How does a FIRB condition work in a contract of sale?

Why the condition exists

Foreign persons must have approval before buying residential land. Under the Act, a person acquires an interest when they enter an agreement to acquire it. That would mean the action is taken at signing, before any approval. The Act treats a contract with a condition precedent differently: the buyer takes the action only when the provisions of the agreement become binding.

Treasury's overview puts it this way. Actions are deemed to be taken when the agreement is entered into and becomes binding, which may be on satisfaction of conditions. So where the contract makes the action conditional on approval, the action is not taken until approval is granted. Treasury's residential guidance adds that a foreign person who wants to reduce the risk of the property being sold to someone else can sign a contract as long as it is conditional on approval.

The ATO's application page words the rule more briefly: before you enter any contract to buy residential property, you need approval or an exemption certificate. The same page says you can apply for a certificate after signing a contract, provided the contract is still conditional. The two pages are worded differently, which is a reason to have the contract wording checked, not assumed.

The wording matters

Treasury's Key Concepts guidance separates two kinds of condition.

Treasury's example of the second kind is a lease that required approval within six months and let the lessor end the lease if it was not obtained. Because the lease bound the tenant unless the lessor ended it, the interest was acquired on entering the lease. The example concerns agricultural land, but the guidance states the principle generally and says each case turns on the precise terms of the agreement.

Timing risk

A FIRB condition normally has an end date. The risk is that the decision takes longer than the contract allows. Compare the date with the official periods:

• time to gather documents, lodge and pay, since the clock starts the day after the correct fee is paid;
• the 30-day decision period, and up to 90 more days if the Treasurer extends it by written notice;
• days spent answering any request for information, which are not counted;
• up to 10 days for the decision to be notified; and
• the approval's own time limit, generally 12 months to take the action.

The timing guide sets out the published processing figures. Contracts differ on what happens when the date passes: some allow extension by agreement and some give a right to end the contract. Read the clause, and ask the conveyancer what happens if the ATO's decision is still pending.

Other points that connect the contract to the approval:

• The price. Treasury says approval is generally subject to the price being no greater than the value specified in the approval. If a price is renegotiated after approval, ask the ATO or an adviser before agreeing a higher figure.
• The names. Treasury treats a request involving a new foreign person as one that may need a new application rather than a variation. Settle who will be on the contract before you lodge.
• The property description. A change to the description of the land, such as a lot number, is a variation, and Treasury says the fee for that is generally waived.

Auctions

The NSW Government says the highest bidder at an auction must sign the contract on the spot and that there is no cooling-off period. Because the ATO says approval or a certificate is needed before you enter any contract, a foreign buyer who wants to bid would need one already held. Treasury describes a certificate as the option for a buyer who may be outbid at auction. Other states have their own auction rules. A certificate covers one property in the state or territory named, up to the stated price, and is generally valid for 12 months. Treasury's own example is a buyer with a $1 million certificate who is the highest bidder at $1.3 million: the certificate does not cover that purchase, and the buyer may face significant penalties. See exemption certificates.

Off the plan and developer certificates

If the developer holds a new dwelling exemption certificate that covers your purchase, you generally do not apply yourself. Treasury says buyers should check the certificate covers their purchase, that the developer must give each foreign buyer a copy, and that a certificate generally covers up to $3 million of dwellings per buyer in one development. The developer is nominally liable for the per-sale fee, but the developer and buyer can agree who pays it. That is a point to settle in the contract. See buying off the plan.

If approval is not granted

The contract's own terms, and the law of the state, decide what happens to the deposit and whether either side can end the deal. The FIRB rules do not. See what happens if an application is refused or withdrawn. If you are borrowing, the finance side runs alongside this: see non-resident home loans.

Frequently asked questions

firbapproval.com.au is an independent guide. It is not affiliated with, endorsed by or connected to the Foreign Investment Review Board, the Australian Treasury or the Australian Taxation Office. We do not lodge or process applications. Applications are made to the ATO. General information only, not legal, tax, migration or financial advice.