THE FOREIGN INVESTMENT Review Board's (FIRB) reluctance to prosecute non-complying foreign investors, and the public criticism that this has received, has led to the introduction of stricter foreign investment laws by the Australian Government.
These changes will apply from 1 December 2015.
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The Current Laws and Restrictions
Generally speaking, foreign investors (such as government and privately-owned investors) or foreign persons must seek approval from the Australian Government through the FIRB when proposing to purchase rural land, business acquisitions or commercial or residential real estate in the Australian property market.
The FIRB then provides recommendations to the Treasurer about whether the investment proposal is contrary to national interests and the Treasurer then determines whether the proposal should be granted.
The Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) currently sets out the current requirements governing foreign investors. However, Australia's Foreign Investment Policy (AFI Policy) is more increasingly referred to because it provides more onerous requirements than the FATA. And, it specifically identifies categories of persons that must obtain approval.
For example, both temporary residents and other foreign persons must apply for approval from FIRB if they are proposing to purchase an established residential dwelling or vacant land for residential development.
If they are purchasing an established dwelling, the temporary resident or foreign person must use it as their residence and can only purchase one.
However, FIRB has failed to conduct any investigations or prosecutions in the past nine years, despite the flood of foreign investors and speculation of off-shore investors (and third party facilities) exploiting the system and slipping through the cracks.
Changes Being Introduced
The following changes are aimed at introducing a stricter regime for dealing with foreign investment proposals:
Increased Penalties
In addition to criminal penalties, a range of civil penalties, such as divesture orders and fines, will be introduced. Penalties may also be imposed on third parties who assisted with the breach, such as real estate agents and lawyers.
Up until 30 November 2015, there will be a 'reduced penalty period', whereby individuals who have breached the rules may not incur a penalty if they come forward voluntarily.
Increased Australian Taxation Office (ATO) Involvement
The ATO will take over all residential land acquisition functions that are currently undertaken by the FIRB. The ATO has superior data-matching systems and specialised staff with compliance expertise and are therefore more likely to identify investors in breach of the law.
The Introduction of Application Fees
Currently,the cost of administering foreign applications is borne by Australian taxpayers. However, foreign investors that propose to purchase residential property or rural land that is valued below $1,000,000.00 will be required to pay a one-off $5,000 application fee.
Similarly, foreign investors that propose to purchase property over $1 million will incur a $10,000 fee for every additional $1 million in the purchase price. A foreign investor that proposes to purchase non-residential urban land or commercial real estate will incur a fixed fee of $10,000 and $25,000 respectively.
For business acquisitions, a fixed fee of $25,000 is imposed on the foreign investor; plus additional fees will be incurred, if the value of the business exceeds $1million.
The Introduction of a National Register
There will also be a register established to determine the number of foreign residential and agricultural property owners in Australia. This information is provided directly to the ATO to assist with its management of foreign investments.
Bottom Line: The changes impose stricter standards upon foreign investors and persons when proposing to purchase property in Australia. Breaches of the new standards also attract harsher penalties than before. This is in order to increase transparency and accountability of foreign investors who may otherwise slip through the cracks.
Disclaimer: If you think a similar situation may apply to you, then you should contact us for detailed legal advice relating to the particular facts and circumstances of your property or lease agreement. This article is not intended to provide such detailed and specific advice. And, you should not act on the basis of any matter contained in this article without first obtaining more comprehensive professional advice.
