Foreign acquisition of residential land: a quick guide

24 February 2023

PDF Version [384KB]

Paula Pyburne
Law and Bills Digest Section

This quick guide sets out the operation of the rules which regulate the foreign acquisition of certain Australian land interests.

About residential land

The Foreign Acquisitions and Takeovers Act 1975 (the FATA) and the Foreign Acquisitions and Takeovers Regulation 2015 (the Regulations) set out the rules about foreign ownership of residential land in Australia.

For the purposes of the FATA, residential land is land in Australia if:

there is at least one dwelling on the land or
the number of dwellings that could reasonably be built on the land is less than 10 [section 19 of the Regulations].

The term does not include land which is used wholly and exclusively for a primary production business or on which the only dwellings are commercial residential premises [section 4].

FATA basics

The FATA applies to a foreign person, defined expansively to capture a range of foreign entities (such as foreign corporations, foreign governments and trustees of foreign trusts) and individuals ‘not ordinarily resident in Australia’ [section 4].

The FATA regulates the following actions:

a significant action being an action taken by a foreign person to acquire interests in securities, assets or Australian land (which includes residential land) provided that the threshold test is met [section 43]. Importantly, the threshold value for residential land has been set at $0. An action is a significant action if it results in a change in control involving a foreign person
[section 39]
a notifiable action being an action to acquire an interest in Australian land provided that the threshold test is met. Unlike significant actions, notifiable actions do not require a change in control [section 47] and
a notifiable national security action being an action that is taken, or proposed to be taken, by a foreign person such as acquiring an interest in Australian land that, at the time of acquisition, is national security land (defined in section 5 of the Regulations) [section 55B].

Need for approval

A foreign person who proposes to acquire an interest in residential land needs foreign investment approval before doing so—regardless of its value [FIRB Guidance Note 6 page 3]. This is because such an acquisition is both a significant action and a notifiable action. The proposal will be subject to the national interest test [page 8].

The Government has published information about how it administers the foreign investment framework, including ‘national interest’ considerations. Currently:

The Government’s policy is to channel foreign investment into new dwellings, as opposed to established dwellings, as this creates additional jobs in the construction industry and helps support economic growth. It can also increase government revenues, in the form of stamp duties and other taxes, and from the overall higher economic growth that flows from the additional investment. Foreign investment applications are therefore generally considered in light of the overarching principle that the proposed investment should increase Australia’s housing stock [Guidance Note 6 page 1].

Applications

Applications are directed to the Foreign Investment Review Board (FIRB)—a non-statutory body established in 1976. Its role is to advise the Treasurer and the Government on Australia's foreign investment policy and its administration. Applications are submitted electronically using the Australian Taxation Office’s foreign investment application form. A fee is payable for all foreign investment applications. Fees are payable at the time of application [section 113].

Where there is only one action that is a significant action, the foreign person may seek a no objection notification (NON). The Treasurer can issue a NON if they consider that the investment is not contrary to the national interest. Where a person has been issued a NON in relation to an action, then provided that the person does not contravene any conditions imposed by the NON, the Treasurer will not be able to issue a prohibition or disposal order in relation to that action.

In the alternative, exemption certificates enable foreign persons to obtain up-front approval for a program of lower-risk investments over a period of time, rather than having to apply for a NON for each proposed investment [Guidance Note 9 page 1]. The exemption certificate specifies conditions that are required to be complied with [sections 58 and 60]. Further, compliance with the conditions specified in an exemption certificate can extinguish the Treasurer’s power to ‘call‑in’ a particular investment. (Any investment not otherwise notified, is able to be ‘called in’ [page 161] before, during or after the investment, on a case-by-case basis, if the Treasurer considers it raises national security concerns [section 66A]). However, the Treasurer’s ‘last resort power’ remains available for actions for which an exemption certificate has been given [Guidance Note 9 page 4]. The ‘last resort power’ in Division 3 of Part 3 of the FATA enables the Treasurer to re-assess an action that was the subject of a previous approval where the Treasurer considers that national security risks exist in relation to the action and:

there has been a material misstatement or omission in the information provided to the Treasurer in connection with the application process that directly relates to a national security risk
the business, structure or organisation of the person has, or the person’s activities have, materially changed and that change could not have reasonably been foreseen or was remote, or
the circumstances or the market relevant to the action have materially changed and have altered the nature of any national security risk.

Following a re-assessment of an action in reliance on this power, the Treasurer may make orders:

prohibiting a proposed action
ordering the disposal of any asset or interest acquired, or
varying existing conditions attached to an approval or imposing new conditions.

The Treasurer has 30 days to consider an application and make a decision about an NON [subsection 77(8)] or an exemption certificate [section 60 of the Regulations]. In certain circumstances, the Treasurer may extend this period by up to a further 90 days by providing written notice to the applicant [section 77 and section 77A]. Applicants will be informed of the Treasurer’s decision within 10 days of it being made [subsection 75(3)].

The timeframe for making a decision does not start until the correct fee has been paid
[section 114].

Powers of the Treasurer

The Treasurer may take the following actions upon considering whether the proposal is contrary to the national interest:

make an order prohibiting a proposed action [section 67]
make an interim order for a period of up to 90 days in which to consider an application
[section 68]
make a disposal order [section 69]—although there are limitations on the circumstances in which a disposal order may be made [section 70] and the time within which such an order may be made [section 77]
issue a NON imposing conditions [section 74] or an exemption certificate imposing conditions [section 60] which may subsequently be varied or revoked [subsection 74(4) for NON] and [section 62 for exemption certificates]
issue a NON not imposing conditions [section 75] and
if the Treasurer reasonably believes that the documents provided by the foreign person to support the application for a NON or an exemption certificate were false or misleading in a material particular he, or she, revoke the NON [section 76A] or vary or revoke the exemption certificate [section 62A].

Different types of residential land

Vacant land

Land is defined as being vacant if there is no substantive permanent building on the land that can be lawfully occupied by persons, goods or livestock. However, land is not vacant if a wind or solar power station is located on the surface of the land [section 5 of the Regulations].

Land that previously had a residential dwelling built on it would generally not be treated as vacant residential land. This is because a new dwelling built on the land may not genuinely increase the housing stock (as a dwelling already existed before its demolition) [Guidance Note 6 p. 4].

Foreign persons may apply for approval to purchase vacant residential land through either a NON (when seeking approval for a specified title of land), or through a Residential Land (other than Established Dwelling) Exemption Certificate [section 43B of the Regulations]. The Certificate allows a foreign person to acquire any vacant title of residential land without having to apply for individual approval for each title of land they attempt to purchase. A Residential Land (other than Established Dwelling) Exemption Certificate may specify certain conditions
[section 60], such as:

construction of all dwellings(s) being completed within four years from the date of notice of approval
evidence of the completion of the dwelling(s) being submitted to the Government within 30 days of being received and
the foreign person not selling, transferring, or otherwise disposing of their interest in the land prior to construction of all dwelling(s) being completed [Guidance Note 6 pages 4–5].

New (and near-new) dwellings

Foreign persons need to apply for and receive foreign investment approval before purchasing new dwellings. For the purposes of the FATA, the term new dwelling means a dwelling (except commercial residential premises) that will be, is being, or has been, built on residential land and that has not been previously sold as a dwelling and either:

has not been previously occupied or
if the dwelling is contained in a development and the dwelling was sold by the developer of the development—has not been previously occupied for more than 12 months in total [section 4].

A near-new dwelling is defined is a dwelling that:

will be, is being, or has been, built on residential land
is part of a residential development
was previously sold by the developer of that development, but the transaction failed to settle and
has not been previously occupied for more than 12 months in total [section 5 of the Regulations).

Property developers

Property developers (and other vendors) can apply for a New (or Near-New) Dwelling Exemption Certificate [section 43A of the Regulations]. Where a developer holds such a certificate, a foreign person purchasing a new (or near-new) dwelling in that development will not generally be required to seek their own individual foreign investment approval.

Developers (either Australian or foreign) can apply for a New (or Near-New) Dwelling Exemption Certificate for a specified development, if the development:

will consist of 50 or more dwellings (other than townhouses)
has development approval from the relevant government authority and
if applicable, foreign investment approval was given to purchase the land and any conditions are being met [Guidance Note 6 page 9].

An application for a New (or Near-New) Dwelling Exemption Certificate will generally be approved subject to the developer taking the following action:

marketing the dwellings for sale in Australia
selling no more than 50 per cent of the total number of dwellings in the development to foreign persons under the certificate
selling no more than $3 million worth of dwellings in the development to a single foreign person under the certificate
reporting to the Government, every six months (until all dwellings in the development are sold), on the dwellings sold to foreign persons under the certificate, including the purchaser details and the value of the sales
notifying the Government, within 30 days, if the number of dwellings in the development is reduced to less than 50 and
paying a fee for each dwelling sold under the certificate [Guidance Note 6, page 10].

Established dwellings for temporary residents

A temporary resident is an individual who:

holds a temporary visa under the Migration Act 1958 that allows the individual to remain in Australia for a continuous period of more than 12 months or
meets all of the following conditions—the individual is residing in Australia, has applied for a permanent visa under the Migration Act and holds a bridging visa under that Act that allows him, or her, to remain in Australia until the application has been finally determined or
meets the conditions prescribed by the regulations [section 4].

Temporary residents will normally be allowed to purchase only one established dwelling to live in as their residence (home) in Australia [subsection 95(1)].

Non-resident foreign persons are generally prohibited from purchasing established dwellings in Australia [subsection 95(4)].

Temporary residents may apply for approval to purchase an established dwelling through either a NON (when seeking approval for a specified property), or through an exemption certificate (when an exact property has not yet been identified) [section 59].

Established dwellings for redevelopment

Foreign persons and temporary residents generally need to apply for and receive foreign investment approval before purchasing established residential dwellings for redevelopment.

Foreign persons will normally be allowed to purchase an established dwelling for redevelopment in Australia, provided that the redevelopment genuinely increases the housing stock so that at least one additional dwelling will be created [Guidance Note 6 page 15].

Established dwellings for Australian-based employees

Foreign controlled companies are generally prohibited from purchasing established dwellings, although foreign companies with a substantial Australian business may be permitted to acquire established dwellings for the purpose of providing housing for their Australian based staff [Guidance Note 6 page 18].

To determine whether a business is substantial, consideration is given to the turnover, profit and asset base of the business, as well as the number of Australian based employees (both Australian and foreign) employed by the business [Guidance Note 6 page 18].

In making an application, foreign persons that operate a substantial Australian business will be required to demonstrate a genuine need to purchase one or more established dwellings to house Australian based employees. Consideration is given to a number of factors, including:

the type of business being operated
the location of the business operations—for instance, businesses operating in rural and remote areas are more likely to demonstrate a genuine need for established dwellings to house employees
difficulty in obtaining suitable rental accommodation on an ongoing basis and
difficulty in obtaining new dwellings or vacant land, or securing builders to build new dwellings [Guidance Note 6 page 18].

Vacancy fees

Under Part 6A of the FATA an annual vacancy fee is levied on foreign owners of residential property if their property is not residentially occupied or genuinely available on the rental market for at least 183 days (approximately six months) in a 12 month period [section 115C]. The fee is intended to encourage foreign owners of residential property to make their properties available for rent when they are not occupied as a residence, and so increase the number of properties available for Australians to live in [Explanatory Memorandum to originating Bill page 41].

A foreign person’s liability for the vacancy fee is assessed annually, based on the use of the property over the preceding 12 months (the vacancy year) [subsection 115C(2)]. Foreign owners must lodge a vacancy fee return – outlining the use of their property in the previous 12 months – within 30 days of the end of each vacancy year [section 115D].

The Treasurer may waive or remit the whole or a part of a vacancy fee if he, or she, is satisfied that it is not contrary to the national interest to do so [section 115H]. The vacancy fee may be recovered by the Treasurer or the Commissioner of Taxation as a debt due to the Commonwealth [section 115J].

Penalties and enforcement powers

The foreign investment laws include criminal and civil penalties for non-compliance as set out in the table below. Currently a penalty unit is equivalent to $275.

Conduct	Penalties
Failing to notify the Treasurer before acquiring an interest in residential land	Maximum criminal penalty is imprisonment for 10 years, or 15,000 penalty units (or 150,000 penalty units if the person is a corporation), or both [section 84]. Maximum civil penalty is the greatest of: (a) double the amount of the capital gain that was made or would be made on the disposal of the relevant residential land (b) 50% of the consideration and (c) 50% of the market value of the relevant residential land [subsection 94(4)].
Acquiring an interest in residential land, after notifying the Treasurer, but before receiving foreign investment approval	Maximum criminal penalty is imprisonment for 10 years, or 15,000 penalty units (or 150,000 penalty units if the person is a corporation), or both [section 85]. Maximum civil penalty is the greatest of: (a) double the amount of the capital gain that was made or would be made on the disposal of the relevant residential land (b) 50% of the consideration and (c) 50% of the market value of the relevant residential land [subsection 94(4)].
Providing the Treasurer with false or misleading information in an application for foreign investment approval for residential land	Maximum criminal penalty is imprisonment for 12months [Part 7.4 of the Criminal Code Act 1995]. Maximum civil penalty when the investor applies for a no objection notification, is the lesser of: (a) 2.5 million penalty units and (b) the greater of: (i) 5,000 penalty units (or 50,000 penalty units if the person is a corporation) or (ii) 75% of the value of the investment [subsection 98B(3) and section 98F]. Maximum civil penalty when the investor applies for an exemption certificate is 5,000 penalty units (or 50,000 penalty units if the person is a corporation) [subsection 98B(6)].
Engaging in conduct that contravenes an order made by the Treasurer under Part 3 of the FATA (for example, an order prohibiting the acquisition of residential land, or an order requiring the disposal of a residential property)	Maximum criminal penalty is imprisonment for 10 years, or 15,000 penalty units (or 150,000 penalty units if the person is a corporation), or both [section 86]. Maximum civil penalty is the lesser of: (a) 2.5 million penalty units and (b) the greater of: (i) 5,000 penalty units (or 50,000 penalty units if the person is a corporation) or (ii) 75% of the value of the investment [sections 89 and 98F].
Engaging in conduct that contravenes a condition applied to a no objection notification, notice imposing conditions, or in an exemption certificate relating to residential land	Maximum criminal penalty is imprisonment for 10 years, or 15,000 penalty units (or 150,000 penalty units if the person is a corporation), or both [section 87]. Maximum civil penalty when the investor fails to notify of an approved acquisition or sale, or fails to advertise the sale in Australia is 500 penalty units [section 97]. Maximum civil penalty (when the investor breaches any other condition) is the greatest of: (a) double the amount of the capital gain that was made or would be made on the disposal of the relevant residential land (b) 50% of the consideration and (c) 50% of the market value of the relevant residential land [section 96].

In addition to the criminal and civil penalties listed above, the FATA allows for less serious breaches of the foreign investment law in relation to residential land (these relate to liability for vacancy fees) to be punishable by way of an infringement notice [subsection 100(1)]. An infringement officer may issue an infringement notice if he, or she, believes on reasonable grounds that the person contravened a civil penalty provision relating to residential land. The framework for the use of infringement notices created by the Regulatory Powers (Standard Provisions) Act 2014 applies to infringement notices given for suspected contraventions of the FATA [Explanatory Memorandum to the originating Bill page 16].

Maintaining the Register

The Foreign Investment Reform (Protecting Australia’s National Security) Act 2020 amended the FATA to create the Register of Foreign Ownership of Australian Assets and to require a foreign person to notify the Registrar if they acquire or dispose of an interest in Australian land [Explanatory Memorandum to the originating Bill page 133]. According to the Australia Taxation Office the Register is expected to start on 1 July 2023.

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