STRENGTHENING AUSTRALIA’S FOREIGN INVESTMENT FRAMEWORK

The new changes to Australia’s foreign investment framework as as follows:

Changes to Australia’s foreign investment framework will strengthen the rules for residential real estate and agricultural investments. There are six key elements to the reforms, which take effect on 1 December 2015 unless otherwise stated:

Compliance and enforcement of the foreign investment rules will be strengthened by transferring all residential real estate functions to the Australian Taxation Office between now and 1 December 2015. The Australian Taxation Office will improve compliance and enforcement through sophisticated data-matching systems and specialised staff with compliance expertise.
Stricter penalties that will make it easier to pursue foreign investors that breach the rules.
- The existing criminal penalties (which will be increased from $85,000 to $127,500 for individuals) and divestment orders will be supplemented by civil pecuniary penalties and infringement notices for less serious breaches of the residential real estate rules.
- Third parties who knowingly assist a foreign investor to breach the rules will also now be subject to civil and criminal penalties.
- A Reduced Penalty Period will apply until 30 November 2015 to encourage investors that have breached the rules to voluntarily come forward.
Application fees to ensure that Australian taxpayers no longer have to fund the cost of administering the screening of foreign investment applications.
Increased scrutiny around foreign investment in agriculture.
- From 1 March 2015, the screening threshold for agricultural land was lowered from $252 million to $15 million (cumulative).
- A $55 million threshold (based on the value of the investment) for investments in agribusiness will be introduced to capture certain downstream activities with links to primary production.
Increased transparency on the levels of foreign ownership in Australia through a comprehensive land register.
- An agricultural land register with information provided directly to the Australian Taxation Office by investors will be established from 1 July 2015.
- The Government is in negotiations with state and territory governments to use their land titles data to expand the register to include all land (including residential real estate).
A more modern and simpler foreign investment framework. The Government will undertake further consultation on options to simplify the system.

Source: http://www.firb.gov.au/

Foreign investment threshold changes and application fees

Real estate investments

Type of investor	Type of acquisition	Previous threshold	New threshold	Application Fee from 1 December 2015
All investors (unless exempt)	Residential properties valued at $1 million or less	$0	$0	$5,000
	Residential properties valued at greater than $1 million	$0	$0	$10,000 (then $10,000 incremental fee increase per additional $1 million in property value)
	Advanced off-the-plan certificates	$0	$0	$25,000 upfront, with a six monthly reconciliation of properties sold to foreign persons based on rates above
	Annual Programs	$0	$0	$25,000 (or $100,000 where proposed investment is greater than $1 billion)

Investment in the business, commercial real estate and agriculture sectors

Type of investor	Type of acquisition	Previous threshold	New threshold	Application Fee from 1 December 2015¹
Privately owned investors from FTA partner countries that have the higher threshold	Developed commercial real estate (including heritage-listed properties)	$1,094 million (indexed annually)	$1,094 million (indexed annually)	$25,000
	Vacant commercial land	$0	$0	$10,000
	Business acquisitions in non-sensitive sectors²	$1,094 million (indexed annually)	$1,094 million (indexed annually)	$25,000 (or $100,000 for business acquisitions where the value of the transaction is greater than $1 billion) $10,000 if an internal reorganisation
	Business acquisitions in sensitive sectors³	$252 million (indexed annually)	$252 million (indexed annually)	$25,000 (or $100,000 for business acquisitions where the value of the transaction is greater than $1 billion) $10,000 if an internal reorganisation
	Rural land	$1,094 million (indexed annually)	$1,094 million (indexed annually) for US, NZ and Chile. $15 million (cumulative) for China, Japan and Korea.⁴	Rural land less than $1 million: $5,000
	Rural land	$1,094 million (indexed annually)		Rural land equal to or greater than $1 million: $10,000, (then $10,000 incremental fee per additional $1 million in rural land value, capped at $100,000)
	Agribusinesses	$1,094 million (indexed annually)	$1,094 million (indexed annually) for US, NZ and Chile. $55 million (indexed annually) for China, Japan and Korea.⁵	$25,000 (or $100,000 for agribusiness acquisitions where the value of the transaction is greater than $1 billion)
Privately owned investors from non-FTA countries and FTA countries that do not have the higher threshold	Developed commercial real estate	$55 million (indexed annually)	$55 million (indexed annually)	$25,000
	Heritage-listed developed commercial real estate	$5 million	$5 million	$25,000
	Vacant commercial land	$0	$0	$10,000
	Business acquisitions in (sensitive and non-sensitive sectors)	$252 million (indexed annually)	$252 million (indexed annually)	$25,000 (or $100,000 for business acquisitions where the value of the transaction is greater than $1 billion) $10,000 if an internal reorganisation
	Rural land	$252 million (indexed annually)	$15 million (cumulative)4 $50 million for Singapore and Thailand⁶	Rural land less than $1 million: $5,000
	Rural land	$252 million (indexed annually)		Rural land equal to or greater than $1 million: $10,000, (then $10,000 incremental fee per additional $1 million in rural land value, capped at $100,000)
	Agribusinesses	$252 million (indexed annually)	$55 million (indexed annually)	$25,000 (or $100,000 for agribusiness acquisitions where the value of the transaction is greater than $1 billion)
Foreign Government Investors	All direct investments (regardless of the sector)	$0	$0	Based on the applicable fee above.
	New business proposals	$0	$0	$10,000
	Interests in land (including rural land)	$0	$0	Based on the applicable fee above.

If you are a foreign purchaser and you acquire residential property, you must pay additional duty of 3 per cent. This additional duty applies to contracts, transactions, agreements and arrangements entered into and settled on or after 1 July 2015.

For example, you will not pay the additional duty if you entered into a contract to purchase residential property on 30 June 2015 that has a settlement date of 30 September 2015.

Where you have entered into a contract to purchase residential property before 1 July 2015 but nominate a foreign purchaser to take a transfer right of the property on or after 1 July 2015, additional duty may apply to the transfer.

When does additional duty apply?

The additional duty applies to any arrangement or transaction that involves the transfer of interest in residential property. These include:

Buying a residential property at, for example, auction or by private sale,
Being given a residential property as a gift,
Certain leasing arrangements,
Transfers of interests in a deceased estate

The duty applies even if you only acquire part of, or a part interest, in the property. It also applies to relevant acquisitions in a landholder that holds residential property.

Where a foreign purchaser is exempt from paying land transfer or landholder duty, that purchaser will also be exempt from paying additional duty. Foreign purchasers are not entitled to a duty concession or a concessional rate of duty in respect of the additional duty payable.

Example A: Exemption applying in respect of additional duty

In his last will and testament, Joe has bequeathed all his assets, including two properties in Victoria, to his sister Joan, who is a foreign natural person.

The transfer of the two properties to Joan pursuant to Joe’s will is exempt from land transfer duty. Joan will also be exempt from paying additional duty.

Example B: Duty concession not applying when additional duty is payable

Kate, a foreign natural person, is transferred residential property bought off-the-plan for $500,000 which she intends to occupy as her principal place of residence (PPR). Kate is eligible for the PPR and the off-the-plan concession on the land transfer duty payable.

Additional duty is payable even though a concession may apply. Kate will be liable for the additional duty calculated at the rate of 3 per cent on the dutiable value of the property of $500,000.

Nominations and sub-sale events

Additional duty will apply where a foreign purchaser is nominated to take a transfer of residential property and that nomination is executed on or after 1 July 2015 and the nomination triggers a sub-sale event. This is the case even if the sale contract was entered into before 1 July 2015.

Where a person is nominated to take a transfer under an off-the-plan contract this arrangement will trigger a sub-sale event (as there has been land development). In this situation land transfer duty is, generally, only charged on the transfer to the nominated person. Therefore, where a foreign purchaser is nominated to take a transfer of residential property under an off-the-plan contract and that nomination occurs on or after 1 July 2015, additional duty will apply.

Where a nomination does not trigger a sub-sale event (i.e. no additional consideration and no land development) the transaction will be considered to have been entered into on the date of the contract and not the date of the nomination. In this case, additional duty will not apply in respect of a nomination made in respect of a contract entered into before 1 July 2015.

Find out more information here: New Foreign Buyer Tax Now Live In Victoria, Australia