The long awaited change to the screening threshold of foreign purchases of agricultural land was announced on 11 February 2015 in a joint press release by Prime Minister Tony Abbott, Agriculture Minister Barnaby Joyce and Treasurer Joe Hockey.
Under the proposed new rules, foreign investors are far more likely to require prior approval from the Foreign Investment Review Board (FIRB) before being allowed to buy Australian farms. Foreign investors include offshore entities and individuals as well as local companies with foreign shareholdings above the relevant thresholds (i.e 15% individually or 40% cumulatively). FIRB will only approve a farm acquisition by a foreign investor if it is not contrary to the Australian national interest.
The changes will affect the purchase of land that is used wholly and exclusively for carrying on a business of primary production (Rural Land). Currently, foreign investors can purchase Rural Land valued up to $252 million without the prior approval of FIRB. This threshold applies to each separate acquisition by a foreign investor and is not restricted by the cumulative value of Rural Land already held by that foreign investor.
THE POSITION FROM 1 MARCH 2015
From 1 March this year, any acquisition of Rural Land by a foreign investor with a total portfolio of Rural Land valued at more than $15 million (including the proposed purchase) will require prior FIRB approval. This is a significant change to the current investment policy as foreign investors will need to seek approval for even the smallest acquisitions of Rural Land if their total holding of Rural Land is valued at $15 million or more – regardless of where the Rural Land is located and what it will be used for following the purchase.
The press release also confirmed the establishment of a national foreign ownership of land register which will be used by the Government to monitor foreign investment in Rural Land. In an effort to ensure that all foreign ownership of Rural Land is captured in this register, the relevant information will be collected from the Australian Taxation Office and each State and Territory’s land titles offices.
HOW DO THESE CHANGES IMPACT YOU?
The Government has confirmed that it still welcomes foreign investment in Australia and the practice of FIRB to approve the vast majority of proposed foreign investment into Australia supports that claim. As the Government’s approach continues to be that foreign investment is generally good for the Australian economy, it remains unlikely that the new rules and the increased scrutiny by FIRB will result in many proposed farm acquisitions being rejected. In the past, the Government has made it clear that they are most concerned about investment into farmland by foreign governments as this raises issues of food security, however these types of proposals are already subject to stricter FIRB notification requirements and will be largely unaffected by the changes.
In the short term, the biggest practical impact that is likely to be felt from these changes to the rules is the increased time and cost associated with farm purchases by foreign investors due to the requirement to obtain FIRB approval. This is highlighted by the recent proposal for FIRB to impose a fee of up to $1,500 per application.
Importantly for foreign investors, failure to meet the new notification requirements will potentially result in significant penalties.
Finally, the new rules will result in significantly more applications being lodged with FIRB. We expect that this increased workload will result in FIRB taking longer to make decisions and provide approvals (noting that generally the time frame for approval is 40 days, but if the circumstances require, this timeframe may be extended by a further 90 days). Therefore, to ensure you receive the necessary approval within the required time for your transaction, foreign investors looking to acquire Rural Land will need to consider these changes at the commencement of negotiations.