Australia: Foreign investment update

Introduction

On 2 May 2015, the Australian government announced a series of changes to the foreign investment framework including further details on the lower threshold for agriculture-related acquisitions, new FIRB application fees, and stricter enforcement regime for real estate acquisitions.

Acquisition of agriculture land & business

As mentioned in our last FIRB Investment Update, the Australian government reduced the screening threshold for acquisitions of Australian agricultural land to $15 million (cumulative) for most non-government foreign investors. Non-government investments from US, New Zealand and Chile will continue to enjoy a higher threshold of $1,094 million consistent with the free trade agreement entered into with those countries. The reduced threshold also does not apply to investors from Singapore and Thailand. These changes took effect on 1 March 2015.

The Australian government has now confirmed that it will introduce a new $55 million threshold (indexed annually) for investments in agribusiness for most non-government foreign investors other than those from US, New Zealand and Chile. More importantly, the scope of the "agribusiness" will be expanded to include certain first stage downstream manufacturing businesses such as meat, poultry, seafood, dairy, fruit and vegetable processing and sugar, grain and oil and fat manufacturing. Given the broader definition, care will need to be taken in applying the new rule to acquisition of vertically integrated businesses. The reduced threshold for investments in agribusiness already applies to investors from Singapore and Thailand, and it is envisaged that it will be introduced broadly for all other foreign investors (other than those from US, New Zealand and Chile) on 1 December 2015.

New application fee

Currently no fees or charges apply to applications to FIRB.

The Australian government recently announced that, with effect from 1 December 2015, the following application fees will apply to FIRB applications:

It is unclear how the application fee will apply in an auction process (or a competitive bid process for business acquisitions). Further information is likely to be released by the government closer to 1 December 2015.

Enhanced enforcement regime – residential real estate

Australia's foreign investment regime generally does not allow foreign investors to purchase existing residential properties (subject to certain exceptions).
The Australian government already has very broad divestment powers under the Foreign Acquisitions and Takeovers Act 1975, as evidenced by the recent acquisition and forced sale of a Point Piper mansion. However, on and from 1 December, the following additional penalties regime will apply to foreign investors who purchase residential properties in breach of the Australian foreign investment regulations:

• divestments will be supplemented by civil pecuniary penalties and infringement notices for less serious breaches. The maximum civil pecuniary penalty will be the greater of the capital gain made on divestment or 25% of the purchase price or market value of the property;
• criminal penalties that apply to more serious breaches will be increased to $127,500 or three years imprisonment for individuals and to $637,500 for companies; and
• 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.

Enforcement in respect of real estate acquisitions will be transferred to the Australian Tax Office, which will be able to use its existing records system and specialised compliance staff to implement the updated rules and penalties regime.

Together with the new rule, the Australian government also announced an amnesty that will run until 30 November 2015. Under the amnesty there will be reduced civil penalties (prior to the introduction of the higher penalty regime) and foreign investors will have 12 months to divest themselves of their property (rather than a shorter period determined by the Treasurer, usually 90 days). There will also be no referral to the Commonwealth Director of Public Prosecutions for criminal prosecution during the amnesty period.

The enhanced enforcement and penalties regime does not apply to business acquisitions.