Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)General outline and financial impact
Strengthening the foreign investment framework
This package of Bills makes changes to strengthen the integrity of Australia's foreign investment framework, ensuring Australia maintains a welcoming environment for foreign investment that is not contrary to Australia's national interest.
The Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015 (Bill) makes substantial changes to the Foreign Acquisitions and Takeovers Act 1975 (Act) to modernise the rules and strengthen the enforcement of the foreign investment system.
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- The Bill introduces civil penalties and additional and stricter criminal penalties to ensure foreign investors and intermediaries do not profit from breaking the rules.
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- The Bill enables the transfer to the Australian Taxation Office (ATO) of responsibility for regulating foreign investment in residential real estate, which will further enable stronger enforcement and better compliance with the existing rules.
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- The Bill also enables the lowering of screening thresholds for investments in Australian agriculture to ensure significant investments in this sector are scrutinised.
The Foreign Acquisitions and Takeovers Fees Imposition Bill 2015 (Imposition Bill) introduces fees on all foreign investment applications. Fees on foreign investment applications will ensure Australian taxpayers are no longer funding the administration of the system, while providing additional resourcing to the Treasury and the ATO to improve service delivery for investors.
The Register of Foreign Ownership of Agricultural Land Bill 2015 (Register Bill) complements these changes by establishing a register of foreign ownership of agricultural land operated by the ATO. Foreign persons are required to register information about their existing holdings and subsequent acquisitions and disposals of Australian agricultural land, providing greater transparency around the levels of foreign ownership of agricultural land.
Date of effect: The amendments apply from 1 December 2015.
Proposal announced: Proposals included in the Bills were announced by the Prime Minister, the Treasurer and the Minister for Agriculture in the joint Media Release titled Government tightens rules on foreign purchases of agricultural land of 11 February 2015; the Prime Minister and the Treasurer in the joint Media Release titled Government to strengthen Australia's foreign investment framework of 25 February 2015; and the Prime Minister and the Treasurer in the joint Media Release titled Government strengthens the foreign investment framework of 2 May 2015 and in the modernisation package agreed by the Government as released on the Foreign Investment Review Board site.
Financial impact: It is expected that this package of Bills will result in a $667.2 million increase to consolidated revenue over four years.
The introduction of application fees on foreign investment applications from 1 December 2015 is estimated to raise $735.0 million in revenue over the forward estimates period.
The 2015-16 Budget included additional funding for the Treasury ($19.7 million over four years), the ATO ($47.5 million over four years) and the Department of Agriculture ($0.6 million over four years) to support additional screening and compliance activities associated with the reforms.
Human rights implications: The package of Bills raises human rights issues. For the Bill and the Imposition Bill see Chapter 13 Statement of Compatibility with Human Rights. The Bill and the Imposition Bill are compatible with human rights because to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate. For the Register Bill, see Chapter 14, paragraphs 14.49 to 14.70. The Register Bill is compatible with human rights because to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate.
Compliance cost impact: Low. Screening of an additional 125 agricultural proposals per annum involves compliance costs of an estimated $1.25 million for foreign persons whose acquisitions would not previously have required foreign investment screening. The introduction of fees on foreign investment applications and the registration of the ownership of agricultural land also involves minor regulatory costs associated with the process of payments and registration. Offsetting these costs are changes to modernise and streamline the Act, reducing around $1.5 million of associated costs and providing greater certainty for investors.
Summary of regulation impact statement
Regulation impact on business
Impact: Small. Foreign persons will benefit from the reduced cost of complying with a modernised and streamlined foreign investment framework and will incur a cost from the imposition of fees for the processing of applications, additional screening of agricultural investments, and for the registration of foreign ownership of agricultural land.
Main points:
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- The measures have a small overall regulatory impact of $0.05 million.
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- Changes to modernise and streamline the Act remove around $1.5 million of associated costs.
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- The lower screening thresholds for agricultural land and agribusiness means around 125 additional proposals per annum require screening, at an estimated average cost of $10,000 per proposal.
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- The introduction of fees on foreign investment applications involves a total estimated regulatory cost of around $117,000 per annum for around 21,000 applications (or on average less than $6 per application). Under the Government's regulatory framework, the cost of filling out the application is considered regulatory while the application fee is not.
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- The registration of foreign ownership of agricultural land also has a minor regulatory impact on foreign persons.