Changes over the past 2 years to the Australian Government’s foreign investment policy and taxation regime have added more cost and another layer of paperwork when selling agricultural land.
Under the Foreign Acquisitions and Takeovers Act 1975 the purchase of agricultural land by a foreign entity requires Foreign Investment Review Board (FIRB) approval where the combined value of the land, together with any interests in agricultural land already held by the purchaser (and its associates), is valued at $15 million or more.
FIRB approval must be obtained before the purchaser enters into a contract unless the contract contains a ‘subject to FIRB approval’ clause.
Exceptions apply for acquisitions by certain treaty country investors including US, NZ, Chile and Thailand.
FIRB approval can take 1 or 2 months to obtain.
Open and transparent sale
One further condition that came into effect this year was the requirement that any farm sold to a foreign investor must have been sold as part of an open and transparent sale process.
- public marketing was undertaken for the sale of the property, using methods that Australian bidders could reasonably access (e.g. advertised on a widely used real estate listing site or large regional/national newspaper);
- the property was marketed for at least 30 days; and
- there was equal opportunity for bids or offers to be made for the property while still available for sale.
Special attention must be given to FIRB application fees for foreign buyers as they have the propensity to snowball quickly. Fees increase from $2,000 for a $2 million purchase and up to over $100,000 for purchases over $10 million.
The ATO gets involved
All sellers of interests in land with a sale price or market value of over $750,000 must provide the purchaser with a clearance certificate from the ATO or the purchaser must withhold 12.5% of the purchase price and pay it to the ATO under the foreign resident capital gains withholding regime.
The clearance certificate is certification from the ATO that the seller is an Australian resident for tax purposes and so is exempt from the foreign resident capital gains withholding regime.
Failure to present the certificate to a purchaser obliges a purchaser to withhold 12.5% of the sale price.
Sellers should make sure they apply for the clearance certificate when they start to market their property to make sure the sale is not delayed or they do not lose 12.5% of the sale price.
The take home message for owners looking to sell agricultural land is to allow for the extra time and cost of complying with the various obligations imposed on them or risk locking out the potentially lucrative foreign market or fighting the ATO to recover 12.5% of the sale price.
Foreign investors will need to factor in the time and cost for FIRB approval and make enquiries with the vendor to ensure that the advertising requirements have been met.