FIRB applications and Australian land rich entities

The regulatory framework allows the government to make decisions regarding “significant actions” or “notifiable actions” made by foreign investors.

A foreign investor can include an individual who is foreign to Australia, entities that are 20% owned by a single foreign national or corporation, or entities where 40% of investors are made up of foreign persons.

A notifiable action requires the investor to provide FIRB with notice prior to executing the action. Such actions include the acquisition of substantial interests in Australian entities or acquiring any interest in land that exceeds the relevant monetary threshold (different thresholds apply to each classification of land).

A significant action does not require an offshore investor to notify FIRB prior to executing the intended action. However, as these actions can be subject to a disposal order, it is often recommended that approval is sought from FIRB prior to executing the action. Significant actions include: acquisitions of land or agribusinesses; obtaining an interest in an Australian business that results in a change of ownership. Importantly, a significant action can also be a notifiable action in which approval must be sought.

The thresholds for acquiring an interest in land as a notifiable action depend on the following characterisations:

1. Residential land;
2. Agricultural land;
3. Vacant commercial land;
4. Developed commercial land; and
5. Mining or production tenements.

The monetary threshold of each type of land is different and can be adjusted to a higher threshold if considering a trading partner (e.g. New Zealand, the United States, Singapore, Chile, or China).

The acquisition of land in most cases would not be subject to the tracing provisions, i.e. tracing through to ultimate ownership to determine if the indirect ownership interest exceeds 20%. However, where acquisition of a land rich Australian entity applies, the tracing rules would apply. A land rich entity is an entity where at least 50% of the assets held by the entity are Australian real property.

When considering when to make an application to FIRB, the application should be made prior to coming to any agreement or executing a transaction. However, you may want to consider implementing a clause that any signed contract is conditional on obtaining approval from FIRB.

The failure to apply for FIRB approval could result in civil and criminal penalties, as well as a divestment order. It is thus critical to check whether FIRB approval is required before making any investment into Australia.. 

Tony Nunes has over 25 years’ experience in providing tax advice to clients, especially on issues affecting cross-border transactions, acquisitions and restructures, and on all aspects of structuring the ownership and financing of corporations and their operations.

Matthew Broadhurst has over 5 years’ experience advising clients with his applied knowledge of managing tax disputes, including audits, objections or litigation. He has worked in both the public and private sectors, providing a unique outlook that is beneficial to clients navigating the Australian taxation system.