The Foreign Investment Review Board (FIRB) arena is undergoing a major revamp through a bill presently being debated in the Federal Parliament. The bill, if passed, will bring a timely change to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (Act), which is now 40 years old, especially in light of significant changes to the foreign investment landscape.

There has almost been a wholesale rewrite of the Act. Previously, the FIRB policy (usually updated annually) would set out thresholds and policies in place. The new Act together with new regulations will incorporate matters previously set out in the policy document. New legislation to impose fees will also be introduced. The effective date of the changes is expected to be 1 December 2015.

The notable changes foreigners need to consider are:

Fees

Previously, FIRB applications were free. There will now be fees charged for FIRB applications, generally ranging from $5,000 to $100,000. This will need to be factored into transactional costs. Property developers, for example, will also be impacted by the fees imposed when they sell ‘off the plan’ to foreign purchasers.

Penalties

The penalties for breach under the Act are significantly increased. Generally, the penalties are to be three years imprisonment or 750 penalty units ($135,000) for individuals. The penalty amount for corporations is five times those for individuals ($675,000). There are also civil penalty provisions for various breaches, generally  at 250 penalty units ($45,000).

Substantial interest

The general substantial interest threshold is increased from 15% to 20%, where acquisitions below the threshold do not require FIRB approval. This will be welcomed by foreign investors that only intend to invest below 20% and is now in line with the takeover provisions under the Corporations Act 2001 (Cth).

Thresholds

The new thresholds are set out in the regulations to the Act. The main changes relate to the acquisition of agricultural land (reduced from $252 million to an aggregate threshold of $15 million), agribusiness (new threshold of $55 million) and developed commercial land (generally increased from $54 million to $252 million).

Australian urban land corporations

An exemption has been included in the regulations to the Act so that if the land entity is listed for quotation in the official list of a stock exchange (whether or not in Australia), then subject to certain conditions, an acquisition of up to a 10% share in the land entity is exempt. This facilitates the listing of companies (whose main assets are Australian urban land) in a foreign stock exchange.

ATO

The Australian Taxation Office (ATO) is responsible for regulating foreign investment in residential real estate. The data matching capability of the ATO is intended to assist in monitoring breaches of the Act by foreigners.

This is just a snapshot of the main changes proposed. The amendments to the Act are still to be debated in Parliament, likely in the next sitting day on 23 November 2015.

The full effect of the proposed changes is yet to be seen and there may be some practical teething issues in the implementation process. The issues can be quite technical and a detailed analysis of each situation with possible FIRB issues should be done. This is especially in view of the increased penalty provisions.