Australia's proposed foreign investment framework

Posted 04/03/2015 by Kali Sanyal

On 25 February 2015, the Government released an options paper titled ‘Strengthening Australia’s Foreign Investment Framework’  that proposes a series of new policy positions regarding acquisitions of real estate property, farm land and businesses by foreigners. The proposed changes include the introduction of a new fee paying foreign investment application regime, enabling Australian Taxation Office (ATO) to enforce a penalty regime and reducing monetary thresholds for screening of investment applications for certain agricultural land and business by foreign private investors, both from free trade agreement (FTA) and non-FTA partner countries. 

The key initiatives are:

  • From 1 March 2015, the screening threshold for a foreign investor to buy agricultural land would be reduced to $15 million from $252 million.
  • From 1 July 2015, a national register for agricultural land ownership by foreign investors would be established.
  • A new enforcement and investigative agency within ATO would be in place to implement the penalty regime and prosecute the defaulters.
  • A new set of application and penalty fees would be introduced for the entire range of foreign investment approval process.
  • Under the existing rule, all foreign persons require prior approval to purchase residential real estate. The proposed regulation puts an additional requirement that they have to pay application fees and penalty fees (if there is any breach of regulations).
  • Currently only divestment orders and criminal penalties apply for breaches of the Foreign Acquisitions and Takeovers Act 1974 (FATA). The new regime will allow the Courts to apply a maximum penalty to an individual for the breach of FATA with a fine of 500 penalty units (currently $85,000), imprisonment of two years or both. In the case of a corporation, a multiplier of five applies to the maximum fine for an individual.

The recently released Australia’s Foreign Investment Policy 2015, by the Treasury spells out the details about other new initiatives:

Investment in agricultural land

  • From 1 March 2015, foreign private investors must notify the Government and get prior approval for a proposed acquisition of an interest in rural land where the cumulative value of rural land that the foreign person (and any associates) already holds exceeds, or immediately following the proposed acquisition is likely to exceed, $15 million.
  • The cumulative $15 million threshold will apply to all privately-owned investors except those from selected FTA partner countries.
  • A $1,094 million threshold will apply for investors from the United States, New Zealand, Chile; and a $50 million threshold will apply for investors from Singapore and Thailand.
  • Private investors from other FTA partner countries – Japan, Korea and China - are subject to the new lower threshold of $15 million for rural land, and $55 million for agribusiness acquisitions. 
Approval will not be needed for an interest in rural land if the investment is:
  • by the discourse of a Will (deceased estate) or devolution by operation of Australian law (Commonwealth or states);
  • acquiring land from the Government (Commonwealth, State or Territory, or local) or a statutory corporation formed for a public purpose; or
  • holding land solely as security, or by way of enforcement of a security, for the purposes of a money lending agreement.

New fee structure

The proposal includes a fee structure as follows:
  • 'For residential real estate proposals and rural land acquisitions, a fee of up to $5,000 would apply to properties valued under $1 million. Applications to purchase a property equal to or greater than $1 million would be subject to a fee of up to $10,000. This would then increase in increments of up to $10,000 for each additional $1 million in property value.
  • Property developers seeking an advanced off-the-plan certificate would be levied an application fee based on the number of dwellings sold to foreign investors.
  • Business, commercial real estate and agribusiness investments would be subject to application fees between $10,000 up to $100,000 depending on the size and sector'.

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