More changes have been flagged for agribusiness, residential real estate and the FIRB regime generally, and an options paper released, by the Federal Government.
The new threshold for agricultural land
On 11 February 2015 the Australian Treasurer announced that the threshold for Foreign Investment Review Board (FIRB) review of purchases of agricultural land will be reduced from $252 million to $15 million with effect from 1 March 2015, with the $15m threshold to be applied to the cumulative value of all agricultural land owned by the foreign person.
The new review threshold for purchases of agricultural land will be implemented through Australia's Foreign Investment Policy. A 2015 edition of the Policy has now been released. The revised Policy incorporates the new threshold and fleshes out the details of its application.
On 26 February 2015 the Federal Government released an options paper, "Strengthening Australia's Foreign Investment Framework", which calls for submissions on proposals for further reform to the FIRB review regime, including in relation to agribusiness investments.
The official new rule
The Policy states the new rule for review of acquisitions of agricultural land as:
"Foreign persons 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.
An interest in rural land includes interests acquired:
- directly (for example, acquiring a legal or equitable interest); and
- indirectly (for example, acquiring a substantial interest in a corporation or trust where more than 50 per cent of the assets of the corporation or trust comprise of rural land)."
Different thresholds for different foreign investors
The application of the new agricultural land threshold will depend on the nationality of the investor. Australia's Free Trade Agreements (FTAs) have increased the general foreign investment screening thresholds for the relevant counterparties from the current $252 million to $1,094 billion for particular countries. While recent FTAs with China, Japan and South Korea preserve Australia's right to apply lower foreign investment screening thresholds to investments in agricultural land and agribusiness, there was no such preservation in earlier FTAs with the US, NZ, and Chile. Australia's FTAs with Singapore and Thailand don't provide for the higher general threshold ($1.094 billion) and a different threshold applies for investors from those countries.
The result is that the new $15 million cumulative threshold for agricultural land will apply to all foreign persons except investors from:
- US, NZ and Chile (general $1.094 billion threshold applies); and
- Thailand and Singapore ($50 million threshold applies).
All thresholds continue to be indexed annually.
Due to the difference between the treatment of certain foreign persons, it will be necessary to consider the country of origin of the foreign acquirer and the country of origin of the associates of the foreign acquirer. Given the real estate divestment order announced by the Federal Treasurer on 3 March 2015, investigation of an acquirer's country of origin is clearly on the Government's radar.
What is "rural/agricultural land"?
The term "agricultural land" is not defined in the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) or the Policy. Under the latest edition of the Policy the new threshold for FIRB review of agricultural land applies in relation to the "rural land". "Rural land" has long been defined in the FATA as land used wholly and exclusively for carrying on a business of primary production. Established forestry businesses are specifically included as "rural land" under the Policy.
However, in the Options Paper, the Government acknowledges some shortcomings in using the existing definition of "rural land". The Options Paper flags its intention to replace the definition of "rural land" and introduce a new, broader, definition for "agricultural land". This will require various amendments to the FATA, which will take some time. The Options Paper calls for submissions on an appropriate definition of "agricultural land".
More changes to look out for
A raft of further changes to the FIRB regime is canvassed in the Options Paper, including:
- a new $55 million screening threshold for foreign investment in agribusiness. This will require a definition of "agribusiness" (as opposed to "agricultural land"). That definition will be the key to how much more restrictive the proposed agribusiness screening rules will be compared to the current rules – at what point up the value chain will a business dealing with agricultural products cease to be an "agribusiness"? The Options Paper calls for submissions.
- a commitment to establish a foreign ownership register of agricultural land operated by the Australian Tax Office, in consultation with the State and Territory Governments.
- the introduction of fees for all FIRB applications. The Options Paper flags a fee for agricultural land (and residential land) applications – up to $5,000 for land worth less than $1 million and up to $10,000 for land worth more than $1 million (increasing in $10,000 increments for each $1 million of value).
- beefing up the penalty regime for breach of the foreign investment rules. Currently, the FATA only provides for divestment orders and criminal sanctions. The Options Paper proposes the increase of criminal penalties and the introduction of infringement notices (administrative fines) and civil penalties (fines imposed through the courts) for breaches of the foreign investment rules in relation to residential property. While toughening the residential property regime is the focus for now (because of a perceived level of non-compliance in that area), the Options Paper also mentions the possibility of extending the new sanctions to business, commercial real estate and agricultural investment applications.
- a strengthened compliance and enforcement regime in relation to residential property, involving much greater co-ordination between FIRB, Treasury and the Australian Taxation Office.
It seems tightening the foreign investment rules will remain a hot topic for a while to come. Those in the agribusiness and residential real estate sectors in particular should pay close attention as the details of the changes unfold. It may be worthwhile making submissions in response to the Options Paper – the closing date for submissions is Friday 20 March 2015.