Recent changes to the Government’s foreign investment policy and imminent changes to the legislation will have a major impact on foreign investment regulation in Australia, particularly in relation to investments concerning agricultural land.
Key changes proposed include:
- the transfer of all residential real estate functions of the Foreign Investment Review Board (FIRB) to the Australian Taxation Office (ATO) to enhance enforcement outcomes through data-matching;
- lowering the scrutiny threshold for investments in rural land, requiring approval where the value of the interests that a foreign person holds will exceed $15 million (cumulative upon existing holdings);
- implementation of a compulsory register of interests in agricultural land held by foreign persons;
- an amnesty period, allowing the avoidance of criminal prosecution and a twelve-month divestiture period if breaches are reported before 30 November 2015;
- stricter penalties for breaches of the legislation will apply from 1 December 2015, including:
- criminal penalties increased from $85,000 to $127,500 and from two to three years imprisonment for individuals and to $637,500 for companies;
- civil pecuniary penalties, calculated in part on the basis of the capital gain, may supplement divestment orders and infringement notices; and
- third parties who knowingly assist a foreign person to breach the rules will be subject to civil and criminal penalties, including fines of $42,500 for individuals and $212,500 for companies; and
- the imposition of application fees on foreign persons seeking approval or making notifications, beginning at $5,000 for residential properties valued at less than $1 million.
While some of the measures are still subject to consultation, they are broadly consistent with the approach the Government has been telegraphing recently, and published Government policy already includes many of them. Investors should therefore expect that these reforms are likely to be implemented in broadly the form proposed.
Agricultural Land Register
The new requirements would impose reporting obligations on foreign persons or foreign government investors in relation to "agricultural land" from 1 July 2015.
Foreign persons with any holdings of Australian agricultural land, regardless of value, are required to register those holdings with the ATO. This extends to:
- all existing holdings as at 1 July 2015; and
- any new holdings of Australian agricultural land, which must be registered within 30 days of acquisition.
"Agricultural land" is defined in the proposed Bill as “land in Australia that is used, or that could reasonably be used, for a primary production business”, subject to regulations under the proposed Bill. Land includes a building or a part of a building.
The new definition creates a further concept of ‘agricultural land’ to sit alongside the existing binary definitions of ‘land in Australia’, where ‘rural land’ means land used “wholly and exclusively” for carrying on a business of primary production, and all other land is “Australian urban land”.
The new concept of “agricultural land” is wider than “rural land”, bringing some land holdings that would not formerly have fallen within the notion of “rural land” into the registration regime.
Investment Disclosure Thresholds
Since 1 March 2015, the scrutiny threshold for foreign purchases of agricultural land by private sector investors has been lowered from $252 million to $15 million. Private foreign investors must 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.
Particular investors from countries with which Australia has free trade agreement commitments, such as the United States New Zealand, Chile, Singapore and Thailand (and, once a free trade agreement enters into force, China) are subject to different, non-cumulative thresholds and may in some circumstances be entitled to disregard the agricultural or agribusiness nature of their interests when considering their disclosure obligations.
The new requirements represent a very significant departure from the regulatory environment that has existed until now in relation to agricultural land. It is a response to the political sensitivity surrounding agricultural land, national sovereignty and perceived issues of food security.
Foreign investors who already hold interests in Australian agricultural land and agribusinesses now need to act promptly to avoid breaching the new requirements.