The Federal Government is pursuing an agenda to tighten foreign investment in the agricultural sector. In a joint statement in early May, Prime Minister Tony Abbott and Treasurer Joe Hockey confi rmed that a raft of changes to the foreign investment rules will be introduced between now and 1 December 2015.
The recent announcement has further highlighted the Government’s focus on strict enforcement of the foreign investment rules. This follows recent criticism that FIRB has failed to prosecute breaches in the past.
Existing criminal penalties will be increased, divestiture orders will be supplemented with civil penalties and third parties such as real estate agents and lawyers who assist with a breach will now be subject to strict new penalties. The Treasurer noted that in addition to the recent divestiture order issued earlier this year a further 100 companies and individuals are under investigation for possible breaches of the foreign investment rules.
Although most of the media attention has been on possible breaches of the residential property rules, given the ever present focus on food security in Australia, we expect that acquisitions of ‘Rural Land’ (being land used primarily for primary production) will not be spared from this increased scrutiny.
The Treasurer announced that up until 30 November 2015, any voluntary disclosure of breaches of the foreign investment rules by foreign investors or their representatives will receive the benefi t of reduced penalties. For example, such breaches may not be referred to the Commonwealth Department of Public Prosecution and anyone who is forced to sell their property is likely to receive longer periods to sell (i.e. up to 12 months rather than the three months usually imposed by FIRB).
A new foreign investment application fee regime will be introduced from 1 December 2015. The Treasurer has confi rmed that an application for FIRB approval for an acquisition of ‘rural land’ worth less than $1 million will cost $5,000. If the ‘rural land’ being acquired is valued at more than $1 million, a further $10,000 fee will be imposed on each subsequent million up to a maximum fee of $100,000. For example, the acquisition of ‘rural land’ valued at $10 million will incur a FIRB application fee of $95,000.
A separate fee arrangement will be established for the purchase of an agribusiness. For acquisitions of agribusinesses valued at less than $1 billion, a fi xed fee of $25,000 will apply. Acquisitions of agribusinesses valued over $1 billion will incur a $100,000 fee.
The defi nition of agribusiness is intended to be based on the Australian and New Zealand Standard Industrial Classifi cation Code. This defi nition is very broad and is likely to extend to most businesses involved in primary production.
REGISTER FOR FOREIGN OWNERSHIP OF AGRICULTURAL LAND
As of 1 July 2015 the FIRB Policy requires all foreign persons and foreign government investors that currently hold an interest in agricultural land to register that interest with the Australian Tax Offi ce (ATO) regardless of value by 31 December 2015. This will apply to parties that previously purchased rural land even if at the time they were not subject to FIRB approval. This is a positive obligation that is triggered automatically (i.e. not just on the acquisition of further interests in agricultural land).
Moving forward, whenever a foreign person obtains an interest in rural land, regardless of value, they will need to register that interest with the ATO within 30 days. Registration occurs via a web portal.
There is currently no penalty for failing to register but once these changes are incorporated into the legislation (as FIRB anticipates will happen by 1 December 2015 – probably with retrospective effect) it is likely there will be penalties imposed for a failure to register an interest.
The Policy also introduces a new concept of ‘Agricultural land’ which means land in Australia that is used, or that could reasonably be used, for a primary production business. This is important because the broader defi nition will apply to a number of foreign landholders that do not specifi cally own land for agricultural purposes (for example, land held in connection with resources projects that is not currently being used but could reasonably be used for primary production).
MORE TO COME…
Further changes are expected to be announced between now and 1 December this year. Most importantly, clarifi cation needs to be provided by FIRB as to whether fees will be imposed per lot or on the value of the property being acquired as a whole. This outstanding issue could potentially have a dramatic impact on the amount of fees payable by a foreign investor for acquisitions of ‘Rural Land’.
The Prime Minister and the Treasurer insisted in their announcement that Australia is still open for business and the Government welcomes foreign investment and we expect this will be demonstrated by the Government continuing to approve most foreign investment applications.
However, the increased penalties and introduction of fees further complicate an already complex foreign investment regime. These changes, coupled with increased scrutiny for all foreign investment proposals generally, will have a signifi cant impact on investment in the agricultural sector.