Investors looking to acquire an interest in Australian agricultural land will have to comply with new regulations in the wake of the Australian Government's changes to its Foreign Investment Policy. While there is no suggestion that the Government will limit foreign ownership of Australian real estate, it has introduced a number of changes to enable improved monitoring of foreign investment.
APPROVAL NOW REQUIRED FOR THE ACQUISITION OF RURAL LAND VALUED AT OVER $15 MILLION
The Australian Government has long required foreign investors to seek approval from the Australian Foreign Investment Review Board (FIRB) before buying rural properties over a certain value. In the past, this value was $252 million, which meant that only a limited number of rural land investments required Government approval. On 1 March 2015, the threshold dropped to $15 million.
The type of rural properties that this threshold currently applies to are properties used 'wholly or exclusively for carrying on a business of primary production', but the Government has flagged that this may soon be expanded to include land that 'could reasonably be used' for a primary production business.
The investors to whom it applies include:
- individuals not ordinarily resident in Australia (foreign individuals);
- corporations in which a foreign individual or corporation holds at least 15% of the shares or voting power; and
- corporations in which foreign individuals or corporations collectively hold at least 40% of the shares or voting power.
The $15 million threshold does not apply to acquisitions by persons or entities from the United States, New Zealand, Singapore, Thailand or Chile as Australia's Free Trade Agreements with these countries provide higher investment thresholds.
Importantly, the threshold applies to the cumulative value of Australian rural landholdings, meaning a proposed acquisition worth less than $15 million will still require approval from the FIRB if it will cause the total value of the investor's Australian rural landholdings to exceed the threshold.
AGRICULTURAL LAND REGISTER
A new register of agricultural land ownership will be introduced from 1 July 2015 to assist in monitoring investors' reporting requirements and providing a more meaningful indicator of the state of foreign investment in Australian agriculture. The Australian Government has also indicated that investors will be required to comply with certain notification rules, including notifying the Australian Taxation Office of the acquisition or disposal of significant Australian rural land interests within 30 days.
Further changes to the foreign investment policy include:
- the introduction of fees in respect of FIRB applications - for example, the acquisition of a $15 million rural property will attract a fee of $100,000;
- a new screening threshold of $55 million for foreign investment in agribusiness; and
- a number of reforms to the regulation of foreign investment in residential real estate - these include new and increased civil and criminal penalties for breaches of the residential real estate rules.
The Australian Government has indicated that these reforms are to commence on 1 December 2015.
The obvious upshot of the policy change is that more transactions will be subject to the FIRB's review processes. Coupled with the current high level of foreign interest in Australian landholdings, the policy will put pressure on the FIRB and, in particular, its ability to process applications in a timely manner.
Given the considerable immediate benefits that foreign investment presents to the Australian economy, our expectation is that the FIRB will not adopt a more restrictive approach when reviewing property investment applications. Rather, it appears that the key intended outcome of the changes is a system of improved accountability and transparency.
There has been some speculation about whether the new rules will bring about any change in foreign investment behaviour, as small to mid-market international transactions begin to involve the kind of compliance regime that was previously only faced by parties to acquisitions in the hundreds of millions of dollars. Again, it is our expectation that this is unlikely to be the case as most international investors are used to factoring in this kind of compliance to their cost base.
McCabes has not observed any noteworthy change in the approach, or time, taken by FIRB in considering the rural land acquisitions in which we have been involved since the rules were changed. Despite this, we recommend foreign investors allow some additional time and costs to ensure compliance with the new rules.