Australian homes purchased by foreign investors over the past 10 years will be randomly audited by the ATO as part of the crackdown on foreign investment announced by Prime Minister Tony Abbott over the weekend. "I’m determined to crack down on any illegal activity that could be putting upward pressure on property prices," said Abbott in announcing the new rules.
From December 1, criminal penalties will be increased to $127,500 or three years imprisonment for individuals and to $637,500 for companies who are found to breach Australia's foreign investment rules. The government is also introducing a civil penalty to capture any capital gain made on divestment of a property to ensure people who break the rules will not profit. Real estate professionals who knowingly assist a foreign investor to breach the rules will now also be subject to civil and criminal penalties, including fines of $42,500 for individuals and $212,500 for companies.
For residential properties valued at $1 million or less, foreign investors will now also pay an application fee of $5,000. Higher fees will apply to more expensive residential properties as well as business, agriculture and commercial real estate applications.
From today, responsibility for foreign investment residential applications will be transferred from the Foreign Investment Review Board to the Australian Taxation Office, who will use data matching technology to check against databases held by the Department of Border Protection and Immigration and the Australian Transaction Reports and Analysis Centre. The ATO will be issuing letters to individuals and companies suspected to be involved in breaches of the foreign investment framework, and will also conduct investigations of property sales reported to them by the public.
Kelly O'Dwyer, the former Chairman of the House Standing Committee on Economics who is now parliamentary secretary to Treasurer Joe Hockey, said she was delighted the government has accepted all of the committee's recommedations. "In the case of residential real estate, the current foreign investment regime aims to channel foreign investment into new homes for Australians to purchase or rent," said O'Dwyer in a statement. "The Government’s changes will ensure that this aim is fulfilled, and that the current rules that prohibit non-resident foreign investors from purchasing existing homes is enforced."
The Real Estate Institute of Australia will be working with the government to ensure the changes are workable for real estate agents, says Amanda Lynch, REIA CEO. "The penalties will be for those who ‘knowingly assist’ those breaking the law such as lodging false documents relating to company ownership and attempting to circumvent the rules," said Lynch. "They won’t affect agents who are given the wrong information by foreign buyers".
Lynch said the database is essential for compliance. "The rules have been breached by a minority of overseas investors and we support enforcement.But let’s not pretend that this will solve the housing affordability crisis. Governments need to have a serious look at the roadblocks in place like stamp duty, land release and developer taxes and charges.”