On Monday, 29 June 2015 Foreign Investment Review Board (FIRB) released an amended ‘Australian Foreign Investment Policy - June 2015’ (Policy). The Policy contains some additional obligations on foreign investors effective from 1 July 2015.
Register for foreign ownership of agricultural land
As of 1 July 2015 the Policy requires that all foreign persons (including foreign government investors) that currently hold an interest in agricultural land must register that interest with the Australian Tax Office (ATO), regardless of the value of the interest, by 31 December 2015. This will apply to foreign investors that previously purchased agricultural land even if at the time the acquisition was not subject to FIRB approval (for example if the acquisition fell below the notification threshold or if the investor was not foreign at the time the land was acquired).
This is a positive obligation that is triggered automatically (i.e. not just on the acquisition of further interests in agricultural land). Moving forward, whenever a foreign person obtains an interest in agricultural land, regardless of value, they will need to register that interest with the ATO within 30 days. Registration is to occur via the following web portal on the ATO website - www.ato.gov.au/aglandregister.
There is currently no penalty for failing to register, but once these changes are incorporated into the legislation it is likely there will be penalties imposed for a failure to register an existing or new interest. FIRB anticipates these changes to be incorporated into the legislation by 1 December 2015.
Further, as this is a nationally run registration process and arrangements are yet to be worked out with all the States, the existing foreign ownership of land registration process in Queensland (being the only State with a foreign ownership register currently) will not excuse Queensland holders of agricultural land from registering under this new regime.
Definition of agricultural land
These new foreign ownership registration requirements relate to ‘agricultural land’ which is defined as ‘land in Australia that is used, or that could reasonably be used, for a primary production business’. This is a new concept under the foreign investment rules. Presently, under the Foreign Acquisition and Takeovers Act 1975 (Cth) (Act) ‘Australian rural land’ is defined as any ‘land that is used wholly and exclusively for carrying on a business of primary production’. This narrow definition often excludes land which would ordinarily be considered farm land (for example, if the land is predominantly, but not solely used for farming) the new rules set out in the Policy use the broader concept of ‘agricultural land’.
This broader definition of ‘agricultural land’ is also expected to be adopted when the $15 million aggregate landholding threshold for farm land acquisitions (that was introduced through amendments to the Policy with effect from 1 March 2015) is formally legislated (which is expected by 1 December 2015).
Off the plan approval
Developers of new residential developments of 100 dwellings or more are able to obtain FIRB pre-approval for sale to foreign buyers (in which case the buyers themselves did not need to get their own approval). This pre-approval is subject to the developer marketing the residences for sale in Australia as well as offshore. Under the amended Policy, a further restriction has been imposed on these pre-approvals in that no foreign investor, together with their associates, can acquire land valued at more than $3 million in any one development under the pre-approval. This means that a foreign person will need to apply separately for FIRB approval if they wish to buy an interest or interests in the same development valued above $3 million. Importantly, FIRB has confirmed that this restriction will not be imposed retrospectively so any existing pre-approvals issued before 1 July 2015 will not be subject to this $3 million cap.
Established housing (second hand dwellings)
The Policy has also expanded on the definition of ‘non-resident foreign person’ for the purposes of the acquisition of established second hand dwellings. A foreign person is now taken to include ‘individuals, foreign companies, Australian companies controlled by foreign persons and trustees of trusts for the benefit of a foreign person (irrespective of whether the trust is set up in Australia or elsewhere).’ This is designed to address some perceived shortcomings in the current definitions in the Act and this amendment is expected to be reflected in the legislative changes proposed for 1 December 2015.
The above changes are a part of the ongoing review and amendment of the foreign investment rules that is currently being undertaken by the Federal Government.
The staggered start dates of the changes to the Policy and the legislation, increased compliance obligations, reduced thresholds for compulsory notification and proposed substantial penalties (coupled with the additional investigation and compliance work that FIRB and the ATO are already undertaking) means that more than ever, FIRB should be a primary consideration for any foreign investors seeking to invest in Australia.
Additional details relating to foreign investment rules (including both the recent changes to the Policy and the proposed changes to the legislation) are available on the McCullough Robertson website.