Changes to Foreign Investment Property Laws
The new changes in the foreign investment framework are the most significant changes to the framework in over 40 years, click through to read more about how these may impact your next investment or development.
In the 2013-14 financial year, foreign investment approvals were given for $167.4 billion of proposed investment. This represented a 23.4 per cent increase on the $135.7 billion in proposed investment approved the year prior.
Given this unprecedented increase in foreign investment, the old framework could not properly hold up.
The major considerations in mind when developing the new framework were:
- National security;
- Other Australian Government polices (such as tax);
- National economy; and
- Individual investor’s character.
There are many changes in the new framework, and we discuss three of the more significant changes below:
1. The Australian Taxation Office (ATO) regulator
The ATO has been given responsibility to regulate foreign investment in residential real estate with a funding boost from the Federal Government circa $47.5m to improve and strengthen the compliance and enforcement of the new framework, including the introduction of ATO compliance officers, who have the power to investigate and action suspected breaches.
In a bid to identify such breaches, the ATO now matches its own data with a variety of other government agencies, such as the Foreign Investment Review Board (FIRB), immigration, AUSTRAC, banking data and, soon, state and territory land title data.
2. Imposition of more severe penalties
The penalty regime has also been reviewed, with new infringement notices introduced for less serious breaches relating to residential real estate rules, through to an increase in criminal penalties from $90,000 to $135,000 for individuals.
Third parties may also now be subject to both civil and criminal penalties. A third party who knowingly assists a foreign investor to breach the rules will now be penalised.
The severity of the penalties are largely to limit individuals and third parties from profiting by breaching the rules, as some had done in the past.
Where there have not been any major changes to specific sectors, there still has been an imposition of harsher penalties. For example, business investment has not seen any changes to the framework, but now has a new fee structure, increased criminal penalties and the new civil pecuniary orders.
3. Introduction of application fees
Foreign investors will now have to pay upfront application fees (between $5,000 - $25,000+) in order to apply with the FIRB for permission to invest. The fees were introduced to ensure that Australian tax payers are no longer funding the framework.
The reforms have also limited the value of all apartments that can be bought by an individual foreign investor or a property developer, who has obtained a new dwelling exemption certificate. The threshold is now $3 million in total for each foreign investor. If a foreign investor wishes to purchase apartments above this threshold, they now need to apply for individual approval.
Property developers can also apply for a certificate to sell new dwellings in a development of 50 or more residences to foreign investors.
These are just a few of the many significant changes to foreign investment in Australia, with others including increased scrutiny around foreign investment in agriculture and streamlined procedures and rules.
If you think you may be impacted as an investor or developer and would like further information about the changes to the foreign investment framework, contact Lachlan Cloak for a quick chat about your options.