The long awaited changes to Australia's foreign investment regime have now been introduced into Federal Parliament, and are expected to be law in December 2015.
Consistent with the Government’s statements, the aim of the new regime has two aims:
A new fee structure will also commence for all foreign acquisitions of property.
The new enforcement regime
Breaches of the new rules may result in:
A “significant action” as defined under regulation includes:
“Acquisition” is broadly interpreted to include entering into an agreement or option (or materially altering it) including where it is dependent on the fulfilment of a condition.
A Notifiable action as defined under regulation includes:
Unless an exemption applies, Notification requirements apply to all Australian land, including agricultural land, commercial land, residential land or a mining or production tenement.
A lease or licence for less than 5 years is not an interest in land.
The monetary thresholds that must be reached for an action to be classified as a significant action in relation to entities and businesses that are not agribusinesses are:
The China-Australia Free Trade Agreement makes it likely that China will be added to the $1,094 million category.
These thresholds do not apply if the significant or notifiable action has been prescribed by the Regulations, for example an action by a foreign government investor.
Thresholds for land
The monetary thresholds for land (for both significant actions and notifiable actions) are:
Investors from USA, NZ, Chile or an enterprise or national of Singapore or Thailand are exempt from applying for approval to acquire agricultural land.
The Regulations may expressly exclude the monetary threshholds in some rare instances-such as some acquisitions of land from the Commonwealth.
Upon notification of a “significant action”, the Treasurer has 30 days to:
The consequence of failing to inform the Treasurer of a significant action, is that the Treasurer may make a disposal order blocking or unwinding the significant action if the Treasurer determines that the significant action is contrary to the national interest.
An acquisition which is a “notifiable action” cannot proceed unless the Treasurer gives his approval, and then only subject to the conditions of that approval.
The Treasurer can make a Disposal order if notifiable actions proceed without approval.
Exemptions and exclusions
There will be exemptions and exclusions to the obligations to notify.
For instance, notification is not necessary:
Some New Definitions
A “foreign person” includes:
Although a "foreign person" includes expatriate Australians, the Regulations exclude the application of the Act for land acquisitions by Australian citizens not ordinarily resident in Australia.
A substantial interest means:
An aggregate substantial interest is where:
Two or more persons hold:
Agricultural land means Land in Australia that is used, or that could reasonably be used, for a primary production business consistent with the Income Tax Assessment Act. This is broader than the current concept of "rural land" being land in Australia used wholly and exclusively for carrying on a business of primary production.
Agribusiness has been expanded to capture primary production businesses plus certain downstream activities with links to primary production. Acquisitions of a direct interest in agribusiness over $55 million (with exceptions for investors from the USA, New Zealand and Chile) will need to be notified to the Treasurer.
Fees for notices
Application fees will be introduced for notifications of acquisitions, applications for exemption certificates and variations to exemption certificates and objection notices.
Notifications for both residential and agricultural land start from $5,000. Exemption certificates (some were previously referred to as advanced off-the-plan certificates) and investments in commercial real estate, business and the agriculture sectors, as well as acquisitions of direct interests in agribusiness and acquisitions of securities or assets in an entity or Australian business, will attract application fees from $25,000.
Exemption certificates for the sale of off-the-plan new dwellings will also attract a further fee payable every six months based on the number of foreign sales achieved in that six month period.
Transparency-a Register for agricultural land
All foreign persons who hold interests (including a right to occupy under a lease or licence likely to exceed 5 years) in agricultural land as at 1 July 2015 must register those interests by 31 December 2015 with the Australian Taxation Office (ATO) regardless of the value of that land. The national register to be made available to the public in 2016.
Penalties for offences
The Bill introduces harsh criminal and civil penalties including:
Developers holding exemption certificates and who fail to advertise their new dwellings in Australia in accordance with the conditions of their exemption certificate are subject to penalty.
The penalty for a foreign person (who is not a temporary resident) failing to notify the acquisition of an existing dwelling or not complying with a condition of acquisition is the greater of:
Penalties paid will not be deductible for the purposes of calculating capital gain tax payable to the ATO.
Infringement notices will be introduced for individuals and companies.
Third Party Liability
Third parties such as company officers, lawyers, accountants and real estate agents run the risk of incurring penalties if they assist in any breaches of the new regime.
Setting up sham companies for foreign persons, holding interests on trust for foreign persons and being a party to such conduct will be a significant risk.
For third parties subjected to such prosecution or penalties, it is also unlikely that any professional insurance will cover any such liability.
Charges upon Land
Unpaid penalties for failure to notify, for entry into agreements in contravention of the law, for contravening an order or for contravening a condition will result in a charge against the land.
Such charges upon the land will need to be cleared before transfer of the land much like the charge for unpaid land tax or council rates.
Changes to withholding tax
From 1 July 2016, purchasers of certain types of Australian property will be required to pay 10% of the purchased price to the ATO as a non-final withholding tax if they know, or have reason to believe, the vendor is a foreign resident, and the property is:
There are exceptions, such as transactions on the stock exchange, or residential property under $2.5 million (excluding vacant land).
What do the new changes mean for you?
If you are a person who deals with foreign buyers-whether as an agent or professional adviser-you need to know about the new rules. These changes introduce a new range of enforcement options and penalties which may result in your clients or yourself being exposed to liability.
Getting the right advice about structuring a transaction will be more important than ever before.
How can we help?
If you work with foreign buyers or are a foreign person proposing to enter into a purchase of Australian property, we can help with the new regime and offer guidance and assistance to ensure that you comply with your obligations before entering into any agreements.
For further information and advice on foreign investment, contact Michael Sing.
Michael Sing - Special Counsel
P 07 3009 8444 D 07 3009 8472 F 07 3009 8499