FIRB residential dwelling fee changes – a sign of things to come in 2024
In its latest raft of changes to the FIRB regime announced last year, the Federal Government has proposed adjustments to its foreign investment fee regime for all foreign buyers of residential property, tripling the application fee for established dwelling purchases in addition to doubling the annual vacancy fee for foreign owned residential dwellings which are not occupied. They have also proposed reducing the application fees for build-to-rent projects.
Current regime
Currently, a foreign person is generally prohibited from purchasing an established dwelling in Australia, with narrow exemptions. These exceptions include temporary residents buying a home to live in, and the acquisition of an established dwelling for the purpose of redeveloping the property to increase the housing stock. A foreign person is generally permitted to purchase a new dwelling if they obtain FIRB approval. As with all FIRB approvals there is an application fee payable, with residential land being the highest fee bracket applicable.
Any foreign person who has purchased a residential dwelling after 9 May 2017 is subject to what is known as the ‘vacancy fee’. This fee is payable by investors in circumstances where the dwelling is not residentially occupied, or genuinely available for rent (for a term of at least 30 days), for at least 183 days in a 12-month period. The vacancy fee, if payable, will generally be equal to the FIRB application fee paid to obtain FIRB approval to purchase the property.
The rationale behind these mechanisms is to ensure Australians have priority in access to housing, and otherwise liveable dwellings are not sitting idle.
FIRB amendments
On 10 December 2023, the Federal Government (as part of its broader response to the house crisis) announced its intention to amend Australia’s Foreign Investment fee regime to:
- triple the applicable FIRB fees for the purchase of residential land as they relate to established homes;
- double the applicable annual vacancy fees for all foreign owned dwellings (purchased after 9 May 2017) which when taken with the raising of application fees, sees a six-fold increase in the vacancy fees; and
- broaden the Australian Taxation Office’s FIRB compliance regime in an attempt to ensure investors continue complying with their obligations under the FIRB rules. The Government’s announcement did not provide further detail on what these changes would involve but we may start to see more infringement notices being issued and greater audit activity by the ATO in relation to these matters.
The proposed changes dramatically increase the already significant fees payable for established dwellings, for example:
| Home Value at time of acquisition | Current FIRB application Fee for purchasing an Established Dwelling | New FIRB application Fee for purchasing an Established Dwelling | Previous vacancy fee for Established Dwellings per annum (assuming land was acquired between 1 January 2021 – 31 December 2023) | New Vacancy Fee for Established Dwellings per annum (assuming land was acquired between 1 January 2021 – 31 December 2023) | New Vacancy Fee for Established Dwellings per annum (assuming land was acquired after new application fees are introduced) |
| $1 million or less | $14,100 | $42,300 | $14,100 | $28,200 | $84,600 |
| $1 million – $2 million | $28,200 | $84,600 | $28,200 | $56,400 | $169,200 |
| $2 million – $3 million | $56,400 | $169,200 | $56,400 | $112,800 | $338,400 |
| $5 million | $112,800 | $338,400 | $112,800 | $225,600 | $676,800 |
| $20 million | $535,800 | $1,607,400 | $535,800 | $1,071,600 | $3,214,800 |
| $40 million or more | $1,119,100 | $3,357,300 | $1,119,100 | $2,238,200 | $6,714,600 |
Build to rent incentives
Whilst the changes are extensive for foreign investors in relation to the acquisition of established homes and for ownership of homes that are left unoccupied for more than six months in a 12 month period, the Federal Government’s announcement and forthcoming legislation is also proposed to incorporate a reduction of applicable fees for build-to-rent projects by applying the commercial land fee tiers to such acquisitions.
It is expected that these reductions will see applicable FIRB fees for acquisitions of land for build-to-rent projects calculated in accordance with the lowest commercial rate regardless of the status of land. This reduction would be applicable for projects which commence construction after 14 December 2023, and affords foreign investors some relief from the increased fees referred to above which will hopefully encourage foreign investment in this sector and provide improved access to housing for rent.
This portion of the proposed amendments was announced to commence on 14 December 2023, but no enabling legislation has yet been passed. As such, it is expected this will be administered via FIRB’s discretion to waive or reduce fees for the time being.
What this means for foreign investors?
With applicable FIRB fees for established residential homes now triple their existing rate and vacancy fees for established residential homes effectively increasing by 600%, foreign investors should carefully consider these significant transaction costs and potential ongoing holding costs before committing to the purchase of established dwellings. This includes foreign developers seeking to acquire established dwellings for redevelopment as these increased fees may well impact on the feasibility of such projects.
For further information regarding this announcement or how McCullough Robertson can assist, please contact a member of our FIRB team: Andrew Bukowski, Duncan Bedford, Meg Morgan or Natalie Kurdian; or our Real Estate team: Kristan Conlon and Emile McPhee.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.
