Australia’s foreign investment laws have recently changed.
The overarching purpose of the foreign investment laws remains the same – the laws are designed to encourage foreign investment that is not contrary to Australia’s national interest. But some of the detail and administrative arrangements have changed.
The new law:
- adds nuance to the concept of land – we now have definitions for agricultural, commercial, residential, mining, and exploration land, where before the law just covered urban or rural land;
- raises the substantial interest threshold from 15% to 20%;
- levies fees, starting from $1,000, on foreign investors who ask the Treasurer to consider an investment;
- gives the Australian Taxation Office (ATO) an administrative role in relation to the acquisition of land; and
- widens the potential range of penalties that can be applied to people who contravene the foreign investment rules – penalties available under the law include civil penalties, infringement notices, divestment orders, and criminal penalties.
The ATO has released a new guide to help foreigners navigate their way through the foreign investment laws; in particular, the guide is useful for explaining when foreign investors should or must notify the Federal Treasurer about an investment. In short, if a foreign investor is considering whether to take a stake in an Australian business, or in Australian land, the foreign investor needs to stop and consider whether to seek the Treasurer’s approval. Once the Treasurer is notified, a foreign investor must wait for approval before proceeding with the transaction.
The safe option is to notify the Treasurer. But a foreign investor should not be too conservative and unnecessarily notify the Treasurer because doing so has costs and can delay transactions.
Whatever choice the foreign investor makes, the foreign investor needs to be certain before proceeding. Not only can penalties apply if a foreign investor falls foul of the foreign investment laws, but the potential for an unreported transaction being discovered has increased. The ATO’s involvement means that they will be running a sophisticated data matching regime, designed to find non-complying foreign investors; the tools and techniques that they are using are the same as those that they use for tax audits.
If you are a foreigner considering an Australian investment, I can help you determine whether you need to notify the Treasurer or give you comfort that you can proceed without notifying the Treasurer. I can also advise on your tax considerations including income tax, capital gains tax and GST. Tax planning is critical when dealing with cross-border issues.