New foreign investment rules now in force in Australia
Strict new rules came into force on 1st December 2015 which will affect foreign investors illegally buying property in Australia and help to strengthen the integrity of the foreign investment framework whilst modernise and simplify the system.
The government first announced the change back in May this year and granted a grace period for any foreign investors who had breached Australia’s residential property rules to come forward independently before 1st December and disclose ownership of any home they had bought illegally.
For those that did come forward, these foreign investors were given 12 months to sell their property and were protected from criminal prosecution.
Now that 1st December has passed, what happens now?
The Australian Taxation Office (ATO) is responsible for overseeing foreign residential property investment and has 50 compliance officers in charge of investigating potential breaches of the law. Anyone breaking the law now will face tougher penalties. The ATO is also responsible for processing applications as well as collecting application fees.
In order for a foreign property investor to buy property in Australia, they first must get approval before purchasing property in Australia. Generally, non-resident foreign buyers are only permitted to buy brand new property or off the plan property in Australia. For those buyers who do not get approval first will face huge fines.
According to Treasurer Scott Morrison, foreign property investors would be monitored and watched much more closely, whilst the stricter rules will punish those who breach these rules.
Before these new rules came in, individuals disregarding the rules faced a maximum penalty of $90,000. Existing criminal penalties have now been raised to $135,000 or three years’ imprisonment, whilst individuals can face both of these charges. Companies now can face fines of up to $675,000 if they are caught breaking the rules.
But it’s not just non-resident foreign investors that can face fines and imprisonment; temporary residents which include international students can also face the same fines and imprisonment if they do not seek or are not granted approval first to buy established property. Temporary residents are allowed to buy an established property to use as their primary place of residence whilst living in Australia, but approval is still required to do this.
Other changes now include an application fee which must be paid by any foreign buyer wishing to buy a residential property in Australia. For properties valued at $1 million or less, the application fee is $5,000, whilst for anything over $1 million; an application fee of $10,000 must be paid. However, for every additional million dollars the property is worth, the application fee will also increase by $10,000. Therefore a property worth $2 million would incur a fee of $20,000, whilst a $3 million property would incur an application fee of $30,000.
The downfall of paying this application fee is that this does not guarantee the property can be secured by the buyer.
As well as individuals and companies facing new fines, third parties and property developers also face steep fines for breaching any foreign property investment rules.
For individuals such as buyers’ advocates or real estate agents, they can face fines of up to $45,000 for assisting foreign investors breach these property rules, whilst a company can face fines of up to $225,000. On the other hand, property developers who do not market apartments in Australia can face a fine of up to $135,000, or three years’ imprisonment.
According to Mr Morrison, “Under these new arrangements foreign investors who fail to comply with the foreign investment rules will not be able to profit from doing so.”
These new laws that are now in place are the most significant reforms to Australia’s foreign investment framework in 40 years.
So will these new rules discourage foreign buyers buying property in Australia? According to Mark Mendel, CEO of iBuyNew no it won’t.
“Foreign investors want to move their money out of their home country and they like the stability of Australia. $5,000 on a $600,000 property purchase is not much in the grand scheme of things. It’s not just about the return for them – it’s an overall strategy.”
Published on 7th of December 2015 by Marty Stanowich