The Foreign Acquisition and Takeover Act 1975 (Act) sets out when foreign persons cannot buy Australian Property, need approval to buy Australian Property or need to notify the Australian Government in respect of the intended purchase of Australian Property.
The ATO is currently undergoing data matching in respect of residency status for Foreign Persons who they suspect of having acquired interests in real estate in Australia. If you receive such a notice, we recommend you act immediately by seeking advice as you may be liable for potential civil and criminal penalties. Recent changes announced by the Government has meant that both foreign residents and temporary residents are now banned from purchasing existing dwellings.
This article also comments on Beneficiaries not ordinarily resident in Australia who are considering a change in trustee to their trust ought to consider whether FIRB approval the Act would apply in respect to their circumstances. Failure to comply and give notice to may constitute a breach of the Act giving rise to civil or criminal penalties. This article will outline the legislative mechanisms in place in regard to beneficiaries who are not ordinarily resident in Australia and considering a change in trusteeship.
ATO Data Matching Program
As a reminder, Australia has laws prescribing what a foreign person must do before, during and after they purchase Australian assets as set out in the Act. We note that the ATO monitors for non-compliance of foreign persons through:
- Using data and analytics to drive early intervention;
- Information sharing with other agencies as well as other third party providers; and
- Reviewing reports made by the community regarding non-compliance.
As such, it is essential that any laws regarding purchase of assets by foreign persons be followed, other civil or criminal penalties may be imposed.
Ban on Foreign Persons Purchasing Existing Residential Property
It was common practice for past Federal Governments to maintain a policy that generally prohibits foreign persons from purchasing established dwellings. There were limited exceptions with the main one being that temporary residents being able to apply for approval to buy an established residential property as long as it was their PPR.
Note that since 1 April 2025, the Government has banned temporary residents from buying established homes for at least two years as a way to address the housing challenge for first home buyers.
This change also includes temporary residents purchasing established residential properties for use as a PPR. Temporary residents can however apply for FIRB approval to purchase vacant land or new residential properties. The types of residential properties a foreign person, including a temporary resident, may purchase includes:
- A new or near-new dwelling
- An established dwelling for redevelopment
- An off-the-plan property
- Vacant residential land
- An established dwelling for a foreign company that employs workers from Pacific island countries and Timor-Leste and are required to provide housing for them.
The Legislation
In short, there is a foreign investment approval mechanism that regulates certain types of acquisitions by foreign persons. These acquisitions may relate to equity or legal interests in an Australian company, trust and interests in Australian land.
Further, the definition of foreign person is much broader than the dictionary meaning which leads to some interesting scenarios in the Act. “Foreign person” is enshrined in section 4 to mean either (our emphasis):
- An individual not ordinarily resident in Australia;
- A corporation in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or
- A corporation in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate interest; or
- The trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or
- The trustee of a trust in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or
- A foreign government; or
- Any other person, or any other person that meets the conditions, prescribed by the regulations.
Under (a), Australian citizens who are not ordinarily resident in Australia will be considered foreign persons. Additionally, a corporate trustee, incorporated in Australia, will also be considered a foreign person if the beneficiaries are also considered foreign persons under the Act. As such, an Australian corporation will be considered a foreign person if it has foreign beneficiaries despite the fact it is incorporated in Australia.
Note however that despite the fact that Australian citizens that are not ordinarily resident in Australia may be foreign persons, given their close connection to Australia, the regulations enable these class of people to purchase properties in Australia without requiring FIRB approval.
Broadly speaking, the Act prescribes that certain acquisitions made by foreign persons may fall within either:
- A compulsory notification and FIRB approval regime; or
- A voluntary notification and FIRB approval regime.
Central to the application of the compulsory notification system is whether a “notifiable action” and “significant action” occurs.
Section 43 of the Act provides that a significant action is as follows:
An action is a significant action if:
- The action is for a foreign person to acquire an interest in Australian land; and
- The threshold test is met in relation to the land
The definition of “notifiable action”, found in section 47of the Act, is as follows:
1.An action is a notifiable action if the conditions in this section are met
2.The first condition is that the action is any of the following:
- To acquire a direct interest in:
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- AN Australian entity that is an agribusiness; or
- An Australian business that is an agribusiness;
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- To acquire a substantial interest in an Australian entity;
- To acquire an interest in Australian land
3.The second condition is that the threshold test is met in relation to the entity, business or land
4.If subparagraph (2)(a)(i) or paragraph (b) applies, the third condition is that the entity is:
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- An Australian corporation that carries on an Australian business, whether alone or together with one or more persons; or
- An Australian unit trust; or
- An Australian entity that is the holding entity of an entity mentioned in subparagraph (a) or (b)
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5.The last condition is that the action is or is to be taken by a foreign person.
Assuming the threshold test is met, the assets outlined in (2) constitute the corpus of the trust, and there is a change in trusteeship where the beneficiaries are foreign persons (as defined in the Act), the change in trusteeship will give rise to a legal change in ownership and therefore, the trustee acquires a direct interest in respect to the trust assets. Note that the meaning of interests in various assets (i.e. securities, assets, trusts and land) defined in section 9 to 12 includes both legal and equitable interests.
Regard should also be had to Guidance Note 7 provided by the Foreign Investment Review Board.
A change in trustee of a trust (including where the new trustee is an Australian corporation) generally requires foreign investment approval where it involves the acquisition of an interest in land, securities or assets by a foreign person, and the relevant threshold is met.
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When the trust property is transferred to the new trustee, it may involve the acquisition of an interest in land, securities, or assets by a foreign person and therefore may be captured as an action under the Act requiring foreign investment approval. The relevant conditions of a significant action and/or notifiable action would need to be met, including any relevant monetary thresholds. It could also be a notifiable national security action or a reviewable national security action.
Through this, the prima facie position is that a change in trusteeship of a discretionary trust where there are foreign beneficiaries may be subject to the compulsory notification provisions.
There are however certain exemptions prescribed in the Foreign Acquisition and Takeovers Regulation 2015 (“The Regulations”). Division 3 of Part 3 of the Regulations prescribes exemptions for certain actions. Section 28 of the Regulations provide the following:
- This Division applies to the provisions of the Act, other than:
- The definition of foreign person in section 4 of the Act; and
- Any other provision of the Act to the extent that it relates to that definition.
The effect of this is that acquisitions of interests dealt with under Division 3 of Part 3 are not taken to be significant actions or notifiable actions.
Relevantly, regulation 35 prescribes the following:
- The excluded provisions do not apply in relation to an acquisition of an interest in Australian land by the following persons:
- An Australian citizen not ordinarily resident in Australia;
- A foreign person that is an Australian corporation and would not be a foreign person if interests held directly in it by any one or more of the following persons were disregarded:
- A person to whom either of paragraphs (a) and (c) applies;
- A person covered by a previous application of this paragraph;
- A foreign person that is the trustee of a resident trust at the time of the acquisition and would not be a foreign person if interests held directly in it by any one or more of the following persons were disregarded:
- A person to whom either paragraphs (a) and (b) applies;
- A person covered by a previous application of this paragraph;
- A charity operating in Australia primarily for the benefit of persons ordinarily resident in Australia.
Effectively, regulation 35 prescribes that the excluded provisions, being the provisions on significant actions and notifiable actions, do not apply where Australian citizens are involved. The following case study outlines how this operates in regard to a change in trustee where Australian citizens who are not ordinarily resident in Australia are involved.
In short, given the close connection to Australia the classes of persons outlined in regulation 35 have, this also importantly provides for an exemption for land acquisitions by these class of peoples effectively bypassing the FIRB approval regime.
Whilst no notification is required, a more conservative client may wish to notify FIRB with advising on their circumstances and whether notification may be required in respect of their circumstances.
Should you wish to discuss the above, please contact Tony Pointon and Andrew Pointon of our Taxation Team.
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