The Australian Government has taken action to strengthen the integrity of the foreign investment framework.
According to a statement released by Prime Minister Tony Abbott and Treasurer Joe Hockey in early May:
“Foreign investment is integral to Australia’s economy and we welcome all investment that isn’t contrary to our national interest.
“After extensive consultations on our Options Paper, we’re announcing important reforms to foreign investment that will help to demonstrate that it’s for our country’s benefit.
“We’ll ensure stronger enforcement of new and existing foreign investment rules by transferring all residential real estate functions to the Australian Taxation Office (ATO).
“The ATO will use its data-matching systems to identify possible breaches and the Commonwealth will pursue those foreign investors who break the rules.
“Australia’s foreign investment regime generally doesn’t allow foreign investors to purchase existing residential properties.
“There will now be stricter penalties to make it easier to pursue foreign investors who breach the rules. Criminal penalties will be increased to $127,500 or three years’ imprisonment for individuals and to $637,500 for companies.
“Divestment orders will be supplemented by civil pecuniary penalties and infringement notices for less serious breaches.
“The government will also ensure that people who break the rules don’t profit by introducing a civil penalty to capture any capital gain made on divestment of a property.
“Third parties who knowingly assist a foreign investor to breach the rules will also now be subject to civil and criminal penalties, including fines of $42,500 for individuals and $212,500 for companies.
“Australian taxpayers will no longer foot the bill for screening foreign investment application applications. Fees will be levied on all foreign investment applications. For residential properties valued at $1 million or less, foreign investors will pay a fee of $5000. Higher fees will apply to more expensive residential properties as well as business, agriculture and commercial real estate applications.
“Australia’s foreign investment policy for residential real estate is designed to increase Australia’s housing stock, but lack of enforcement over recent years has threatened the integrity of the framework.
“We’ll enforce the rules, ensuring that all foreign investors follow the rules and don’t profit from breaking them. The government will introduce legislation into Parliament in the Spring Sittings to ensure the reforms will commence on December 1, 2015. There will also be increased scrutiny around foreign investment in agriculture and increased transparency on the levels of foreign ownership in Australia through a comprehensive land register.”
OVERVIEW OF THE REFORM PACKAGE
1. Stronger enforcement of the existing foreign investment rules by transferring all of the residential real estate functions to the Australian Taxation Office (between now and December 1, 2015). The Australian Taxation Office will improve compliance and enforcement through sophisticated data-matching systems and specialised staff with compliance expertise.
2. 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.
3. Application fees to ensure that Australian taxpayers no longer have to fund the cost of administering the screening of foreign investment applications.
4. Increased scrutiny around foreign investment in agriculture.
- From March 1, 2015, the screening threshold for agricultural land was lowered from $252 million to $15 million (cumulative).
- From December 1, 2015, a $55 million threshold (based on the value of the investment) for investments in agribusiness will be introduced.
5. 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 July 1, 2015.
- The government is in negotiations with the states and territories to use their land titles data to expand the register to include all land (including residential real estate).
6. A more modern and simpler foreign investment framework.
- The government will undertake further consultation on options to simplify the system.