. The ordinary fee payable is 25 per cent of $14,100 plus $112,800 (which is $31,725). This is less than 25 per cent of the maximum fee (other than for established dwellings) of $1,119,100 (which is $279,775). Therefore, the fee is $31,725.

Example 2.5 – Fee for applying for an exemption certificate that covers residential land (established dwellings) actions but does not cover reviewable national security actions

A foreign person applies for an exemption certificate under section 58 of the FATA to undertake a program of acquisitions of interests in Australian land. The person proposes to take notifiable actions to acquire up to $9 million in residential land with at least one established dwelling and $20 million in agricultural land.

The ordinary fee for this application is equal to 75 per cent of the sum of the fees for giving notice of notifiable actions to acquire $9 million in residential land with at least one established dwelling and $20 million in agricultural land. The ordinary fee payable is 75 per cent of $676,800 plus $253,800 (which is $697,950). This is lower than 75 per cent of the adjusted maximum fee of $1,570,300 (which is $1,177,700). Therefore, the fee is $697,950.

The adjusted maximum fee is calculated as the sum of:

•

$676,800 (the established dwellings fee); and

•

the product of 79.84 per cent (the percentage of established dwellings maximum fee not charged calculated in Example 2.2) and $1,119,100 (the maximum fee (other than for established dwellings)), which is $896,500.

Example 2.6 – Fee for applying for an exemption certificate that covers residential land (established dwellings) actions that are reviewable national security actions

A foreign person applies for an exemption certificate under section 43BB of the FATR to undertake a program of acquisitions of interests in Australian land. The person proposes to take reviewable national security actions to acquire up to $1 million in residential land with at least one established dwelling.

•

Acquisitions by foreign persons of interests in residential land only constitute reviewable national security actions in very limited circumstances. In most circumstances, acquisitions by foreign persons of interests in residential land constitute notifiable actions.

The ordinary fee for this application is equal to 25 per cent of the sum of the fees for giving notice of a notifiable action to acquire $1 million in residential land with at least one established dwelling. The ordinary fee payable is 25 per cent of $42,300 (which is $10,575). This is less than 25 per cent of the maximum fee (other than for established dwellings) of $1,119,100, which is $279,775. Therefore, the fee is $10,575.

Applications for multiple exemption certificates

Applications for multiple residential land exemption certificates covering a single proposed acquisition

2.50 The fee payable for the application of a second residential land certificate under section 34 of the Regulations is updated. In the circumstances specified under subsection 34(1), the fee for the second certificate is nil if the fee for the first certificate had been paid and was higher than or the same as the fee that would be payable for the second certificate. For the avoidance of doubt, there is no reduction or refund of the full fee paid for the first certificate. If the fee for the second certificate would be higher than the fee paid for the first certificate, the fee payable for the second certificate is the difference between the fee paid for the first certificate and the fee payable for the second certificate. The circumstances under subsection 34(1) are not changed. [Schedule 2 to the Fees Imposition Bill, item 27, subsection 34(2) of the Regulations]

2.51 This effectively provides a way for foreign persons who are not able to purchase one type of residential dwelling (established dwelling or dwelling other than an established dwelling) to add the other type of residential dwelling to their exemption certificate by only paying a top-up fee if necessary.

2.52 The fee amounts in Examples 2.7 to 2.8 below are based on current indexed amounts in Table 2.1 of this explanatory memorandum.

Example 2.7 – Applications for multiple residential land exemption certificates covering a single proposed acquisition

A foreign person temporarily working in Australia has previously applied for and been granted an exemption certificate under section 59 of the FATA to acquire an established dwelling in Bondi for up to $2 million. The fee for the application was $84,600. After having attended several auctions without success, the person applies for an exemption certificate under section 43B of the FATR to acquire a new dwelling in Bondi for up to $2 million. The fee for the application would normally be $28,200. Since the person has not yet acquired a dwelling under the first certificate, and the fee for the first certificate was paid and was higher than the fee that would be payable for the second certificate, the fee for the second certificate is nil.

Example 2.8 – Applications for multiple residential land exemption certificates covering a single proposed acquisition

A foreign person temporarily working in Australia has previously applied for and been granted an exemption certificate under section 43B of the FATR to acquire a new dwelling in Bondi for up to $2 million. The fee for the application was $28,200. The person applies for an exemption certificate under section 59 of the FATA to acquire an established dwelling in Bondi for up to $2 million. The fee for the application would normally be $84,600. Since the person has not yet acquired a dwelling under the first certificate, and the fee for the first certificate was paid and was lower than the fee that would be payable for the second certificate, the fee for the second certificate is $56,400 (which is the difference between the fee paid for the first certificate and the fee that would be payable for the second certificate).

Multiple applications for land, entities, tenements and national security exemption certificates

2.53 A special rule is applied if a foreign person applies for a second exemption certificate mentioned in section 33 within 14 days of applying for a first exemption certificate mentioned in section 33. The fee for the applications is worked out as if they were an application for a single certificate covered by subsection 33(1). [Schedule 2 to the Fees Imposition Bill, item 28, subsection 35(2) of the Regulations]

Example 2.9 – Application for another exemption certificate within 14 days of applying for the first exemption certificate

A foreign person applies for a land exemption certificate under section 58 of the FATA covering $5 million in agricultural land. Five days later, the applicant also applies for another exemption certificate covering $150 million in commercial land. The fee for the applications is the same as if the applicant instead applied at the same time for one land exemption certificate covering $5 million in agricultural land and $150 million in commercial land.

Adjusting fees

Fee payable for multiple acquisitions of different kinds of land (the dominant land type) where the dominant land is residential land

2.54 An agreement may include one or more actions in an action group to acquire an interest in Australian land or in a tenement, where the types of land action are:

•

acquisition of an interest in residential land;

•

acquisition of an interest in agricultural land; and

•

acquisition of an interest in commercial land or tenements.

2.55 The fee payable for this type of acquisition is worked out by identifying the dominant land type. The dominant land type is worked out by determining the kind of relevant land which has the highest consideration.

2.56 The amendments provide that the value of the consideration for residential land is the sum of the consideration for residential land with at least one established dwelling (residential land (established dwellings)) and the consideration for all other types of residential land (residential land (other than established dwellings)).

2.57 The fee method where the dominant kind of land is not residential land is unchanged by the amendment.

2.58 However, as fees for residential land (established dwellings) are higher than fees for residential land (other than established dwellings), if the dominant kind of land is residential land, the calculation of fees is adjusted. [Schedule 2 to the Fees Imposition Bill, item 41, subsection 51(5) of the Regulations]

2.59 Where the dominant kind is residential land, and the residential land includes residential land (established dwellings) and residential land (other than established dwellings), two separate fees are calculated. The total fee payable is the sum of the two fees.

2.60 The first part of the total fee is determined on the basis that each action to acquire an interest in residential land (established dwellings) is considered as a single land action. The value of consideration for this single land action is equal to the sum of the values of the consideration for each land action to acquire an interest in residential land (established dwellings). In essence, the consideration of each land action to acquire an interest in residential land (established dwellings) is added together to produce the total consideration that this part of the fee is calculated on. [Schedule 2 to the Fees Imposition Bill, item 41, paragraph 51(5)(a) of the Regulations]

2.61 The second part of the total fee is determined on the basis that each land action that is not a residential land (established dwelling) action is considered as a single land action to acquire an interest in residential land (other than established dwellings). The value of consideration for this single action is equal to the sum of the values of the consideration for each land actions that are not an action to acquire an interest in residential land (established dwellings). This is the sum of the value of the land action for residential land (other than established dwellings), and the value of the land actions that are not residential land actions. [Schedule 2 to the Fees Imposition Bill, item 41, paragraph 51(5)(b) of the Regulations]

2.62 The total fee payable is subject to the adjusted maximum fee method outlined in paragraphs 2.45 to 2.48 of this explanatory memorandum. However, the amount calculated for the established dwellings fee in the formula for the adjusted maximum fee method is replaced by the amount calculated under paragraph 51(5)(a). For the avoidance of doubt, the established dwellings fee calculated under paragraph 51(5)(a) also applies to the calculation of the percentage of established dwellings maximum fee not charged. [Schedule 2 to the Fees Imposition Bill, item 41, paragraph 51(5)(c) of the Regulations]

2.63 The consideration of relevant land types other than residential land is treated as consideration for an action to acquire residential land (other than established dwellings). This ensures other kinds of land actions are not subject to the tripled fees payable for residential land (established dwellings). [Schedule 2 to the Fees Imposition Bill, item 41, paragraph 51(5)(b) of the Regulations]

2.64 For the avoidance of doubt, if there is only one land action in the action group, then the fee continues to be worked out in the same way the fee for that action would otherwise have been worked out under the Regulations.

2.65 The fee amounts in Examples 2.10 to 2.11 below are based on current indexed amounts in Table 2.1 of this explanatory memorandum.

Example 2.10 – Dominant land type is not residential land

Under a single agreement, a foreign person proposes to take three actions that are notifiable actions to acquire an interest in Australian land. The person proposes to acquire $5 million of residential land, $5 million of agricultural land and $10 million of commercial land, for total consideration of $20 million. The dominant land type is the land with the highest value – commercial land. This means the fee for all of the actions is $14,100.

Example 2.11 – Dominant land type is residential land

Under a single agreement, a foreign person proposes to take three actions that are notifiable actions to acquire an interest in Australian land. The person proposes to acquire $6 million of residential land (established dwellings), $4 million of residential land (other than established dwellings), $2 million of agricultural land, and $7 million of commercial land, for total consideration of $19 million. The dominant land type is the land with the highest value—residential land. The residential land is made up of $6 million of residential land (established dwellings) and $4 million of residential land (other than established dwellings). The value of the consideration for the actions to acquire residential land ($9 million) is treated as consideration for the residential land (other than established dwellings) actions for the purpose of calculating the fees.

The fee is therefore calculated as if the person proposed to acquire $6 million of residential land (established dwellings) and $13 million of residential land (other than established dwellings). The fee for the actions under the agreement is the sum of:

•

the fee for the action to acquire residential land (established dwellings), which is $253,800; and

•

what would be the fee for an action to acquire residential land (other than established dwellings) for consideration of $13 million, which is $338,400.

The fee for the actions under the agreement is $592,200. The fee is less than the adjusted maximum fee, which is $1,288,300 (calculated using the method described in paragraphs 2.45 to 2.48 and paragraph 2.62 of this explanatory memorandum).

Fee payable if the value of the consideration for the action is less than $75,000

2.66 The amendments provide that the fee for giving notice of an action is $4,200 (subject to indexation) if the value of the consideration for the action is less than $75,000. This is simply updating the text of the fee in legislation to align with indexation. [Schedule 2 to the Fees Imposition Bill, item 42, paragraph 53(1)(a) of the Regulations]

2.67 The amendments further provide that the fee is 25 per cent of the amount (that is 25 per cent of $4,200 (subject to indexation)) if the action is a reviewable national security action. The fee is triple the relevant amount if the action is to acquire an interest in residential land on which there is at least one established dwelling. The relevant amount is $4,200 (subject to indexation) if the action is not a reviewable national security action while the relevant amount is 25 per cent of $4,200 (subject to indexation) if the action is a reviewable national security action. [Schedule 2 to the Fees Imposition Bill, item 42, paragraphs 53(1)(b) and 53(1)(c) of the Regulations]

2.68 The fee for giving notice of two or more actions is $4,200 (subject to indexation) if a single agreement covers the actions and the value of the consideration for each action under the agreement is less than $75,000. The fee is 25 per cent of this amount if all of the actions are reviewable national security actions. The fee is triple the relevant amount if any of the actions under the agreement is an action to acquire an interest in residential land on which there is at least one established dwelling. The relevant amount is $4,200 (subject to indexation) if any of the actions is not a reviewable national security action while the relevant amount is 25 per cent of $4,200 if all the actions are reviewable national security actions. [Schedule 2 to the Fees Imposition Bill, item 43, paragraphs 53(2)(a), 53(2)(b) and 53(2)(c) of the Regulations]

Vacancy fees

2.69 Per item 12 of Schedule 3 to the Treasury Laws Amendment (Housing Tax Integrity) Act 2017, vacancy fees are payable in relation to residential land acquired on or after 7.30 pm on 9 May 2017.

2.70 The vacancy fees for all foreign-owned dwellings purchased on or after 7.30 pm on 9 May 2017 are doubled as per paragraphs 2.71 to 2.74 of this explanatory memorandum. This results in:

•

a six-fold increase in vacancy fees for future purchases of established dwellings (in conjunction with the tripling of the foreign investment application fees for the purchase of established dwellings);

•

a doubling of vacancy fees for established dwellings already purchased on or after 7.30 pm on 9 May 2017; and

•

a doubling of vacancy fees for new dwellings purchased on or after 7.30 pm on 9 May 2017 (including new purchases).

2.71 The vacancy fee payable for the acquisition of an interest in residential land that was notified by the person under section 81 of the FATA is double:

•

the fee that was payable by the person for giving a notice of the acquisition; or

•

if the fee payable for giving notice was waived—the amount of the fee listed at item 1 of the table in subsection 10(1) of the Regulations at the time the notice is given.

[Schedule 2 to the Fees Imposition Bill, items 35 and 36, section 43 of the Regulations]

2.72 The vacancy fee for the acquisition of an interest in residential land that was covered by a new dwelling or near-new dwelling exemption certificate is double the fee that would have been charged if the person did not have the exemption certificate and instead was required to notify of the acquisition under section 81 of the FATA. [Schedule 2 to the Fees Imposition Bill, item 37, section 44 of the Regulations]

2.73 The vacancy fee for an acquisition covered by an exemption certificate not mentioned in section 43 of the Regulations is double:

•

the fee payable for applying for that exemption certificate; or

•

if the fee payable for applying for the exemption certificate is waived—the lowest fee for that exemption certificate.

[Schedule 2 to the Fees Imposition Bill, item 38, section 45 of the Regulations]

2.74 The vacancy fee for an acquisition of residential land that the Treasurer made an order or decision about is double:

•

the fee payable for giving a notice of an acquisition of residential land; or

•

if the fee payable for giving notice is waived—the amount of the fee listed at item 1 of the table in subsection 10(1) of the Regulations at the time the notice is given.

[Schedule 2 to the Fees Imposition Bill, items 39 to 40, section 46 of the Regulations]

Updates to fee and fee component indexation provisions

2.75 The changes to the indexation provisions for the fees and fee components in the Regulations (as outlined in paragraphs 2.76 to 2.80 of this explanatory memorandum) are consistent with the changes to the fee cap indexation provisions in Schedule 1 to the Fees Imposition Bill. The amendments facilitate a coherent process for the indexing of the fees, fee components and fee cap.

2.76 Fees payable under the foreign investment framework and related fee component amounts are subject to indexation every financial year. These amounts, as set in the Regulations, are to be indexed from 1 July each year starting on or after 1 July 2024. [Schedule 2. Item 48, subsection 59(2) of the Regulations]

2.77 If the indexed amount for the current year is less than the indexed amount for the previous financial year, the indexed amount for the current year is equal to the indexed amount of the previous year. This also applies to the indexed amount for the year starting on 1 July 2024. [Schedule 2 to the Fees Imposition Bill, item 49, paragraph 59(4)(a) of the Regulations]

2.78 Each specified fee amount and fee component 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.

2.79 For example, if subsection 60(1) of the Regulations commences in the 2023-24 financial year, indexation of the fee cap would first occur on 1 July 2024 financial year. 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).

2.80 The denominator of the indexation factor formula replicates the denominator of the indexation factor formula in subsection 8(1) of the Act, which is used to index the fee cap. The previous denominator in subsection 60(1) of the Regulations 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. [Schedule 2 to the Fees Imposition Bill, item 50, subsection 60(1) of the Regulations]

Further minor amendments

2.81 A minor editorial amendment is made to the start of a section, to accommodate the addition of a new subsection. [Schedule 2 to the Fees Imposition Bill, item 1, section 10 of the Regulations]

2.82 A new note is added at the end of a subsection to clarify that a residential land (near-new dwellings interests) certificate is issued under section 43A of the FATR. A minor editorial amendment is also made at the start of the note preceding the new note, to accommodate the addition of the new note. [Schedule 2 to the Fees Imposition Bill, items 18 and 19, subsection 31(1) of the Regulations]

2.83 A further minor editorial amendment is made to a section for further clarity of the provision. The amendment omits words from the section to prevent any ambiguity about whether the character of an action is changed. The action retains its inherent character, as to whether the action relates to land on which there is or is not an established dwelling. [Schedule 2 to the Fees Imposition Bill, item 20, sections 32 of the Regulations]

2.84 A new note is added at the end of a subsection to clarify that a residential land (other than established dwellings) certificate is issued under section 43B of the FATR. A minor editorial amendment is also made at the start of the note preceding the new note, to accommodate the addition of the new note. [Schedule 2 to the Fees Imposition Bill, items 21 and 22, section 32 of the Regulations]

2.85 A minor editorial amendment is made to subsection 33(3) to reflect the new operation of subsection 33(2). [Schedule 2 to the Fees Imposition Bill, item 24, subsection 33(3) of the Regulations]

2.86 Other minor editorial amendments specify the kind of residential land action referred to in a section. [Schedule 2 to the Fees Imposition Bill, items 29 and 30, paragraphs 37(2)(b) and 38(2)(b) of the Regulations]

2.87 A new note at the end of a table in a subsection for additional clarity and consistency throughout the Regulations. This note is modelled on equivalent notes in the Regulations. [Schedule 2 to the Fees Imposition Bill, item 33, subsection 40(1) of the Regulations]

Other provisions

2.88 Provisions of the Regulations amended or inserted by Schedule 2 to the Fees Imposition Bill (once enacted), and any other provisions of those regulations, may be amended or repealed by regulations made under section 13 of the Act, with reference to subsection 13(5) of the Legislation Act 2003.

2.89 Section 13 of the Act provides that the Governor-General may make certain regulations not inconsistent with the Act. In accordance with subsection 13(5) of the Legislation Act 2003, the amendment of a legislative instrument does not prevent the instrument, as so amended, from being amended or repealed by the Governor-General. [Section 3 of the Fees Imposition Bill]

2.90 In other words, any regulations amending the Regulations with suspended commencements do not affect the amendments made by Schedule 2 to the Fees Imposition Bill. Additionally, any amending regulations made by the Governor-General post the commencement of the Fees Imposition Bill can amend or repeal the Regulations (including any amendments to the Regulations made by Schedule 2 to the Fees Imposition Bill).

Commencement, application, and transitional provisions

2.91 Schedule 2 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]

2.92 Generally, the amendments to the Regulations made by Schedule 2 to the Fees Imposition Bill apply in relation to fees that become payable on or after the commencement of those amendments.

2.93 However, this general rule does not apply where the amendments made relate to vacancy fees. Vacancy fees are payable in relation to residential land acquired on or after 7.30 pm on 9 May 2017. In this situation, the amendments apply in relation to vacancy years starting on or after the commencement of the amendments, regardless of whether the dwelling in respect of which a fee is payable is acquired before, on or after that commencement. For example, if the amendments commence on 1 April 2024:

•

the amendments would apply in relation to vacancy years starting on or after 1 April 2024; and

•

the amendments would not apply in relation to vacancy years which started before 1 April 2024.

2.94 For the avoidance of doubt, if the Fees Imposition Bill commences after 1 July 2024, the indexation required by subsection 59(2) of the Regulations, as amended by the Fees Imposition Bill (once enacted), applies on the first 1 July after that commencement. [Schedule 2 to the Fees Imposition Bill, item 51, section 67 of the Regulations]

Chapter 3: International tax agreements

Context of amendments

3.1 The general proposition under Australian law is that treaties which Australia has joined, apart from those terminating a state of war, are not directly and automatically incorporated into Australian law. Signature and ratification do not, of themselves, make treaties operate domestically. In the absence of legislation, tax treaties cannot impose obligations or create rights in domestic law. Section 5 of the Agreements Act gives the provisions of Australia's bilateral tax treaties the force of law according to their tenor.

3.2 These tax treaties, as noted in their title, are generally made 'for the avoidance of double taxation with respect to taxes on income and the prevention of fiscal evasion' or similar. Eight of these tax treaties contain a Non-Discrimination Article providing that the Article extends to 'taxes of every kind and description'. This has caused some uncertainty to arise in respect of the interaction with taxes that are not covered taxes under the treaty, such as foreign investment fees and some state and territory property taxes.

3.3 The eight tax treaties containing such provision are:

•

Finnish agreement;

•

German agreement;

•

Indian agreement / Indian protocol (No. 1);

•

Japanese convention;

•

New Zealand convention;

•

Norwegian convention;

•

South African agreement / South African protocol (No. 2); and

•

Swiss convention.

3.4 Sections 4 and 4AA of the Agreements Act provide that it shall be read as one Act with the Assessment Act and FBT Act respectively. Subsections 4(2) and 4AA(2) further provide for the resolution of inconsistencies between these Acts and the Agreements Act. The subsections provide that to the extent of any inconsistency between these Acts and the Agreements Act, other than the general anti-avoidance and corporate collective investment vehicles provisions, the Agreements Act prevails.

3.5 There is no express provision in the Agreements Act clarifying how inconsistencies between the Agreements Act and other Acts, which are not specified in sections 4 and 4AA, should be resolved.

Comparison of key features of new law and current law

Table 3.1 Comparison of new law and current law

Detailed explanation of new law

3.6 The Foreign Investment Bill resolves any inconsistencies arising between the Agreements Act, which gives the provisions of Australia's bilateral tax treaties the force of law, and laws imposing taxes (other than Australian tax). 'Australian tax' takes its meaning as defined in section 3 of the Agreements Act, which broadly incorporates income tax (including Medicare Levy) and fringe benefits tax.

3.7 The operation of a provision of a bilateral tax treaty that is given the force of law under subsection 5(1) of the Agreements Act is subject to anything inconsistent with a provision of a law imposing tax (other than Australian tax) unless that law expressly provides otherwise. This amendment provides an express ordering rule to ensure the law imposing non-Australian tax prevails in the event of any inconsistency with the provisions of Australia's bilateral tax treaties. This clarifies the Government's policy position that Australian Commonwealth, state and territory taxes, other than income taxes and fringe benefits taxes, prevail in the case of any inconsistency with the Agreements Act. [Schedule 1 to the Foreign Investment Bill, item 1, subsection 5(3) of the Agreements Act]

3.8 This express ordering rule only applies in relation to taxes other than 'Australian tax', as defined. These taxes, in relation to which the amendment applies, include Commonwealth, state and territory laws such as foreign investment fees and state and territory property taxes. This amendment clarifies that where a provision of a tax treaty, that is given the force of law under the Agreements Act, is inconsistent with a Commonwealth, state or territory law that imposes tax (other than Australian tax), that provision of the tax treaty will not operate to the extent of that inconsistency, therefore ensuring that the Commonwealth, state or territory tax continues to apply as intended. [Schedule #, items 1 and 2, subsection 5(3) of the Agreements Act and the application provision respectively]

Retrospective application

3.9 The amendment applies in relation to relevant taxes that are payable on or after 1 January 2018 and for all relevant tax periods that end on or after 1 January 2018 however those tax periods are described. The retrospective nature of this amendment provides certainty for affected taxpayers by preserving the status quo that these taxes have been validly imposed and collected. The retrospective period broadly aligns with the six-year statute of limitation periods generally provided under state and territory legislation. This ensures certainty for affected taxpayers throughout these statutory periods. [Schedule 1 to the Foreign Investment Bill, item 2, application provision]

3.10 This amendment applies in respect of taxes imposed for tax periods that end on or after 1 January 2018. For taxes that are paid in respect of a tax period, the circumstances that give rise to the tax being imposed may occur during this tax period. Where these circumstances arise prior to 1 January 2018, the amendment applies in relation to that tax provided the tax period for which it is payable ends on or after 1 January 2018.

3.11 It is necessary that the amendment apply retrospectively to ensure that there has been no unintended expansion of the Agreements Act which may undermine other Australian taxation regimes and the intended policy position.

3.12 Retrospective application is appropriate to reassure taxpayers who have been applying the law as intended have a sufficient level of certainty both for previous years and into the future. This provides certainty for taxpayers that these other Commonwealth, state and territory taxes are not affected by the tax treaty provisions.

Commencement, application, and transitional provisions

3.13 The Foreign Investment Bill commences the day of Royal Assent. [Section 2 of the Foreign Investment Bill]

3.14 The amendments apply to taxes (other than an Australian tax) payable on or after 1 January 2018 and taxes (other than an Australian tax) payable in relation to tax periods (however described) that end on or after 1 January 2018. The retrospective nature of this amendment ensures adequate certainty for affected taxpayers and maintains the status quo by clarifying that the relevant taxes continue to apply as intended and legislated by the Australian Parliament. [Schedule 1 to the Foreign Investment Bill, item 2]

Chapter 4: Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2024

Treasury Laws Amendment (Foreign Investment) Bill 2024

Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2024

Overview

4.1 The Fees Imposition Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

4.2 The FATA provides that a foreign person must seek approval before taking a notifiable action (such as acquiring an interest in Australian residential land). The FATA also imposes obligations on a foreign person who acquires an interest in residential land (including requiring foreign persons with interests in residential dwellings to lodge vacancy fee returns each vacancy year). A range of fees are payable by a foreign person under the FATA, and these are prescribed in the Act.

4.3 The Act establishes a framework to impose, as taxes, fees payable under the FATA. The fees are subject to indexation under Part 5 of the Regulations.

4.4 The Regulations provide methods for working out the amount of fees imposed by the Act, regarding regulated actions of foreign persons under the FATA. This includes:

•

Part 2 – fees relating to actions such as an application for an exemption certificate and giving notice of a notifiable action (section 6 provides for fees covered under this Part); and

•

Part 3 – vacancy fees, which may arise when foreign persons do not utilise their residential property (section 42 provides for fees covered under this Part).

4.5 The Fees Imposition Bill contains two Schedules aimed at ensuring foreign investment in residential land is in the national interest:

•

Schedule 1 to the Fees Imposition Bill amends the Act to increase the fee cap amount, the maximum fee that can be imposed by the Regulations, to $7,000,000. The amendments revise 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; and

•

Schedule 2 to the Fees Imposition Bill amends the Regulations to increase foreign investment application fees for the purchase of established dwellings and to double vacancy fees for all foreign-owned dwellings purchased on or after 7.30 pm on 9 May 2017.

Human rights implications

Right to equality and non-discrimination

4.6 The Fees Imposition Bill engages:

•

the right to no discrimination on the basis of race under Articles 1, 2 and 5 of the ICERD; and

•

the right to equality and non-discrimination under Articles 2, 16 and 26 of the ICCPR.

4.7 The right to no discrimination on the basis of race in Articles 1, 2 and 5 of the ICERD obliges Australia to refrain from discrimination on the basis of race, colour descent, or national or ethnic origin and to prohibit and eliminate such forms of discrimination.

4.8 The right to equality and non-discrimination in Articles 2, 16 and 26 of the ICCPR obliges Australia to refrain from discriminating or eroding equality, and protect and advance the fulfilment and enjoyment of the rights to equality and non-discrimination for all people.

4.9 Paragraph 1 of Article 1 of the ICERD defines the term 'racial discrimination' to mean 'any distinction, exclusion, restriction or preference based on race, colour descent, or national or ethnic origin which has the purpose or effect of nullifying or impairing the recognition, enjoyment or exercise, on an equal footing, of human rights and fundamental freedoms in the political, economic, social, cultural, or any other field of public life'.

4.10 Article 2(1)(a) of the ICERD states that, 'Each State Party undertakes to engage in no act or practice of racial discrimination against persons, groups of persons or institutions and to ensure that all public authorities and public institutions, national and local shall act in conformity with this obligation'.

4.11 Under Article 5 of ICERD, States Parties undertake to prohibit and eliminate racial discrimination in the enjoyment of civil, political, economic, social and cultural rights, including the 'right to own property alone as well as in association with others'.

4.12 Article 2 of the ICCPR requires Australia 'to respect and to ensure to all individuals within its territory and subject to its jurisdiction the rights recognized in the present Covenant, without distinction of any kind, such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status'.

4.13 Article 16 of the ICCPR further provides that 'everyone shall have the right to recognition everywhere as a person before the law'.

4.14 Article 26 of the ICCPR recognises that all persons are equal before the law and are entitled without discrimination to the equal protection of the law. Article 26 further provides that 'the law shall prohibit any discrimination and guarantee to all persons equal and effective protection against discrimination on any ground such as...national or social origin, property, birth or other status'.

4.15 However, the UN Human Rights Committee has recognised, that 'not every differentiation of treatment will constitute discrimination, if the criteria for such differentiation are reasonable and objective and if the aim is to achieve a purpose which is legitimate under the Covenant'^[1]. Thus, where laws, policies or programs treat people differently, there must be criteria for the differential treatment that are reasonable and objective, and they must aim to achieve a purpose which is legitimate under the ICCPR.

4.16 Accordingly, differential treatment amongst individuals or groups may not constitute prohibited discrimination under the ICCPR and ICERD if the criteria for such differentiation are reasonable and objective and if the aim is to achieve a purpose which is legitimate.

4.17 Schedules 1 and 2 to the Fees Imposition Bill engages Articles 2 and 5 of ICERD and Article 2, 16 and 26 of the ICCPR because the fee cap applied by the Act and increased fees under the Regulations generally only apply to a 'foreign person'. While an Australian citizen who is not ordinarily a resident in Australia may be a 'foreign person' for the purposes of the FATA, it is anticipated that the majority of individuals who are directly affected by the amendments will not be Australian citizens.

4.18 The criteria by which Schedules 1 and 2 to the Fees Imposition Bill treat people differently are reasonable and objective. The purpose of Australia's foreign investment framework is to regulate certain kinds of foreign investment to ensure that the proposed investments are not contrary to Australia's national interest. All foreign persons are regulated in the same manner under Australia's foreign investment framework and the definition of foreign person is clearly set out in the FATA. The amendments rely on this established definition of foreign person in the FATA.

4.19 Schedule 1 to the Fees Imposition Bill updates the fee cap amount to enable the increase in fees in Schedule 2 to the Fees Imposition Bill and updates the indexation date and indexation factor. Schedule 2 to the Fees Imposition Bill increases fees (imposed as a tax) in relation to actions regulated by the FATA. Schedule 2 to the Fees Imposition Bill increases the amount of application fees for established dwellings, and vacancy fees for foreign-owned dwellings purchased on or after 7.30 pm on 9 May 2017.

4.20 The purpose of increasing the application fees for established dwellings is to encourage foreign investment in new housing stock. The aim is to create additional new housing stock, jobs in the construction industry and to support economic growth. The purpose of increasing vacancy fees is to increase the supply of foreign-owned dwellings on the rental market and improve rental affordability. These amendments aim to achieve a legitimate purpose and help ensure foreign investment in residential land is not contrary to Australia's national interest.

4.21 The increased fees are also reasonable, necessary and proportionate because the amount of fee imposed depends on the nature of the transaction, the value of the transaction, and the significance of the transaction to Australia's national interest.

4.22 While the Fees Imposition Bill primarily affects foreign persons, the differential treatment is reasonable, necessary and proportionate to the objectives. As such, the Fees Imposition Bill is consistent with the principles of the ICERD and the ICCPR.

Conclusion

4.23 The Fees Imposition Bill is compatible with human rights because, to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate to the objective of ensuring foreign investment in residential property increases Australia's housing stock through increased foreign investment fees for the purchase of established dwellings and increased vacancy fees for all foreign-owned dwellings purchased on or after 7.30 pm on 9 May 2017.

Treasury Laws Amendment (Foreign Investment) Bill 2024

Overview

4.24 The Foreign Investment Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

4.25 The Foreign Investment Bill amends the Agreements Act to clarify any uncertainty associated with the interaction between certain taxes, such as foreign investment fees and similar state and territory property taxes and double tax agreements implemented domestically by the Agreements Act. The amendment implements the Government's position as announced in the 2023-24 MYEFO, ensuring that such taxes take primacy in the event of any inconsistency with the Agreements Act.

Human rights implications

4.26 The Foreign Investment Bill does not engage any of the applicable rights or freedoms because it does not impact human rights. It clarifies the scope of taxes that will be subject to provisions of international agreements.

Conclusion

4.27 The Foreign Investment Bill is compatible with human rights as it does not engage any human rights issues.