2015 Foreign Investment Reform

In 2015, the Australian government implemented the most significant reforms to Australia’s foreign investment framework in over 40 years, which took effect from 1 December 2015. Over the past 10 months, our legal practice has witnessed a concerning level of misunderstanding of these new rules. We aim to summarise the important aspects of the current Foreign Investment Review Board (FIRB) requirements relating to real estate investments.

Over the past 10 months, since TST Partners Group established its legal practice, we have noticed a significant lack of client understanding with regards to Australia’s new foreign investment rules. This partly stems from having a  limited access to qualified Australian legal advice outside of Australia (especially in China). Many investors end up relying on advice from real estate agents and conveyancing firms, consequently, entering into contracts before receiving proper qualified legal advice.

 

WHO IS CONSIDERED A “FOREIGN PERSON”?

 

Individuals

 

“Foreign Person” is a person who:

  1. is Not an Australian Citizen AND
  2. is Not “ordinarily resident” in Australia.

“ordinarily resident” means (in most circumstances):

(a)       having been in Australia for 200 or more days in the period of 12 months immediately preceding the purchase  AND
(b)       holding a permanent residency visa.

This means, in most circumstances, you must either be an Australian citizen, or hold a permanent resident (PR) visa. If you hold a PR visa, you must have lived in Australia for at least 200 days within the 12 months before signing the contract.

 

Companies & Trusts

i)  A company or trust which has a “foreign person” who holds alone or together with one or more associates an interest of 20% or more in the shares of a company or trust;
ii) Where two or more “foreign persons” who are not associates, hold an aggregate interest of at least 40% in the corporation or trust.

Discretionary / Family Trusts 

A discretionary/family trust which has at least one potential beneficiary who is considered a “foreign person”, regardless of the status of the trustee. Any potential beneficiary who is a “foreign person” is taken to have 100% interest in the trust. Local clients should therefore exercise caution when purchasing a property under a discretionary/family trust.

WHAT CAN “FOREIGN PERSONS” PURCHASE

Investments normally approved by FIRB:

  • New dwellings from new housing stock are normally approved without conditions
  • Vacant land subject to the construction of a dwelling within a period of 4 years.

Investments FIRB considers an approval with conditions:

  • Established dwellings for re-development (involving a demolition of the existing dwelling and a new build) where this involves an increase in Australia’s housing stock
  • Established dwellings for foreign persons operating an Australian business who require property to house their Australian based staff.

Investments FIRB will normally reject:

  • Established (i.e. second-hand) properties as either homes or investment properties.

FIRB APPLICATION PROCESS & FEES

Potential foreign real estate purchasers will be required to submit an application to the Foreign Investment Review Board (FIRB) seeking approval of the proposed purchase (depending on the type of land that is purchased) prior to signing of contract. This is usually done by the purchaser’s solicitor or conveyancer.

Application Fees: 

Value (AUD)

Application Fee (AUD)

Less than $1,000,000

$5,000

$1,000,000 to $1,999,999

$10,000

$2,000,000 to $2,999,999

$20,000

$3,000,000 to $3,999,999

$30,000

$4,000,000 to $4,999,999

$40,000

$4,000,000 to $5,000,000

$50,000

$5,000,000+

$50,000 + $10,000 per $1m

COMPLIANCE AND ENFORCEMENT

The Australian Taxation Office (ATO) regulates foreign investment in real estate. Foreign persons and third parties who knowingly assist a foreign person to breach FIRB requirements will face criminal and new civil penalties, as well as be forced to sell the property. Criminal penalties range from $135,000 - $675,000 being the maximum fine and/or 3 years imprisonment.

2014 STATISTICS

Foreign Investment (across all investment classes)

  1. USA     $163b
  2. UK        $87b
  3. Japan   $66b
  4. China    $30b
  5. Canada $23b

CONCLUSION

We recommend all non-Australian citizen purchasers of Australian real estate to seek independent legal advice from an Australian Lawyer prior to signing a contract of sale.

TST Partners Lawyers specialises in conveyancing for local and foreign real estate purchasers and can advise you of how best to comply with the FIRB’s requirements.

Authors: 

Calvin Augustine LLB (Hons) | Lawyer, TST Partners Lawyers | caugustine@tstgroup.com.au
Francis Gu BCom (Finance) | Managing Director, TST Partners Group | francisgu@tstpartners.com.au
Phone: +61 3 8080 1525 | Fax: + 61 3 8678 1026

Sources:

Tisher, J. & Inglis, C. (2016). Foreign Investment: A Shifting Landscape. Law Institute Journal, August 16, 23-27.
Foreign Investment Review Board - Guidance Note 5 Version 1: November 2015
Foreign Investment Reforms Factsheet: Foreign investment in Australia
Foreign Acquisitions and Takeovers Act 1975 (Cth)

Disclaimer:

This publication only provides an outline of the law for foreign property purchasers and should not be used as a substitute for legal advice. This publication is provided on the understanding that TST Partners Lawyers Pty Ltd do not take responsibility for any errors or omissions in this work, for persons acting on the information contained in this work or from any action which might arise from reliance on this publication. TST Partners Lawyers Pty Ltd disclaims any liability that may arise from reliance on the contents of this publication.

About

TST Partners Group is a leader in the provision of accounting, taxation, audit and legal services in Melbourne. We are tremendously proud of our firm’s staunch commitment to quality, reflected in everything we do and shared by our entire team.
We believe that our constant dedication to build strong and lasting relationships with every client has been fundamental in achieving success. This belief is instilled in all aspects of our organisation, across all departments, in all geographical locations and by each individual member of the organisation.

Contact

+61 3 8080 1525
+61 3 8678 1026
admin@tstpartners.com.au

Group Head office
Level 11 333 Collins Street
Melbourne VIC 3000

Box Hill Branch
Professional Suite 9 Box Hill Central (North)
Box Hill VIC 3128