On 11 February 2015 important changes to Australia's Foreign Investment Policy were announced. These changes reflect the implementation of election promises made by Prime Minister Tony Abbott prior to the 2013 Federal Election and recommendations by the Senate Standing Committee on Rural and Regional Affairs and Transport.
The changes are consistent with revised thresholds agreed with China for the China-Australia Free Trade Agreement (ChAFTA) and will bring most other countries into alignment with China with respect to investment in agricultural land in Australia.
Lower threshold for Foreign Investment Review Board (FIRB) scrutiny
From 1 March 2015, the monetary threshold at which the Foreign Investment Review Board (FIRB) will scrutinise foreign purchases of Australian agricultural land will be reduced to A$15 million (from A$252 million).
This threshold will be calculated by reference to the cumulative value of Australian agricultural land owned by the foreign investor including the value of the proposed acquisition. FIRB scrutiny will therefore become a consideration where investors propose to make smaller acquisitions below the threshold, but their aggregate holding is approaching the threshold for FIRB scrutiny, or for those investors wishing to make further acquisitions when their existing holdings exceed A$15 million.
Increased data collection and transparency
From 1 July 2015, the ATO will collect information on all foreign investment in Australian agricultural land.
It will also commence a stocktake of existing ownership, in line with the increased emphasis on reporting introduced by the establishment of the new foreign ownership register. The Commonwealth will also establish a register of foreign ownership of agricultural land.
These changes will enable the Government to more readily report on levels of foreign ownership of agricultural land in Australia.
Interaction with existing Free Trade Agreements
Importantly, the terms of any existing Free Trade Agreements (notably those between Australia and each of the United States of America, New Zealand, Chile, Korea, Japan), will prevail over these changes. Acquisitions of agricultural land by residents (other than government bodies) of these countries are subject to a much higher threshold, which is currently A$1,094 million.
Interaction with the China- Australia Free Trade Agreement
Although the ChAFTA has not yet been ratified, the Memorandum of Understanding signed in 2014 contemplated a FIRB review threshold of A$15 million for Chinese investor's acquisitions of Australian agricultural land, and A$53 million for acquisitions of Australian agribusinesses. The recently announced changes to FIRB thresholds are therefore consistent with ChAFTA and essentially bring the thresholds for investors from countries other than China (and other countries with a Free Trade Agreement with Australia) into alignment with these thresholds.
It is not yet clear how 'agribusiness' will be defined for the purposes of ChAFTA, and therefore what agricultural investments will be subject to the higher A$53 million threshold.
The likely practical impact of these changes should be considered in the context of FIRB's review of proposed acquisitions of Australian agricultural assets to date. The only instance of FIRB having denied a significant investment in Australian agribusiness was the proposed acquisition of GrainCorp Limited (GrainCorp) by Archer Daniels Midland Company in 2014. This acquisition was ultimately blocked due to concerns regarding foreign ownership of what was considered critical national infrastructure, such as ports and grain storage facilities. The majority of potential investments in agricultural land would not raise concerns of this nature and therefore, although FIRB review will be required in relation to a broader range of transactions, there is no indication that such reviews are any more likely to result in an increase in the number of applications that are refused.
An application for FIRB approval requires a written submission which provides details of the target and the buyer as well as information about how the business will be funded and operated after it has been sold. In the context of an acquisition of agricultural land, such a submission is usually quite straightforward.
The Government does not currently impose any fees for making an application for FIRB approval.
Once an application has been submitted, FIRB must then decide whether the acquisition is in the national interest, and the Treasurer will usually provide a formal decision within 30 days. If the Government has concerns about whether a particular acquisition is in the national interest, then it may grant approval for the acquisition to proceed provided that certain conditions are met which are designed to address those concerns. For example, approval may be conditional upon the Board of Directors comprising a certain number of Australian residents.
The Government has not yet clarified the position in relation to acquisitions which are above the new threshold and which are already in the process of being sold. Accordingly, it is not clear whether a transaction that is signed before 1 March 2015 but will settle after 1 March 2015 will attract FIRB scrutiny or not. Nor has the Government given any indication as to how FIRB will address what will undoubtedly be a significant increase in the number of acquisitions subject to review.
Further changes to Australia's Foreign Investment Policy are expected in the coming weeks, particularly in relation to investment in real estate.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.