As we have been predicting for some time, the Prime Minister, together with the Treasurer and Minister for Agriculture, have finally announced the lower screening thresholds for foreign investment in agricultural land.
These new thresholds will operate from 1 March 2015.
The new A$15 million threshold is a substantial reduction from the current A$252 million for purchases of agricultural land by foreign persons.
In addition, there will be a cumulative threshold applied for the operation of the regime. The effect will be that once a foreign person holds or is about to hold agricultural land with a total value of A$15 million or more, notice for prior approval of the acquisition will be required. This will be regardless of the value of the interest proposed to be acquired. This is the first time a cumulative value threshold has applied under the foreign investment regime.
Once implemented, the changes are expected to apply to all investors including prescribed investors from South Korea, Japan, Chile and China. The new threshold was included in the recent free trade agreements entered with those countries. (As treaties were already in place with the United States and New Zealand, investors from those countries will continue to benefit from the A$1,094 million threshold).
While there are no surprises to the lowering in the threshold for agricultural land acquisitions, a curious omission from the announcement is the lack of any reference to foreign investment in Australian agribusiness. Previous indications were that a A$53 million threshold would apply to such acquisitions. The Government’s position on agribusiness may be clearer when the actual rules are announced.
Foreign Ownership Register
The Government has also delivered on a longstanding promise to establish a foreign ownership register of agricultural land.
Whilst specific details of the register have not yet been released, the Australian Taxation Office (“ATO”) is to have the job of monitoring foreign ownership of agricultural land and maintaining the register. This will be an interesting new role for the ATO! The ATO will start collecting information on all new foreign investment in agricultural land from 1 July 2015, and commence a stocktake of existing agricultural land ownership by foreign persons. The information gathered will be regardless of the price paid for the land. The ATO register will use land title transfer information from the States and Territories.
We understand that it is expected that the definition of foreign person under the Foreign Acquisitions and Takeovers Act 1975 will be applied under the new register. As this is a broad definition which includes Australian companies with foreign shareholders, the extent of “foreign” ownership of agricultural land that the register reveals may be surprising.
These changes have been in the making for quite some time. They follow a Government announcement in August 2012, a Senate Committee report released in June 2013, the entry into force of Australia’s free trade agreements with South Korea, Japan and Chile, and the announcement of Australia’s free trade agreement with China, which all provided clear indications of the Government’s intention to lower the thresholds.
In making the announcement, the Government echoed its earlier sentiments that Australia is still very much “open for business”. The Prime Minister’s release states that the Government “will continue to welcome foreign investment, but the community must have confidence that this investment is coming in on our terms and for our nation’s benefit.”
The reduced thresholds – particularly the cumulative A$15 million threshold - will see a major lift in the number of applications to be considered by FIRB. While it is a rare event for a rural property to be valued in excess of the current A$252 million threshold, the cumulative A$15 million threshold will mean a significantly higher proportion of foreign investors will be required to seek approval for their acquisitions of agricultural land .
We hope that the FIRB is properly resourced to deal with the extra applications from 1 March and will maintain its excellent record under the current Government of meeting the 30 day decision time for applications.
With foreign investment continuing to be welcomed, we do not expect that the lower thresholds will mean increased rejections. Rather, there will now be increased scrutiny of proposals and in the rare case, steps taken to protect the national interest using appropriate conditions.
The Prime Minister also flagged that the Government is considering the recommendations of the Parliamentary Committee that reviewed foreign investment in the residential sector and noted a need to better enforce the rules. Should this increase FIRB’s policing role, we again suggest that adequate resources will need to be provided.