On 24 November 2015 Parliament passed a package of legislation to amend the Foreign Acquisition and Takeovers Act 1975 (Cth) (as amended, the Act) and strengthen the foreign investment legislative framework. The new legislation came into effect on 1 December 2015.
The overall aim of the new legislation, which introduces new concepts, thresholds and penalties, is to strengthen enforcement in the foreign investment arena and to increase transparency of foreign ownership in Australia. Some of the main changes are discussed below:
1. Substantial interest threshold
The substantial interest threshold has been increased from 15% to 20% to align with the corporate takeover regulations under the Corporations Act 2001 (Cth). As a consequence, if a foreign person holds, alone or with other associates, an interest of 20% or more in an Australian entity, the foreign person holds a substantial interest and will need to notify the authorities of its transactions, in accordance with the Act.
2. Australian land
A new concept of Australian land has been introduced which encompasses or expands on the previous concepts of Australian rural land and Australian urban land. Australian land is defined as ‘agricultural land, commercial land, residential land and a mining or production tenement’. These types of land are not intended to be mutually exclusive so an area of land could comprise one of more of these types. Prior approval must be obtained for acquisitions by foreign persons of all types of Australian land above certain monetary thresholds, as set out below.
3. Register of agricultural land
A register of foreign ownership in agricultural land has been established which records the location and size of the property and the size of the interest acquired. All acquisitions by foreign persons must be notified to the register regardless of their value and whether or not they require approval. The register is administered by the ATO which has been collecting information directly from investors since 1 July 2015. All foreign persons must notify the ATO before 31 December 2015 of any existing interests held, but not already registered, in agricultural land. New acquisitions must be notified within 30 days of the acquisition.
It is intended that a register of water entitlements will also be implemented in the next 12 months and possibly also a residential land register depending on the outcome of the Commonwealth’s negotiations with the individual States and Territories about access to their land registers.
4. Notification requirements
A simplified structure has been introduced so that transactions that are subject to the Act fall into one of two categories: significant actions or notifiable actions.
Significant actions are actions which triggers the power of the Treasurer to make certain orders under the Act and include the acquisition of interests in Australian entities, the assets of Australian businesses and Australian land. A significant action requires voluntary notification to the Treasurer.
Notifiable actions are a sub-category of significant actions and require mandatory notification to the Treasurer prior to entering into an agreement to take the notifiable action. They include:
- the acquisition of a direct interest of A$55 million or more* in an agribusiness
- the acquisition of a substantial interest in an Australian entity valued at more than A$252 million*, and
- the acquisition of an interest in Australian land where the cumulative value of the land owned by the foreign person, including the proposed purchase, is A$15 million or more* (but see the following news item for the threshold applying to the acquisition of an interest in a mining or production tenement).
*Higher thresholds apply to non-government investors from Australia’s free trade agreement partners (the US, NZ, Chile, Singapore and Thailand).
5. Foreign governments
A foreign government is considered a foreign person under the Act and is generally subject to the same requirements as non-government foreign investors. In addition, a foreign government investor must get prior approval for the following notifiable actions regardless of the value of the investment:
- the acquisition of a direct interest in an Australian entity or business
starting a new Australian business - the acquisition of an interest in Australian land, and
- the acquisition of an interest in a mining, production or exploration tenement or interest of at least 10% in securities of a mining, production or exploration entity
6. Penalties
Stronger criminal penalties have been introduced together with new civil penalties, divestment orders and an infringement notice regime which will mainly apply to residential real estate regulations. Criminal penalties have increased to A$135,000 for individuals and A$675,000 for companies. Third parties (such as company officers, accountants, real estate agents and lawyers) who knowingly assist a foreign investor in breaching the rules will be subject to both civil and criminal penalties.
7. Application fees
Application fees now apply to any notices of notifiable or significant actions and applications for exemptions from 1 December 2015. The fees range from A$5,000 to A$100,000 depending on the transaction and nature of application. The fees have been introduced to enable the ATO to be self-funded in enforcing the legislation.