In brief - Options paper now open for submissions
Changes to the Commonwealth government's foreign investment policy have been outlined in the options paper released on 25 February 2015, called Strengthening Australia's Foreign Investment Framework. The changes, if implemented, will affect property developers and foreign investors in Australia's agribusiness sector.
Options paper addresses policy changes, fees, developers and compliance
The options paper:
- proposes amendment of the current arrangements applying to property developers
- foreshadows the introduction of fees for applications for approval
- sets out enhanced compliance activities
- outlines a change of policy in relation to foreign investment in rural land and agribusiness
Lack of clarity around advanced off-the-plan certificates
The options paper contemplates that property developers seeking an advanced off-the-plan certificate will pay an application fee based on the number of dwellings sold to foreign investors. It is unclear whether the proposed fee is calculated on the value of each individual apartment or the aggregate value of the development that is sold to foreign purchasers.
This is best demonstrated by an example. If a developer under a certificate sells 100 units to foreign persons at $750,000 each, and the proposed fee is calculated on an individual basis, the fee levied will be $500,000 (100 x $5,000). However, if the proposed fee is based on the aggregated value ($75 million) of the development sold to foreign purchasers, the fee will be $750,000 ($50,000 plus $10,000 for each additional million above $5 million). If the developer pays this fee, the foreign purchaser would not be liable to pay the fee.
The proposal is also unclear in respect of the timing for payment of the application fee, i.e. will it be paid when the developer applies for the certificate or at the time of exchange or settlement? As the number of foreign purchasers will not become absolutely clear until settlement, further clarification on this issue is required.
Property developers may be subject to sale threshold and penalties for breaches
The options paper proposes that developers will be unable to sell more than $3 million worth of apartments in any one development to a foreign person, even if they have an advanced off-the-plan certificate. Therefore, if foreign investors want to purchase apartments above this value, they would be required to seek individual approval.
Consistent with other areas, the options paper proposes the introduction of civil and criminal penalties for developers who do not market apartments domestically or breach the reporting requirements associated with the approval of the advanced off-the-plan certificate.
Rural land investment approval threshold to be reduced and cumulative
With effect from 1 March 2015, the basic investment threshold for acquisitions of rural land requiring approval of the Treasurer under Australia's foreign investment policy will be reduced to $15 million.
Presently, non-government foreign investors, who do not have the benefit of a more generous threshold under a free trade agreement, may acquire rural land in Australia without approval where it is below a threshold of $252 million.
Under the current terms of the policy, "rural land" is land used wholly and exclusively for carrying on a business of primary production. To be a business of primary production, the business must be substantial and have a commercial purpose or character. This includes production resulting from the cultivation of land, animal husbandry/farming, horticulture, fishing, forestry, viticulture or dairy farming.
The proposed new threshold will be cumulative. For example, if $10 million of rural land is already owned, a proposed further rural land purchase of $5 million or more will require Foreign Investment Review Board (FIRB) approval.
Thresholds for non-government foreign investors clarified
Under existing free trade agreements and the proposed China free trade agreement, thresholds for non-government foreign investors from relevant countries have been clarified and will apply as follows:
- China, Japan and Korea will be subject to the lower $15 million cumulative threshold.
- Singapore and Thailand will have a $50 million threshold.
- The United States, New Zealand and Chile will have a $1,094 million threshold.
There is no change proposed to the policy that foreign government investors must seek approval for acquisitions of rural land, irrespective of value.
Foreign ownership of land register and greater monitoring by tax office
In addition to the above changes, the government has announced the following measures in relation to foreign acquisitions of agricultural land:
- The government will establish a foreign ownership register of agricultural land to strengthen reporting requirements and provide a clear picture of foreign investment in Australia’s agricultural sector.
- From 1 July 2015, the Australian Tax Office (ATO) will collect information on all new foreign investment in agricultural land regardless of value.
- The ATO will also commence a stocktake of existing agricultural land ownership by foreign entities.
This information will be collected from land title transfer information.
Scope of approval process to be broadened
The options paper proposes:
- introducing a new screening threshold of $55 million for "agribusiness" investment (potentially incorporating a very broad definition of "agribusiness" to cover first stage downstream businesses such as meat processing)
- legislative changes to incorporate a broader definition of "agricultural land" to capture land used for multiple purposes or land that is suitable but not currently used for agriculture
Prospective foreign purchasers of rural land should be aware of these policy changes and, until the final nature of the changes is known, act to ensure contracts are conditional upon securing any necessary approval under the FIRB regime.