Australia s foreign investment reforms

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Melina Bridges
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1 Australia s foreign investment reforms Presented by Ann Middleby: Project Director Foreign investment program Bernie Sabine: Law Interpretation Officer - Foreign investment Australian Taxation Office 2 March 2017

2 Key reforms 1. Foreign investment in Australia 2. Responsibilities of the ATO 3. Key changes to legislation ATO screening and enforcement of residential real estate New and stricter penalties Application fees on all proposed investments Agricultural land register Residential real estate register Water register 2

3 Foreign investment in Australia Stock of foreign direct investment, AU$ million 3

4 Australia s foreign investment policy settings >Australia needs foreign investment >Foreign investment rules don t aim to stop investment Rejections are rare >Foreign investment rules facilitate investment while giving assurance to community that the national interest is being maintained >FIRB advise the Treasurer on Commercial, Agricultural and Residential proposals 4

5 Legislation update Royal assent on 25 November 2015 for: >Foreign Acquisitions and Takeovers Legislation Amendment Act 2015 >Foreign Acquisitions and Takeovers Fees Imposition Act 2015 >Register of Foreign Ownership of Agricultural Land Act 2015 Royal assent on 7 December 2016 for Register of Foreign Ownership of Agricultural Land Amendment (Water) Bill

6 ATO and FIRB: residential real estate >May 2015: Potential FIRB breaches referred to the ATO >June 2015: ATO residential compliance team established - reduced penalty period from May 2015 to November 2015 >1 December 2015: Screening of residential real estate on behalf of FIRB >1 December 2015: Introduction of fees and new penalties >July 2016: Residential land register: no stocktake implemented as a condition of FIRB approval 6

7 Residential real estate rules >Overarching framework remains the same >Aimed at increasing Australia s housing stock to be consistent with the national interest >Foreign persons are generally required to notify and seek foreign investment approval before acquiring any interest in residential real estate >Approvals may be subject to conditions to ensure the purchase is in the national interest 7

8 ATO and FIRB: resident real estate rules > New Dwellings: - usually approved without conditions > Vacant land: - construction must be completed within 4 years - land that has previously had an established dwelling on it would generally not be considered vacant land >Established dwellings: - temporary residents can apply to purchase one established dwelling providing the property is sold when the visa expires - non-resident foreign persons generally prohibited - redevelopment where at least 2 dwellings may be approved 8

9 National Interest test >National interest factors continue to be the test for assessing foreign investment applications >National interest factors: national security competition consistency with Australian Government policies (tax) the impact on the economy and the community, and the character of the investor 9

10 Residential applications from 1 December Residential application Complete form and submit to ATO Receive confirmation Fee payment made to ATO Application received by ATO Payment received. ATO review of application 10

11 Residential real estate fees >Fees for residential land acquisitions depend on the consideration >Same fee applies for all residential proposals regardless of the type >Fees increased from 1 July 2016 for property over $1 million valued at $1 million or less $5,000 Residential land valued at over $1 million $10,100 $20,300 $30,400 $40,600 $50,600 11

12 New dwelling exemption certificates >Property developers (foreign or Australian) can apply to sell new dwellings in a development to foreign persons, without foreign persons requiring separate foreign investment approval. Fee $25,300 >Development of 50 or more dwellings >Will exempt foreign persons from separate approval up to $3 million in one development >Developers must market the dwellings in Australia 12

13 Fees new dwelling exemption certificates Selling new dwellings in a development to foreign persons Exemption certificate application Dwellings acquired by foreign persons, reconciled six monthly $25,300 Per dwelling valued at $1 million or less - $5,000 Per dwelling valued at over $1 million - $10,100 etc 13

14 Established dwelling exemption certificates >Designed to assist foreign persons to comply with rules when attending auctions and private treaty purchases >Certificate will allow a foreign person to purchase one unspecified established dwelling up to specific value >Set time period for purchase to occur >Normally subject to conditions e.g. temporary resident must use dwelling as residence while in Australia 14

15 New penalty regime >New civil and increased criminal penalties for foreign investors and third parties who breach the foreign investment rules: pecuniary penalty orders imposed under this penalty regime to be calculated as a percentage of the property value, and the regime to apply to foreign investors and any third party who knowingly assists a foreign investor to breach the framework to date 388 infringement notices issued totalling $2.2 million 15

16 Agricultural land register >On 1 July 2015, ATO established the agricultural land register >All foreign owners required to disclose the size and value of agricultural land during a stocktake: July 2015 to Feb 2016 >No threshold >Ongoing requirement to advise of changes or new holdings >Report presented to the Treasurer annually >Aggregated statistics are released to the public 16

17 Commercial and Agricultural FIRB proposals: new tax conditions >ATO is one of many consult partners for the FIRB >February 2016, Treasurer announced tax conditions to apply as a condition of FIRB approval >Standard tax conditions can found at FIRB.gov.au >Guidance note is available on firb.gov.au 17

18 Foreign Resident CGT Withholding regime >Introduces a new non-final withholding tax on contracts for disposal of properties entered into on or after 1 July 2016 >Applies to the purchase price on the disposal of property with a market value of $2 million >Purchaser must withhold 10% and remit to the ATO if the vendor does not have a clearance certificate >Clearance certificates and other information can be found at ato.gov.au 18

19 Further information >Visit Detailed guidance notes and other information Visit For further information on residency rules and taxation Please visit our Legal practitioners community page on Let s Talk 19

Foreign resident capital gains withholding: Budget update

Foreign resident capital gains withholding: Budget update Australian Institute of Conveyancers National Conference Presented by Laurence Scarborough, CGT Risk Manager, Australian Taxation Office / 20 May