Proposed legislation under consideration by the Federal Government will levy substantial fees on developers who plan to sell their 100 plus lot residential developments to foreign purchasers if enacted. The fees will apply to both Australian and foreign-owned developers.

Currently, developers with 100 plus lot residential developments can apply for off-the-plan pre-approval certificates from the Foreign Investment Review Board (FIRB). The developers can then sell all new dwellings to foreign purchasers subject to the development being advertised both within Australia and overseas. There is currently no fee payable to FIRB for these pre-approval applications.

One of the benefits of this pre-approval process is that the foreign person who acquires the dwelling does not themselves need to apply to FIRB (although such applications are normally approved).

Subject to approval, the developer must then annually report to the FIRB all sales to foreign persons until all dwellings in the development have been sold. A copy of the off-the-plan approval is also required to be provided to each foreign purchaser.

However, this current process may be replaced from 1 December 2015 by a s. 57 Exemption Certificate under the proposed Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015 and Foreign Acquisitions and Takeovers Fee Imposition Bill 2015.

The practical implications of the proposed legislation are that a developer who wishes to apply for an Exemption Certificate will incur the following fees and process:

• $25,000 upon application; and
• every six months, to report to the FIRB each lot sold to a foreign purchaser and pay a fee of:
  - $5,000 for each lot sold to a foreign purchaser where the purchase price is less than $1 million; or
  - where the purchase price of each lot is over $1 million, the fee is increased by $10,000 for every million or part thereof.

As an example, a developer who obtains an Exemption Certificate after 1 December 2015 and sells 150 apartments to foreign purchasers (assuming a sale price of less than $1 million for each apartment) will incur a $775,000 fee payable to the FIRB.

There are also civil and criminal penalties if the developer fails to market the dwellings in Australia or comply with the six-monthly reporting conditions.

Apply now to avoid new fees

For developers who apply and obtain off-the-plan approval in advance from the FIRB prior to the commencement of the proposed new regime on 1 December 2015 will not incur these proposed new fees.

In addition, for applications made prior to the commencement of the proposed new regime, but where the Exemption Certificate is issued after 1 December, the developer will not be required to pay the application fee. However, it is unclear under the proposed new legislation whether the six-monthly fee for individual lots sold to foreign purchasers will still apply in this circumstance.

To avoid the proposed FIRB fees, we recommend that you apply for an Exemption Certificate as soon as you receive a planning permit, or immediately if you have an existing permit, even if you are seeking further amendments to the permit. We understand that the FIRB generally take up to 30 days to process applications.

Developers should also consider if they need to seek – via the contract of sale – partial or full recovery of these fees from foreign purchasers, particularly as the foreign purchaser would otherwise pay these fees direct to the FIRB.