Foreign investment law makeover

FOREIGN investment in Australia is operating under new restrictions from December 2015.

Analysis of the changes have identified how the Federal Government has moved to close loopholes and impose more realistic costs for international applicants, Mullins Lawyers director Tony Hogarth said.

“From December 1, 2015, the Foreign Investment Review Board (FIRB) has implemented new rules aimed at strengthening the regulation of foreign investment in Australia,” Mr Hogarth said.  

A significant change in the compliance regime has been the appointment of  the Australian Taxation Office (ATO) to regulate foreign investment in residential real estate, to improve compliance and strengthen the enforcement of the FIRB rules.

“The ATO now has the capacity to match its own taxpayer data with those from the states and territories relating to land titles, immigration, FIRB and AUSTRAC,” Mr Hobart said. AUSTRAC follows the movement of funds in and out of Australia.

Foreign nationals wanting to invest in Australia are also now required to pay an administrative fee before their investment application is processed. The fees apply for each application lodged from December 1, 2015.

Residential properties valued at $1 million or less now attract a $5,000 fee. Residential properties valued over $1 million have a fee of $10,000 then $10,000 incremental fee increases per additional $1 million in property value.

For commercial real estate there is now a $25,000 fee, while vacant commercial land attracts a $10,000 fee.

For proposed foreign investments in agribusiness, there are fees of $25,000, but that raises to $100,000 where the investment is greater than $1 billion. The agribusiness investment threshold is at $55 million to be indexed annually, but exceptions apply for some Free Trade Agreement (FTA) countries.

Agricultural land attracts fees of $5,000 to $100,000 and the threshold is at $15 million (cumulative) with exceptions for some FTA countries.

In addition, an administrative fee is now payable by developers when applying for advance off-the-plan approval. For developments of 50 or more residences, property developers can now apply for a new dwelling exemption certificate to enable them to sell new residential dwellings to foreign investors without the need to apply for FIRB approval.

The general ‘substantial interest’ threshold for acquisitions requiring notification has been increased from 15 percent to 20 percent, consistent with the Corporations Act 2001 takeovers threshold, Mr Hogarth said.

He said the ATO plans to establish a register relating to foreign ownership of residential real estate from July 1, 2016. The FIRB has already established a register relating to foreign ownership of agricultural land from July 1, 2015.

Significant changes have been made to the penalties, introducing civil penalties for the first time while previous criminal penalties have been expanded.

“Generally, the maximum ‘criminal’ penalty for individuals and companies has been increased to $135,000, or three years imprisonment, and $675,000, respectively,” Mr Hogarth said. 

He said ‘civil’ penalties cater for situations where a foreign person makes an acquisition without approval; a foreign person fails to comply with a condition of approval; a non resident acquires established residential property; a temporary resident acquires more than one established residential property; a temporary resident fails to sell an established residential property when it ceases to be their principal place of residence; and a temporary resident rents out an established residential property.

“By way of example, in the case of residential real estate, the maximum ‘civil’ penalty is the greater of 25 percent of the purchase price in addition to the relevant application fee, or 25 percent of the market value of the property in addition to the relevant application fee,” Mr Hogarth said.

“The civil and criminal penalties are now extended to third parties, who knowingly assist a foreign person to breach the FIRB rules. This raises the level of responsibility for real estate agents, lawyers and others involved in the sale of property to foreign buyers, to take care and provide proper advice in relation to the FIRB rules and requirements.

“Foreign investors and advisors need to be aware of their obligations and to abide by the FIRB rules to avoid incurring the significant penalties which may now be imposed,” Mr Hogarth said.

www.mullinslaw.com.au

 

ends