The Australian Government has recently announced that it will tighten the rules on foreign purchases of agricultural land by:
- lowering the screening threshold which foreign investors must obtain approval for purchases of agricultural land to $15 million; and
- establishing a foreign ownership register of agricultural land.
This alert outlines the key foreign investment requirements and implications of the policy changes in respect of purchasing agricultural land in Australia.
Under current law, a "foreign person" seeking to acquire an agribusiness or agricultural land requires Foreign Investment Review Board ("FIRB") approval if the value of the total Australian assets of a the business being acquired (including any agricultural land) exceeds $252 million.
Proposed new restrictions
From 1 March 2015, non-government foreign investors must notify FIRB and obtain prior approval before acquiring agricultural land valued at more than $15 million.
Details of the proposed legislation are still to be released, however it would appear that the threshold will apply to the land value component of an agribusiness rather than the total assets of the business.
The threshold will also apply on a cumulative basis. This means that if a non-government foreign investor who currently owns agricultural land valued at $13 million intends to purchase another piece of agricultural land for more than $2 million, that investor will require FIRB approval to do so. Any future acquisitions made by that investor will also require FIRB approval.
This new policy is in line with the free trade agreements negotiated between Australia and each of China, Japan and Korea in 2014 which lowered the threshold for FIRB approval to $15 million for agricultural land purchases and $53 million for agribusiness purchases. While not specifically addressed in the government’s announcement, Australia's treaty obligations may result in investment proposals by US and New Zealand investors not being subject to these new thresholds.
For foreign government investors, no changes are proposed to Australia's policy of requiring approval for all direct investments and for all acquisitions of interests in Australian land.
New land registry for agricultural land
The Australian Government also announced that it will establish a foreign ownership register of agricultural land, which is intended to strengthen reporting requirements and provide a clear picture of foreign investment in Australia’s agricultural sector.
Another announcement is that the Australian Taxation Office will conduct a stocktake of existing agricultural land owned by foreign persons from 1 July 2015. The purpose of the stocktake is to collect information on all new foreign investment in agricultural land, regardless of value. The stocktake will also include an inspection of the existing agricultural land ownership by foreign investors. This is intended to pave the way for a national register.
Impact of the policy changes
Given the relatively low screening threshold which has been adopted, more transactions involving the acquisition of agricultural land will now require FIRB approval.
Foreign investors looking to invest in Australian agricultural land should assess whether they will be required to notify FIRB and, if so, structure acquisitions to accommodate obtaining FIRB approval, including taking into consideration any impact on the acquisition timetable (i.e. making FIRB approval a condition precedent to completion).
The changes also mean that successive land purchases (creeping land accumulation) will be inspected by FIRB and will be more difficult to undertake in a confidential manner.
At this stage, the Australian Government has indicated that it does not expect that the changes will result in a decrease of foreign investment approvals being issued, given the integral part foreign investment plays in the Australian economy.
Further details, which are expected in the near future, will hopefully address the challenges associated with the proposed changes, including identifying additional resources to deal with the expected increase in FIRB applications and confidentiality and privacy concerns associated with the proposed national register. The Australian Government has also flagged that it will announce details of reforms to foreign investment in residential real estate in the coming weeks.