Updated ATO position on terminated residential sales and resales to foreign buyers

09 December 2016

On Tuesday, 1 November 2016 we wrote to you in relation to the Australian Taxation Office’s position on whether sales of residential dwellings off the plan to foreign buyers when the previous sale of dwellings had failed to settle, would constitute the sale of a “new dwelling” permitted under Australia’s foreign investment rules.

Broadly, the position was that when reselling residential property to foreign buyers where the property in question has previously been ‘sold’ but no settlement took place:

  1. Only a new dwelling could be sold to a foreign buyer; and
  2. A┬áproperty was no longer a new dwelling if it has been previously sold and, in this context, would include a property sold under a sale contract which did not proceed to settlement – for example, terminated off the plan sale contracts.

Therefore, if an apartment was sold and did not proceed to settlement, it could not be resold to a foreign buyer.

Changed position

The Government has listened to the concerns voiced by the property industry and moved to clarify its position.

On 26 November 2016 the Treasurer, Scott Morrison, announced that the Government will implement changes to allow foreign buyers to purchase an ‘off the plan’ dwelling when another buyer has failed to reach settlement. If the sale of a new dwelling fails to complete, the dwelling reverts to its previous status of a new dwelling which can be sold to a foreign buyer.

Amendments are being made to the Foreign Acquisitions and Takeovers Regulations 2015 (Regulations) to enable such sales to be covered by New Dwelling Exemption Certificates (NDEC) (commonly known as Blanket Approvals) under which a Developer holds a pre-approval mechanism for foreign persons to buy new apartments in a specific development.

However, until the Regulations are changed, the Commissioner of Taxation has advised that no compliance action will be pursued against foreign buyers who would otherwise have been covered by an existing Blanket Approval except for the failed settlement of a preceding purchase, thus allowing an apartment previously subject to a contract which failed to settle, to be sold again as a new dwelling covered by an existing Blanket Approval.

This article was written by Jonathan East, Partner and Jason Warat, Partner.

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