From the start of December 2015 all foreign buyers and investors of Australian property must now pay a fee before their foreign investment application will be processed. Stricter penalties have been introduced by the Australian Taxation Office (ATO) for those who break the rules.
The recent changes introduced by the Federal Government are designed not to deter foreign investment into Australia, but rather ensure current rules that limit foreign investment in established dwellings are enforced.
Until now there has been poor policing by the small team at the Foreign Investment Review Board (FIRB), resulting in limited penalties imposed on those who breach the rules. For a long time, the framework was undermined due to poor data collection, along with a lack of audit, compliance and enforcement.
Given no fees were collected on application, it made it quite difficult for the FIRB to justify committing more Australian tax-payer resources, despite the number of foreign investment applicants growing almost three-fold over the course of 2013-14.
Over the same time, and as residential property prices rose significantly in many suburbs across the country, the Australian public had become increasingly concerned that the influx of foreign purchasers were having a direct impact on mainstream (established) house prices.
This placed pressure on the now former Treasurer, Hon Joe Hockey MP, to provide clarification on the role foreign investment plays in residential property.
After a lengthy and comprehensive inquiry by the House Economic Committee, legislation was slated in late November 2015 with a stronger foreign investment regime coming into effect from December 1, 2015.
Foreign investors will now pay a fee to the ATO before their foreign investment application to buy residential property is processed.
For properties valued at AUD$ 1 million or less an application fee of AUD$ 5,000 will be collected. If the property is valued at more than AUD$ 1 million, AUD$ 10,000 is payable with an AUD$ 10,000 incremental fee increase per additional AUD$ 1 million in property value.
The fees apply for each application submitted, and become uncapped if the property is valued at more than AUD$ 1 million.
Fees are paid on application and do not provide any assurance of securing the property.
Stricter penalties now make it easier to pursue foreign investors that breach the rules.
Criminal penalties have increased from AUD$ 90,000 to AUD$ 135,000 for individuals, and divestment orders are supplemented by civil pecuniary penalties. Infringement notices for less serious breaches of the residential property rules also apply. Third parties who knowingly assist a foreign investor to breach the rules are now subject to civil and criminal penalties.
Property developers can apply for a new dwelling exemption certificate to sell new dwellings in a development of 50 or more residences to foreign investors however, the Government has tightened the rules around the use of new dwellings exemption certificates by limiting the value of all apartments that can be bought by a single foreign investor to AUD$ 3 million in the one development.
If foreign investors want to purchase apartments above this value they are required to seek individual approval.
This story was written by Michelle Ciesielski of real estate firm Knight Frank and has been reproduced with their kind permission.