12 February 2015
In a nutshell
Prime Minister Tony Abbott announced yesterday that the Foreign Investment Review Board (FIRB) screening threshold for foreign purchasers of agricultural land will be significantly reduced from the current A$252 million threshold to an A$15 million threshold.
The new threshold will come into effect from 1 March 2015.
The change will apply to all foreign investors except for those in the US and NZ.
In our previous Alert, we discussed the changes in FIRB thresholds to agricultural land and agribusinesses following the conclusion of the China Australia Free Trade Agreement (ChAFTA) and the signing of the Korea Australia Free Trade Agreement (KAFTA) and Japan Australia Economic Partnership Agreement (JAEPA).
Under the ChAFTA, KAFTA and the JAEPA, Australia has reserved the right to apply a lower monetary threshold for foreign investment proposals in the agricultural space (being A$15 million for agricultural land and A$53 million for agribusinesses).
The Government (via Treasurer Joe Hockey) also announced that a cumulative value threshold will be applied under Australia’s foreign investment regime. This is a very significant move and the first time a cumulative threshold has been introduced in Australia’s foreign investment regime.
For example, if a foreign person has an A$14.5 million investment in agricultural land, that investor will need to seek approval before purchasing further agricultural land worth $500,000 or more.
Foreign ownership register
As promised in the 2013 coalition election campaign, the Government has been working on the development of a Foreign Ownership Register for agricultural land.
From 1 July 2015, the Australian Taxation Office (ATO) will start collecting information on all new foreign investment in agricultural land, regardless of value. The ATO will also commence a stocktake of existing agricultural land ownership by foreign interests.
Given the extremely wide definition of a ‘foreign person’ under the Foreign Acquisitions and Takeovers Act 1975 (Cth), it is anticipated information gathering will take some time.
Details on what the Foreign Ownership Register will look like and its search capabilities are yet to be revealed. We will continue to watch this space.
Interestingly, the Government in their announcement yesterday did not announce lowering the threshold for foreign investments in agribusinesses, but we suspect this will come in due course.
More changes to FIRB rules are expected within weeks aimed at foreign investment in residential real estate.
The introduction of the Foreign Ownership Register will create greater transparency and will likely make some foreign investors nervous.
We suspect FIRB will be very busy from next month, as the significant reduction in monetary threshold will amount to a significant increase in the number of applications made to FIRB.
While FIRB currently has 30 days to make decisions on FIRB applications, FIRB has the power to extend its assessment beyond the 30 day period. As a result we expect FIRB processing times to increase in the initial months of this change.
We also expect to see FIRB updating its FIRB policy to include a new section on purchases of agricultural land and to include guidance in the policy on FIRB’s assessments of these applications.
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Contacts: David Walker, Principal; Jon Cane, Principal; Michael Swift, Principal; Lana Tian, Solicitor.