Foreign Investors that fail to notify the government of their interests in Residential and Rural properties could face penalties of up to $135,000 and/or three years’ imprisonment, for individuals; and up to $675,000 for companies.
Under the new foreign investment regime, effective from 1 December 2015, the Government has introduced a property register which requires foreign investors to register their rural or residential interests.
Responsibility for enforcing the Foreign Investment Rules now lies with the Australian Tax Office (ATO) which has the resources to identify non-compliance.
We’ve summarised the key changes below.
Residential Real Estate
Foreign investment in residential real estate can only be undertaken with Foreign Investment Review Board (FIRB) approval. Regardless of the value of residential real estate foreign persons generally need to notify FIRB of their intended acquisition (limited exemptions apply).
Foreign investors who have purchased residential real estate without FIRB approval could face significant penalties under the tighter rules.
Residential real estate means all land and housing that is not commercial property or rural land. Hobby farms and rural residential blocks are considered residential real estate.
Temporary residents can apply to purchase residential real estate providing it is to be used as their principal residence; the permission to purchase is usually granted with conditions requiring the property to be sold if it ceases to be their primary residence whilst living in Australia.
Established dwellings cannot be purchased by foreign persons including individuals, Australian companies and Australian trusts controlled by foreign persons.
New dwellings can be purchased by foreign persons with FIRB approval. Foreign persons can also apply to redevelop vacant land for residential development, these are normally approved subject to conditions. The condition is usually that construction commences within 24 months of acquisition.
From 1 March 2015, the threshold for reporting an interest in rural land was lowered from $252 million to $15 million. A foreign investor whose cumulative value of rural land that exceeds $15 million must now obtain approval prior to acquisition, unless they are based in a country with which Australia has a free trade agreement.
The introduction of the Agricultural Land Register from 1 July 2015, requires foreign persons and foreign governments to register their interests in rural land by the 31st of December 2015.
Strengthening the Foreign Investment Framework
Compliance with the foreign investment rules for residential real estate has been transferred to the ATO who have the necessary compliance staff to identify any breaches.
Stricter penalties apply with existing criminal penalties increasing from $90,000 to $135,000 and/or three years’ imprisonment, for individuals; and up to $675,000 for companies. Parties that knowingly assist a foreign investor to breach the rules can be subject to civil and criminal penalties.
If you think you may be affected by the latest changes to the Foreign investment Rules please contact your local William Buck advisor.