In the last 10 years, there has been a dramatic upsurge in Chinese investors’ interests in acquiring assets in Australia, notably in the areas of mining and resources, real estate and food and agricultural products. This is in part driven by the strategic needs of the Chinese government, the appreciation of RMB and in the last 5 years, devaluation of the Australian dollar, the relatively welcoming attitude of the Australian government to Chinese investors, the quality of Australia assets and the large influx of Chinese migrants into the lucky country. However, while the Australian government generally welcomes foreign investments, this does not mean acquisition of Australian assets by foreign entities is entirely free of restrictions, especially strategic assets with national security concerns and residential property where there has been a huge political outcry to tighten the control so as to protect the interests of local Australians. The result is a substantial revision to Australia’s Foreign Acquisitions and Takeovers Act 1975, which is one of the most important pieces of legislation governing foreign persons’ acquisition of Australian assets.
The purpose of this series of articles is to provide a brief introduction to Australia’s foreign investment regulatory regime in relation to different classes of assets. Owing to the broad scope of this topic and the complexity and variety of legal issues involved, it will be divided into several parts and this article is Part 1, which will discuss the regulatory body and the legislation generally pertaining to foreign investment regulation, and the regulation of investment in residential properties.
Regulatory Body and Legislation
The primary body responsible for regulating foreign investments in Australia is the Foreign Investment Review Board (“FIRB”). FIRB is a non-statutory body established in 1976 and its role is only advisory, which is to advise the Treasurer and the Government on Australia’s foreign investment policy and its administration. Responsibility for making decisions on the policy and proposals rests with the Treasurer.
Australia’s foreign investment regulatory regime is mostly found in the Foreign Acquisitions and Takeovers Act 1975 (“the Act”), among other subsidiary legislation. The Act is a commonwealth legislation which means it applies across the whole of Australia instead of a particular state. It has been subject to a substantial overhaul and rewrite in December 2015 with emphasis on enhancing compliance and enforcement.
As the restrictions under the Act apply only to Foreign Persons acquiring Australian assets, it is useful to understand how this important term is defined thereunder. Under the Act, a Foreign Person is:-
(a) an individual not ordinarily resident in Australia; or
(b) a corporation in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or
(c) a corporation in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or
(d) the trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or
(e) the trustee of a trust in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or
(f) a foreign government
In certain circumstances, an associate of a foreign person may be taken to be a foreign person even if the associate is not a foreign person.
An important concept arising out of the definition of “Foreign Person” is “ordinary residence”. Obviously, this concept applies to a natural person rather than a legal person. Under s.5 of the Act, an individual who is not an Australian citizen is ordinarily resident in Australia at a particular time if
(a) the individual has actually been in Australia during 200 or more days in the period of 12 months immediately preceding that time; and
(b) at that time:
(i) the individual is in Australia and the individual’s continued presence in Australia is not subject to any limitation as to time imposed by law; or
(ii) the individual is not in Australia but, immediately before the individual’s most recent departure from Australia, the individual’s continued presence in Australia was not subject to any limitation as to time imposed by law.
It is therefore clear that as far as an individual or natural person is concerned a Foreign Person does not include an Australian citizen, but may include (1) even an Australian permanent resident if he has not been in Australian for more than 200 or more days in the last 12 months, and (2) persons holding temporary visas such as student visas, working visas etc. as these persons’ continued presence in Australia is subject to limitation as to time imposed by law.
Substantial interest, after the 2015 amendment to the Act, has been increased from 15% to 20%, so it is 20% now.
The restrictions under the Act vary from one class of assets to another. This is understandable as assets of national security concerns and assets affecting daily life of local Australians (such as residential property and food products) would naturally attract more stringent restrictions and closer scrutiny by the regulator.
Foreign persons generally need to apply and receive foreign investment approval before purchasing new dwellings. However, applications to purchase new dwellings are usually approved without conditions.
According to the Act, a new dwelling is a dwelling that will be, is being, or has been built on residential land, has not been previously sold as a dwelling and has either:
Not been previously occupied; or
If the dwelling is contained in part of a development and the dwelling was sold by the developer of that development, it has not previously been occupied for more than 12 months in total.
New dwellings do not include established residential real estate that has been refurbished or renovated.
Strange enough, there is no definition of dwelling under the Act, but this word literally means a house, flat, or other place of residence.
Generally foreign persons are not allowed to purchase established dwellings.
Under the Act, an established dwelling is a dwelling on residential land that is not a new dwelling.
Temporary residents will normally be allowed to purchase only one established dwelling to live in as their residence in Australia, subject to the conditions that they:
Use the property as their principal place of residence in Australia;
Do not rent any part of the property, included ensuring that the property is vacant at settlement; and
Sell the property within three months from when it ceases to be their principal place of residence.
Temporary residents are not permitted to purchase established dwellings as investment properties, or rent out, or as holiday homes.
A temporary resident is an individual who:
holds a temporary visa that permits them to remain in Australia for a continuous period of more than 12 months (regardless of how long remains on the visa); or
is residing in Australia, has submitted an application for a permanent visa and holds a bridging visa which permits them to stay in Australia until that application has been finalised.
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