House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Josh Frydenberg MP)

Chapter 4 - A fairer and simpler framework for foreign investment fees

Outline of chapter

4.1 Schedule 1 to the Bill and the Imposition Bill establish a new fee framework for foreign investment in Australia.

Context of amendments

4.2 Under the FATA, fees are generally payable when a person applies for an exemption certificate, gives notice of a notifiable action, gives notice relating to an action that is not notifiable, and applies for a variation of a no objection notification or exemption certificate. Most commonly a fee is payable when a notifiable action or both a notifiable and significant action is being taken. Fees are also payable if a foreign person is liable for a vacancy fee for foreign acquisitions of residential land.

4.3 The FATA Fees Act and the Fee Regulation set out the specific fees and exemptions for the fees payable when giving notice under the FATA.

4.4 Fees are calculated based on the notification type, the value of the transaction or assets and the number of actions being taken. However, the fee may be higher or lower depending on the type of agreements in place, whether it is a variation, and whether any exemptions or lower fee rules apply.

4.5 All fees imposed are a tax.

Summary of new law

4.6 In comparison to the existing fee framework, the new fee framework is intended to be fairer and simpler, and will reduce the administrative burden of determining the fee that is payable.

4.7 The Imposition Bill establishes authority for the Fee Regulation to charge existing and new fees.

4.8 Fees remain payable when a person:

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applies for an exemption certificate or a variation of an exemption certificate;

•

gives notice of a notifiable action;

•

gives a notice about a proposal to take a significant action that is not a notifiable action;

•

applies for a variation of a no objection notification; and

•

when a person has been given an order or has been provided a no objection notification without giving the Treasurer a notice relating to the action specified in the order or notification.

4.9 The amendments establish new fees for new actions. A fee is payable for a notifiable national security action, for a reviewable national security action that has been notified to the Treasurer or an action for which the Treasurer gave a person a notice because the action may pose a national security concern. Fees are also payable when a person applies to vary a notice imposing conditions that was given to them.

4.10 The amendments ensure that a fee is payable for notifiable actions, significant actions and notifiable national security actions that were retrospectively notified to the Treasurer. They also provide that only one person in a joint tenant agreement is required to lodge a vacancy fee form.

4.11 The Imposition Bill also establishes a maximum fee cap as all fee amounts will be prescribed in the Fee Regulation.

Comparison of key features of new law and current law

4.12 The following table provides a comparison of the key features of the new law and the current law.

Detailed explanation of new law

Changes to the FATA Fees Act

New regulation making power

4.13 Fees are payable under Part 6 of the FATA (for an action) and under Part 6A of the FATA (for a vacancy fee for foreign acquisitions of residential land). Fees are imposed as a tax. A fee is payable when a person:

•

applies for an exemption certificate;

•

applies for a variation of an exemption certificate;

•

gives notice of a notifiable action or a notifiable national security action;

•

receives a notice from the Treasurer that an action may pose a national security concern, being an action that is either:

-

a reviewable national security action; or

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a significant action that is not a notifiable action or a notifiable national security action.

•

gives a notice of a proposal to take either a significant action that is not a notifiable action or notifiable national security action;

•

gives notice of a reviewable national security action;

•

has been given an order or has been provided a no objection notification without giving the Treasurer a notice relating to the action;

•

applies for a variation of a no objection notification; and

•

is liable for a vacancy fee for acquisitions of residential land.

[Schedule 1, item 7, section 5 of the FATA Fees Act]

4.14 The FATA Fees Act is amended to provide that the Fee Regulation will set the amounts of fees that can be charged.

4.15 Without limiting the regulation making power, subsection 6(2) of the FATA Fees Act provides that regulations may do one or more of the following:

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specify a fee amount or a method for determining an amount;

•

specify different fee amounts or methods for different kinds of fees, or different kinds of persons liable to pay a kind of fee, or different circumstances giving rise to the liability to pay a kind of fee;

•

specify a nil amount or a method resulting in a nil amount;

•

specify a method for a fee if two or more fees are payable in relation to a single agreement;

•

specify a method for a fee if the action is covered by multiple provisions for which a fee is imposed; and

•

specify an initial amount, and then later determine a reduced amount or nil amount.

[Schedule 1, item 7, section 6 of the FATA Fees Act]

4.16 If necessary, fees can be paid by different kinds of persons. For example, for the most part, fees are borne by the foreign person making the acquisition. However, fees for a new dwelling exemption certificate are typically paid by the developer or the vendor, who can be either an Australian citizen or a foreign person. By providing that different amounts of fees can be payable by different persons, the amendments ensure that the right person is liable to pay the appropriate fee for actions taken under the FATA. [Schedule 1, item 7, paragraph 6(2)(b)(ii) of the FATA Fees Act]

4.17 The amount of a fee payable may differ for different kinds of circumstances that give rise to the liability to pay the fee. For example different fee amounts may be charged for different kinds of application variations, or for variations with differing complexity. [Schedule 1, item 7, paragraph 6(2)(b)(iii) of the FATA Fees Act]

4.18 The regulations can prescribe a nil amount if necessary. For example, some actions under the FATA may not attract a fee, because the amount prescribed is nil. [Schedule 1, item 7, paragraph 6(2)(c) of the FATA Fees Act]

4.19 The Fee Regulation may set a method to work out the fee in a scenario where two or more fees are payable for a single agreement, or when multiple actions are being covered. For example, the Fee Regulation could prescribe that if a single agreement covers the acquisition of multiple different actions, the fee is based on the aggregate consideration of the entire transaction. Previously the one agreement rule provided that where multiple actions were covered by a single agreement, the fee was the highest fee applicable. [Schedule 1, item 7, paragraphs 6(2)(d) and 6(2)(e) of the FATA Fees Act]

4.20 As all fee amounts are prescribed in the Fee Regulation, an overall cap which limits the fee amount is set in the FATA Fees Act. Fee amounts prescribed in the Fee Regulation must not exceed the maximum cap. The maximum cap for 2020-21 is $1 million. The amount of a fee prescribed in the Fee Regulation cannot exceed $1 million for 2020-21. [Schedule 1, item 7, subsection 6(3) of the FATA Fees Act]

Indexation of the maximum cap

4.21 The maximum cap is subject to indexation and will be indexed on the first day of each financial year starting on or after 1 July 2021. The cap will be indexed by multiplying it by the indexation factor. If after indexation the cap is not a multiple of $100, then the cap is to be rounded down to the nearest multiple of $100. 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 should be equal to the indexed amount of the previous year. [Schedule 1, item 7, section 7 of the FATA Fees Act]

4.22 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 section commences.

The indexation factor is calculated to three decimal places (rounding up if the fourth decimal place is five or more). [Schedule 1, item 7, section 8 of the FATA Fees Act]

4.23 The index number for a quarter comes from the Australian Bureau of Statistics. It is the All Groups Consumer Price Index Number first published by the Australian Statistician for the quarter. [Schedule 1, item 7, section 9 of the FATA Fees Act]

4.24 The definition of 'index number', 'indexation factor' and 'quarter' are all inserted in section 4 of the FATA Fees Act. [Schedule 1, items 2, 4 and 6, subsection 4(1), subsection 4(1) (definition of index number) and subsection 4(1) (definition of quarter) of the FATA Fees Act]

Changes to the FATA - national security fees

4.25 Schedule 1 to the Bill gives the Treasurer powers to address new and emerging national security risks. The acquisition of certain interests are defined as notifiable national security actions which must be notified to the Treasurer. Fees are payable where a person notifies of a notifiable national security action. [Schedule 1, item 182, item 3 of the table in subsection 113(1) of the FATA]

4.26 Under the new national security test, the Treasurer may review certain actions that are not otherwise notifiable under the FATA (reviewable national security actions) and actions that are significant but have not been notified, if the Treasurer considers that the action may pose a national security concern. If the Treasurer reviews such an action the Treasurer must give the person a notice of the review.

4.27 A fee is payable when the Treasurer notifies a person that an action that has been taken or that is proposed to be taken has been reviewed as the Treasurer considers the action will pose a national security concern. The fee is payable before the end of the 30 days after the Treasurer gives the notice. A fee is also payable if the person voluntarily notifies the Treasurer of a reviewable national security action. The fee is payable when the person notifies the Treasurer. [Schedule 1, items 183 and 184, item 4 in the table in subsection 113(1) and item 4A in the table in subsection 113(1)of the FATA]

4.28 Because fees are payable as part of the new national security test, the simplified outline of section 112 is amended to reflect that a fee is payable for the following actions:

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for giving a notice relating to a notifiable national security action;

•

an action where the Treasurer provides a notice that the action may pose a national security concern; and

•

a reviewable national security action, where the person voluntarily notifies the Treasurer of the action. [Schedule 1, item 180, section 112 of the FATA]

4.29 Section 114 of the FATA is amended to clarify that fees are required to be paid before the exercise of any of the Treasurer's powers. A fee is payable under section 113 when an application is made or a notice is given by the person. [Schedule 1, item 188, section 114 of the FATA]

Changes to the FATA - significant actions

4.30 Current table item 4 of subsection 113 of the FATA provides that a fee is payable when a person gives a notice to the Treasurer of a proposed action that is not a notifiable action. Table item 4 of subsection 113 of the FATA is amended to clarify that a fee is payable when a person gives a notice to the Treasurer of either: a proposed significant action that is not a notifiable action or a notifiable national security action; or a reviewable national security action. [Schedule 1, item 183, item 4 in the table in subsection 113(1) of the FATA]

4.31 Consequential amendments are made to clarify that a notice under table item 4 of subsection 113 of the FATA includes certain notices. [Schedule 1, item 218, paragraph 135(3)(c) of the FATA]

Changes to the FATA - retrospective notifications

4.32 Section 46 of the FATA is amended to clarify that a notifiable action does not have to be a proposed action. The change works in conjunction with other amendments to the FATA to clarify that a fee can be charged for retrospective notifications of significant actions, notifiable actions and for notifiable national security actions. [Schedule 1, item 60, section 46 of the FATA]

4.33 Fees are payable for retrospective notifications of all notifiable, notifiable national security, and significant actions. A fee is payable if a person is given an order or decision by the Treasurer and the person did not give a notice of the action to the Treasurer. This applies regardless of whether the action was a notifiable action, a notifiable national security action or a significant action. [Schedule 1, item 185, item 5 in the table subsection 113(1) ) of the FATA]

Changes to the FATA - transitional provision

4.34 Schedule 1 to the Bill inserts a transitional provision to ensure a fee is payable for retrospective notifications that are notifiable but not significant actions that were taken prior to 1 January 2021. A retrospective notification occurs where the person notifies the Treasurer after the action has been taken. The transitional provision applies to actions taken between 1 December 2015 and the commencement of the Bill. This ensures a fee is payable for any actions taken, but not notified, during this period. [Schedule 1, item 247, Transitional- notice of action that is notifiable but not significant]

Changes to the FATA - variation fee

4.35 Under the last resort power, the Treasurer may give a notice imposing conditions to a person where the person was not given a no objection notification at the time the person originally applied to the Treasurer for approval. Under section 79Q a person may apply to the Treasurer to have the notice varied in the same way as a person can apply to have a no objection notification varied. Fees are payable when a person applies to have a notice imposing conditions varied. The fee is payable when the application to vary the notice is made. [Schedule 1, item 186, item 7 in the table in subsection 113(1) of the FATA]

4.36 The simplified outline is amended to reflect that a fee is payable where a person applies to have a notice imposing conditions varied. [Schedule 1, item 180, section 112 of the FATA]

Changes to the FATA and FATA Fees Act - Vacancy fee changes

4.37 Only one person in a joint tenancy arrangement is required to submit the vacancy fee return, in order to determine the applicable vacancy fee liability. As long as one person in the joint tenant arrangement submits the vacancy fee return, that is sufficient for the Commissioner to determine the liability for persons involved in a joint tenant arrangement. If the Commissioner finds the person liable for a vacancy fee, then the persons in the joint tenant arrangement are jointly and severally liable for the vacancy fee. The change applies to vacancy years ending on or after 31 December 2020. [Schedule 1, items 192 and 248, subsection 115D(4) of the FATA and Application - vacancy fee returns where persons jointly hold interest in land]

4.38 Paragraph 6(2)(f) of the FATA Fees Act ensures that for vacancy fees for joint tenants, the regulations can provide a method that first determines the amount payable and can also later determines a lower amount of fees, including a nil amount. As joint tenants are jointly and severally liable for the vacancy fee, it may be the case that in joint tenant arrangements only one person is required to pay the vacancy fee. [Schedule 1, item 7, paragraph 6(2)(f) of the FATA Fees Act]

Consequential amendments

Changes to the FATA Fees Act

4.39 As all fee amounts are prescribed in the Fee Regulation, consequential amendments are made to the FATA Fees Act to repeal definitions that were previously used in the FATA Fees Act which are no longer relevant. [Schedule 1, items 1, 3, and 5, subsection 4(1), subsection 4(1) (definition of indexed amount), and subsection 4(1) definition of internal reorganisation of the FATA Fees Act]

Changes to the FATA

4.40 As all fee amounts are prescribed in the Fee Regulation, a number of consequential amendments are made to the FATA to clarify that all fee amounts are made under the FATA Fees Act and found in the Fee Regulation. [Schedule 1, items 181, 187, 190 and 191, section 112, subsection 113(1) (note), section 115A, and subsection 115C(1) note, of the FATA]

Application and transitional provisions

Changes to the FATA Fees Act

4.41 The new fees commence from the later of:

•

the day after Royal Assent; and

•

the day the amendments to the FATA commence.

4.42 However, if the main amendments to the FATA do not commence then the new fees will not apply. This ensures that all related legislation is enacted before the new fees apply. [Commencement table of the FATA Fees Act]

4.43 The new fees apply to fees that become payable on or after 1 January 2021. [Schedule 1, item 8, application of amendments to the FATA Fees Act]