Yesterday Prime Minister Tony Abbott released an options paper containing a proposal to levy a Foreign Investment Review Board (FIRB) application fee of a minimum of $5,000 on any foreign residential property investor seeking to purchase property in Australia.
Under the proposal, properties with a purchase price of less than $1 million will attract a FIRB application fee of $5,000, with a further $10,000 charged for every additional $1 million in the purchase price. Any purchasers caught breaching or attempting to circumvent these rules will face a fine of up to 25% of the value of the property as well as being forced to sell the property.
The proposed new fee structure comes as part of the government’s recent scrutiny into foreign investment in Australia of both agricultural land and residential property. In early February, the government announced that the previous screening threshold of $252 million for foreign investment in agricultural land would be reduced to $15 million starting from 1 March this year. From 1 July 2015, the ATO will also create a register of foreign investment in agricultural land regardless of whether or not the land purchased is valued above the new $15 million threshold.
The review of foreign investment in agricultural land and residential property comes following a parliamentary enquiry conducted in November 2014 led by parliamentary secretary to the treasurer Kelly O’Dwyer. That enquiry criticised the FIRB for failing to issue a single enforcement order with respect to foreign investment in Australian properties since 2006. Other criticisms of the FIRB included:
- understaffing (less than 10 staff Australia wide);
- foreign investors do not fear being caught and are failing to approach the FIRB for screening before buying Australian property;
- any prosecutions take months to work through the court process and if a property is forced to be sold, the foreign investors are keeping the profits from the sale; and
- the FIRB does not have the ability to access data held by the Department of Immigration and Border Protection to track departing investors (whose properties must be sold within 3 months of leaving).
The parliamentary enquiry recommended 12 different measures including allowing the government to seize windfall gains from illegal purchasers, a national register of land title transfers that records citizenship, and an alert system for existing temporary visas, as well as criminal penalties to Australian real estate agents or others who knowingly help foreigners breach these local rules. So far the government has not indicated whether it will be adopting all of those recommendations.
Other critics of the reduction in the threshold for the purchase of agricultural land have highlighted that no protective measures have been included in respect of water rights. As water is so critical to the productivity of agricultural land in Australia, critics have argued that an equal crackdown on the foreign investment in water rights should also apply. As yet, no steps have been taken in respect of water rights.
At the moment the proposal for the minimum $5,000 FIRB application fee for foreign investment in residential property will be subject to community consultation until 20 March 2015. For more information on FIRB, please contact HopgoodGanim's Corporate Advisory and Governance team.