The Assistant Treasurer recently announced changes to Australia’s foreign investment rules as these relate to residential real estate acquisitions and introduced “tough new civil penalty, compliance, monitoring and enforcement measures”.
The Government shifted the focus of the Treasury and Foreign Investment Review Board (FIRB) in January 2009 to the review of large commercial transactions. The rules applying to acquisitions of residential real estate by foreign persons (comprising over 90 per cent of FIRB applications) were relaxed. These concessions included making temporary residents acquiring a property for use as their primary residence exempt from the requirement to obtain an individual FIRB approval.
In response to popular pressure, the Government announced, on 24 April 2010, that it is now reversing its 2009 position to bring the foreign investment rules “in line with community expectations”. Measures to tighten the rules include:
removing the exemption for temporary residents acquiring a primary residence;
requiring temporary residents acquiring a primary residence to sell the property when they leave Australia, and that if land is purchased on which a primary residence is to be developed, construction commence within 24 months;
the introduction of new civil penalties;
the implementation of a data-matching compliance monitoring program, a new 1-800 community hotline, and measures to improve compliance by real estate agents.
The measures for temporary residents are a backflip by the Government to the previous policy. However, significant changes will now apply to sellers and agents so it is critical that this group rapidly gain an understanding of the foreign investment regime, in particular who is classed as a “foreign person”. It appears there may be significant consequences for sellers and agents that are involved in a sale to a non-compliant foreign purchaser.
The Government will now introduce new civil penalties regime including:
sanctions for purchasers, sellers and agents for being involved in transactions in breach of the Foreign Acquisitions and Takeovers Act 1975;
an explicit compulsory divestment requirement where property has been purchased in breach of the real estate investment regime; and
an additional monetary penalty equivalent to any capital gain made by the breaching purchaser at the time of the forced sale, with the capital gain to be measured in accordance with the relevant tax legislation.
The introduction of sanctions for sellers and agents will be a major departure from the current regime, which has always placed obligations on the foreign purchaser only. According to the Assistant Treasurer, the result of the changes will be that "anyone trying to flout Australia's strict foreign investment rules will face tough new penalties that will be fully enforced."
Some of the appeasements to the foreign investment rules made in January 2009 have been maintained. These include:
allowing developers to sell up to 100 per cent (up from 50 per cent) of the dwellings in a new development to foreign persons, provided developers market locally as well as overseas and provided the purchasers obtain FIRB approval; and
an extended definition of "new dwelling" which includes dwellings that have not been sold but that have been rented for no more than 12 months.
To bring the changes announced on 24 April 2010 in to effect, the Government will need to amend the FATA and the Regulations made under the FATA. It is not yet known when the relevant legislation is intended to be introduced. The timing of the resulting amendments to Australia’s Foreign Investment Policy, and for the introduction of the new monitoring and enforcement systems is also unknown at this stage.
This publication is only a general outline. It is not legal advice. You should seek professional advice before taking any action based on its contents