SNAPSHOT
This document and its associated content are
provided for personal training purposes only
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Is your client a surprise ‘foreign person’ investor? (New Foreign Investment Legislation)
New Foreign Investment Legislation:
Is your client a surprise “foreign person” investor?
On 1 December 2015, the complex Foreign Acquisitions and Takeovers Legislation Amendment Act 2015 (and
associated legislation) introduced a new foreign investment regime. The new foreign investment legislation
substantially expands pre-existing requirements including, but not limited to, the following issues:




individuals or entities (including some Australian citizens, companies or trusts) may be ‘foreign persons’
potentially required to apply to and receive approval from the Foreign Investment Review Board (FIRB) before
undertaking affected transactions (e.g. various acquisitions of Australian Real Property or interests in Australian
Businesses or Entities);
substantial new fees (usually ranging from $5,000 to $25,000) which must accompany an affected foreign
person’s FIRB application;
expanded Treasurer’s powers including imposition of new penalties (e.g. up to 3 years’ imprisonment and/or
monetary penalties up to $135,000 for an individual) or powers to order forced sale of an asset where the new
legislation has been breached by a foreign person; and
new compulsory requirements to register a foreign person’s pre-existing Agricultural land holdings held as at 1
July 2015 (including leases expected to have a minimum 5 year duration) with the Australian Taxation Office
(ATO) no later than 29 February 2016.
IMPORTANT
Importantly, many Tax Agents will need to seek specialist external advice regarding most foreign
investment issues (with exceptions for some legal practitioners or advice strictly limited to ATO
Agricultural Land Register requirements – see below). This problem arises because most of the complex
new legislation will not satisfy the definition of ‘tax agent service’ in s 90-5 Tax Agent Services Act 2009
and may therefore void Professional Indemnity insurance requirements and/or constitute an offence or
other breach of professional standards if advised on for a fee. A broad understanding of which types of
client individuals and entities might be ‘foreign persons’ (potentially requiring specialist referral) will
nonetheless be important to allow issues including, but not limited to, the following to be identified:

Which existing individuals and entities may need to seek specialist advice on future acquisitions of
Australian assets because they are a ‘foreign person’?

Whether establishment of a new structure (or a restructure) might trigger foreign person status for
one or more entities?

Whether a property developer might seek to substantially market a development to ‘foreign person’
buyers and voluntarily undertake those foreign persons’ fee and similar obligations to improve the
appeal of their development to foreign buyers?

Whether a foreign person’s existing agricultural land holdings (or changes to them) may need to be
reported to the ATO’s Agricultural Land Register (initially by 29 February 2016 and on an ongoing basis
after certain trigger events – see below)?
It is important to note that this Tax Astute Snapshot provides only a brief overview of the complex new foreign
investment provisions. Tax Astute clients should access their Major Tax Events Guide, their next training session
and (in most cases) specialist external advice to review numerous further important issues listed below.
©Tax Astute Pty Ltd (as Trustee for the Tax Astute Trust) 2016
Page 1
SNAPSHOT
This document and its associated content are
provided for personal training purposes only
and are subject to the Copyright & Disclaimer
Statement on page 5.
Is your client a surprise ‘foreign person’ investor? (New Foreign Investment Legislation)
TIP
Tax Astute Clients can access further detail and examples in relation to numerous practical issues including:

IDENTIFYING more complex FOREIGN PERSON scenarios (e.g. an Australian company or trust which might be a
foreign person due to a relationship to an Individual Foreign Person or a Foreign Company despite numerous
interposed entities or issues arising via associate relationships to a foreign persons);

IDENTIFYING which types of FOREIGN PERSON TRANSACTIONS might be ‘significant actions’ or ‘notifiable
actions’ subject to the new legislation;

UNDERSTANDING different types of ASSETS which may be subject to the new foreign investment legislation
and whether they carry a higher or lower risk of a foreign investment issue;

IDENTIFYING key EXCEPTIONS and THRESHOLDS which may reduce the risk of the new foreign investment rules
applying;

UNDERSTANDING what is AGRICULTURAL LAND for foreign investment purposes and when Agricultural Land
Register requirements may apply.
Who or What is a ‘Foreign Person’?
An individual or entity may potentially be subject to the new foreign investment legislation where they satisfy the
very broad definition of ‘foreign person’. Importantly a ‘foreign person’ can include:

both individuals and entities; and

some Australian citizen individuals (based overseas) and some Australian resident companies or trusts (through
a foreign individual or company directly or indirectly holding interests in the Australian entity).
The following diagram provides a broad overview of when foreign person status may arise for an individual or entity
where either:

an individual foreign person (IFP) who is ‘not ordinarily resident in Australia’ (usually based upon a legal
limitation on their Australian stay such as temporary visa conditions and/or a < 200 day presence in Australia
during the previous 12 months - see D below); or

a foreign person entity (which may include a foreign or Australian resident company or trust) in circumstances
where either:
o
an IFP (see D), a foreign corporation, or a foreign Government holds a > 20% direct or indirect ‘substantial
interest’ in the foreign person entity (alone or together with associates) (see B); or
o
a number of unrelated IFP’s (see E), foreign corporations and/or foreign Governments hold a combined >
40% direct or indirect ‘aggregated substantial interest’ in the foreign person entity (alone or together with
associates) (see C)
does (or will) own an interest in an asset connected with Australia by taking a significant and/or notifiable action
(such as a proposed acquisition) in relation to the asset (see E below).
©Tax Astute Pty Ltd (as Trustee for the Tax Astute Trust) 2016
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This document and its associated content are
provided for personal training purposes only
and are subject to the Copyright & Disclaimer
Statement on page 5.
SNAPSHOT
Is your client a surprise ‘foreign person’ investor? (New Foreign Investment Legislation)
Who or What is a ‘Foreign Person’?
Foreign Persons
Potentially
subject to new
Foreign
I nvestm ent
Rules
D
NOTE
Foreign
Governm ent
> 2 0 % SUBSTANTI AL
I NTEREST
held
( associate inclusive)
by AN:
I FP
Foreign Corporation; or
Foreign Governm ent
OR
I FP
B
C
FOREI GN
PERSON
ENTI TY
I FP
Direct
Ow nership
> 40%
AGGREGATE
SUBSTANTI AL
I NTEREST held
( associate
inclusive)
by
> 2 NONASSOCI ATE I FPs;
& / or
Foreign
Corporations
& / or
Foreign
Governm ents
Foreign
Corporation
( e.g. Foreign OR
Australian
Com pany or
Trust)
z
ndividual Foreign
Foreign Person
Person (( II FP)
FP)
II ndividual
=
NOT Ordinarily Resident in Australia
e.g. includes
Som e Australian CI TI ZENS living
overseas
OR
Non- Residents
Tem porary Residents
w here
Legal Lim itation on
Australian stay
OR
A
Actually in Australian for
< 2 0 0 days
in previous 1 2 m onths
SI GNI FI CANT & / or NOTI FI ABLE ACTI ON
re Australian Connected Assets
( e.g. Land/ Securities/ Agribusiness etc.)
E
NOTE

Due to a strict indirect tracing rule in s 19 of the Foreign Acquisitions and Takeovers Legislation Amendment Act
2015 foreign person entity status (see B and C above) may arise where an IFP, foreign corporation and/or
foreign Government hold an indirect substantial or aggregate substantial interest (i.e. through interests held via
numerous interposed resident or non-resident entities between the foreign person entity and the IFP, foreign
corporation).

The percentage an IFP or foreign corporation hold in a potential foreign person entity (see B and C above) will
often be determined by shares/units held in a company or unit trust (including rights to such shares or units).
Importantly, s 18 of the Foreign Acquisitions and Takeovers Legislation Amendment Act 2015 will determine a
beneficiary’s deemed percentage interest in a discretionary trust based upon ‘the maximum percentage of
income or property of the trust that the trustee may distribute to that beneficiary’. Technically this provision
might cause any Australian discretionary trust with even one IFP beneficiary to be a ‘foreign person’ (even
where the IFP beneficiary does not receive distributions from the trust).

A number of exception provisions and thresholds (which are beyond the scope of this Guide) may protect
various foreign person individuals or entities from requirements to apply and pay fees to the FIRB (depending on
the particular circumstances involved). Importantly, however, once foreign person status and agricultural land
status are present, there are no such exceptions to the ATO Agricultural Land Register requirement explained
below. This has particular implications for agricultural land held by discretionary trusts (for the reasons noted
above).
©Tax Astute Pty Ltd (as Trustee for the Tax Astute Trust) 2016
Page 3
SNAPSHOT
This document and its associated content are
provided for personal training purposes only
and are subject to the Copyright & Disclaimer
Statement on page 5.
Is your client a surprise ‘foreign person’ investor? (New Foreign Investment Legislation)
ATO Agricultural Land Register requirements
The ATO Agricultural Land Register requirements apply only where:

any ‘foreign person’ (see above) holds a freehold interest (or leasehold or similar right with > 5 years’ expected
duration);

in ‘agricultural land’ which is very broadly defined as land which is used, or could reasonably be used, for a
Primary Production business (subject to very limited exceptions).
It is important to understand the new Agricultural Land Register requirements due to:

the broad definition of ‘foreign person’ (which is likely to include many Australian discretionary trusts); and

the very limited access to exceptions once foreign person and agricultural land status is present; and

the forthcoming 29 February 2016 registration deadline which applies even to pre-existing agricultural land held
from 1 July 2015 (i.e. prior to the 1 December 2015 commencement date of the new foreign investment
legislation generally).
As shown below a ‘foreign person’ holding the freehold (or a leasehold or other right with > 5 years’ reasonably
expected duration) in agricultural land will be required to report to the ATO in approved form:

by no later than 29 February 2016 for interests held as at 1 July 2015 (or acquired between 1 July 2015 and 31
January 2016) (see A below); and

within 30 days after any post 1 July 2015 Registration Trigger Time (e.g. changes in foreign person status or
agricultural land status or ownership such as purchase, sale, rezoning or residence changes) (see B below).
W HEN is a
Foreign Person
required to
register
Agricultural
Land I nterest
w ith ATO?
FOREI GN PERSON
Corporation
or Trust
A
Holds Freehold
( or Leasehold/
Right w ith > 5
years expected
duration)
ANY VALUE
B
Held @
1/ 7/ 15
or up to
31/ 1/ 16
OR
AGRI CULTURAL LAND
Report to ATO
Used ( or could reasonably be
by 2 9 / 2 / 1 6
used)
for Prim ary Production business
z
REGI STRATI ON TRI GGER TI ME
Any post 1 / 7 / 1 5 change in
Foreign Person Status
OR
Agricultural Land Status or
Ow nership
( e.g. purchase/ sale/ rezoning)
Report to ATO w ithin
3 0 days of trigger tim e
MAY be subject to future
regulation exem ptions
NOTE
While no fee is payable when registering Agricultural Land, the Tax Office Agricultural Land Register instructions (see
ATO Link) require a substantial amount of information including title and market valuation details, with additional
©Tax Astute Pty Ltd (as Trustee for the Tax Astute Trust) 2016
Page 4
SNAPSHOT
This document and its associated content are
provided for personal training purposes only
and are subject to the Copyright & Disclaimer
Statement on page 5.
Is your client a surprise ‘foreign person’ investor? (New Foreign Investment Legislation)
registration forms required if agricultural land is held on > 1 title. Failure to comply with the above requirements
within the time limits shown may result in administrative penalties of up to $3,600.
Review the online recording of this summary in under 10 minutes: > CLICK EHERE <
WANT MORE DETAILS?
In addition to details available at www.taxastute.com.au, Tax Astute clients receive more information and
specific details, questions and answers underlying the brief snapshot summary above as a part of their:

Tax Astute training session;

Tax Astute reference guide; and
 detailed Tax Astute multimedia recording.
COPYRIGHT & DISCLAIMER
STATEMENT
©Tax Astute Pty Ltd (as Trustee for the Tax Astute Trust) 2016
This training material snapshot summary is subject to copyright and may not be reproduced,
reused or adapted in any manner, except in accordance with the Copyright Act 1968 (Cth) for bona
fide study purposes, other than with the express written consent of Tax Astute Pty Ltd (as Trustee
for the Tax Astute Trust).
This material has been prepared with the objective of maximising accuracy and currency, but is
provided for personal educational purposes only and must not be relied on as legal, financial or
any other type of advice. Tax Astute Pty Ltd (as Trustee for the Tax Astute Trust) hereby excludes
any and all liability arising, whether directly or indirectly, from the use of this training material
snapshot summary and any information contained herein.
©Tax Astute Pty Ltd (as Trustee for the Tax Astute Trust) 2016
Page 5