On Saturday 2 May 2015 Prime Minister Tony Abbott and Treasurer Joe Hockey made a joint announcement confirming that a raft of changes to the foreign investments rules will be introduced between now and 1 December 2015. Following on from the recent consultation process, this announcement reinforces the Federal Government’s continued focus on tightening the foreign investment rules, with a particular emphasis on foreign investment in the residential and agricultural sectors.
Reporting
As of 4 May 2015 the Australian Tax Office (ATO) will begin processing foreign investment data in relation to residential real estate, with the ATO expected to take over all the residential land acquisition functions of the Foreign Investment Review Board (FIRB) by 1 December 2015. The ATO’s better access to information (through data matching with various state and federal agencies, access to immigration and tax records) will mean that foreign investors who buy property without the correct FIRB approval are more likely to be identified and prosecuted.
Penalties
The announcement has also 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. It was announced that 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.
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 benefit 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).
Fees
From 1 December 2015 new foreign investment application fees will be introduced. There is no further information available concerning exactly what fees will apply to each type of investment, however the announcement stated that these fees would range from of AUD$5,000 to AUD$100,000. This cap on the application fee for business and agricultural land acquisitions is a welcome development following the proposed fee structure set out in the consultation paper released in February 2015 which suggested uncapped fees of up to 1% of the purchase price could be imposed for residential and agricultural land acquisitions. FIRB has however confirmed that the application fee for residential land acquisitions will be uncapped.
These fee announcements are separate from, and in addition to, the recently proposed changes announced in Victoria of a 3% tax on foreign investment into residential properties.
Conclusion
The Prime Minister and the Treasurer insisted in their announcement on Saturday 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. While the reforms are largely targeted at the residential real estate and agribusiness sectors, the substantial fees, increasingly complex foreign investment regime and greater scrutiny of foreign investment proposals generally will impact all sectors of the economy.
