Foreign buyers forced to sell $100m of property

Since the government began its crackdown on illegally-acquired properties, there have been a total number of 61 forced sales, with a combined value of $107 million.

The latest 15 properties, which have a combined purchase price of more than $14 million, include a $5.9-million home bought by an Indian national in Rockbank, Victoria, and a $1.1-million property in Doncaster, Victoria, bought by a Chinese national.

According to the Hon. Scott Morrison, the Chinese, British, Indian, Malaysian, Indonesian, Iranian and German investors acquired their properties without Foreign Investment Review Board (FIRB) approval, in breach of the rules brought in during 2010 which restricts offshore buyers to purchasing new property, and only after gaining approval.

Further, it was found that some of the investors held multiple established properties in Australia, in breach of Australia’s foreign investment framework.

According to Mr Morrison, the ATO identified these breaches through data-matching programs and through information provided by the public.

Mr Morrison commented: “The Turnbull government is committed to enforcing our rules so that foreign nationals illegally holding Australian property are identified and their illegal holdings relinquished.

“The forced sale of over $100-million worth of Australia property underscores the Turnbull government’s determination to enforce our rules so foreign nationals illegally holding Australian property are identified and illegal holdings relinquished…

“The ATO has detected more than 570 foreign nationals who have breached the rules. This has resulted in forced sales, self-disposals, variations to previously approved FIRB applications and retrospective approvals with strict conditions. Breaches of these conditions will result in civil penalties or criminal prosecution.”

The Property Council of Australia welcomed the decision, with its chief of policy and housing Glenn Byres stating: “The foreign investment framework is clear, in place for good reason and it’s essential the rules are upheld. We support the rules and we support the enforcement of the rules. There should be no ambiguity about that.

“The vast bulk of foreign investment is – and should – be directed towards new product, and investment via pre-sales helps projects convert from concept to construction. This is the right approach as Australia currently has a housing deficit in the order of 200,000 homes.

“Strict application of the rules means the public is more likely to embrace foreign investment which is positive through the creation of new housing supply, jobs and economic growth.”

Under the government’s enhanced penalty regime, the ATO has issued 388 penalty notices to foreign nationals in breach of the rules, attracting penalties of more than $2 million. Penalty notices have been issued to people who have failed to obtain FIRB approval before buying property as well as for breaching a condition of previously approved applications.

ATO to review corporate tax

The tax office has been increasingly concerned with the way Australian property is being bought by investors – and announced this week that it is “reviewing arrangements which attempt to fragment integrated trading businesses in order to re-characterise trading income into more favourably taxed passive income”.

These largely relate to trust structures based on stapled securities, which have enabled some foreign investors to pay a discounted tax rate of 15 per cent, rather than the corporate tax rate of 30 per cent.

According to the ATO, these tax avoidance arrangements have the potential to erode the corporate tax base, “particularly where they are promoted to overseas investors as a way to acquire tax advantages in Australia”.

It is thought that the changes could result in foreign investors paying tens of billions more dollars in tax.

The ATO commented: “We are engaging more closely with taxpayers who have proposed these arrangements to explore the issues of concern and ensure that arrangements… do not seek to avoid the payment of corporate tax. Taxpayers and advisors who implement these types of arrangements will be subject to increased scrutiny.

“We are continuing to develop our technical position on these arrangements and expect to issue further guidance in respect of our concerns.”

[Related: Hundreds of foreign investors under investigation]