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FIRB rules for agricultural land
It’s no secret that Australia’s farmland is highly coveted by many foreign investors.
More than ever, the government is scrutinising farmland purchases by foreign buyers, with certain acquisitions now needing a green light from Foreign Investment Review Board (FIRB) before they can go ahead.
Amid changes to FIRB requirements in 2015, the question is, when do you need FIRB approval to buy a farm and can you avoid it?
Buying agricultural land in Australia
As a foreigner, you may need to notify the FIRB and receive a no objection notification before you can go ahead with the purchase of farmland.
However, this only applies to certain types of foreigners and if the agricultural land itself meets certain thresholds and characteristics.
No matter what, it’s important to do your homework before applying for a farm loan.
Do I need FIRB approval to buy farmland?
The easiest way to find this out is to ask these three important questions.
Are you actually a non-resident?
The following people do not need FIRB approval
- Australian citizens.
- Australian expats. Even though they are non-residents, they are still considered to be Australian citizens.
- Permanent residents. Even though you’re not a citizen, you’re living in Australia on a long-term basis via a working visa.
- New Zealand citizens.
The farm can either be owner-occupied or purely for investment purposes.
The following people may need FIRB approval
- Temporary residents.
- Foreign investors.
You may still need an approval from the FIRB if you’re a non-resident but your spouse or business partner is an Australian citizen or vice versa, unlike buying residential property.
Even if you don’t require FIRB approval, your non-resident business partner or spouse is still classed as a beneficiary of your investment in the eyes of the government so you will still need the all clear.
Is your investment worth more than $15 million?
Previously, the threshold for notifying FIRB of your intention to buy agricultural land was $252 million.
Today, the threshold is $15 million, meaning that if the land is worth more than this, you may need to submit an online FIRB application notifying Treasury of your purchase.
This is of course if you’re considered to be a temporary resident or foreign investor.
If it’s less than $15 million, you won’t need FIRB approval at all!
Be careful! FIRB’s threshold test is cumulative!
What this means is that FIRB will take into account the value of any agricultural land that you currently own (or have an interest in).
For example, if you previously acquired agricultural land valued at $10 million, you wouldn’t have been required to notify FIRB.
However, if you intend to buy another piece of land valued at $7 million, you will exceed the $15 million threshold and will need to report this purchase and the details of your current land ownership to the board.
Are you from an FTA country?
Even if you’re a foreign investor or temporary resident and the value of the acquisition is $15 million or more, you can still avoid the need for FIRB approval!
The FIRB approval threshold for country signatories of the Australian government’s Free Trade Agreement (FTA) is $1,094 million for agricultural being used exclusively for primary business.
These acceptable countries are currently:
- New Zealand.
- The United States.
Singapore and Thailand are also part of the FTA, however, foreign investors from these countries will be required to notify FIRB if the land is valued at more than $50 million.
Similarly, China, Japan and Korea, who are also FTA partners, must adhere to the lower threshold of $15 million as applies to other non-FTA investors.
Note: The increased thresholds don’t apply to foreign government investors.
We recommend that you check out the ‘Agricultural land investments‘ page on the FIRB website for more specific information.
You still need to register with the ATO
As of 1 December 2015, foreigners who own, or have an interest in, Australian agricultural land are required to notify the Australian Taxation Office (ATO) of their interest, as per the Foreign Ownership of Agricultural Land Act 2015.
These requirements are for foreign investors who:
- Have an interest in agricultural land as of 1 July 2015 or acquire an interest or change that interest after that date.
- Plan to purchase farmland worth $15 million or more.
What is considered to be agricultural land?
FIRB’s definition of farm or agricultural land refers to Australian land that could in some capacity be used for agricultural use.
This typically applies to:
- Land that has local zoning laws permitting primary business activities.
- Land that was previously used for primary production.
- Land that is sufficiently large enough for primary business, in a rural location and situated away from basic transport services and infrastructure.
- Lease or licence conditions on the land allowing for primary business.
What is a primary business?
When talking about land that could be reasonably used for primary business, it typically refers to land that can support the following activities:
- Growing plants and vegetables.
- Breeding and selling animals for commercial purposes.
- Tree felling and processing.
- Dairy farming.
What about fishing farming?
Land that only supports the primary businesses of fish farming or oyster beds via estuaries and bays would not be considered agricultural land.
What about vacant land?
If the rural land you’re looking to purchase is actually deemed to be vacant land for development purposes, you will still need FIRB approval no matter the land value.
This type of zoning changes happens quite a lot in areas that were once farmland but have since been bought up by developers.
It can still be a huge investment opportunity!
Your FIRB application will usually be accepted by FIRB if development commences within 5 years of the date of approval and you do not sell the land until construction is complete.
Buying an agribusiness
FIRB approval for buying an agribusiness is a little different to buying a farmland as an investment.
There are particular thresholds and requirements that apply specifically to business entities operating in this sector so be careful.
When does FIRB approval apply?
You’ll need to notify the board of your intended purchase when direct investment in an agribusiness exceeds $55 million.
However, this only applies to temporary residents and foreign investors, just like buying agricultural land.
What about FTA countries?
Investors from New Zealand, the US, and Chile are subject to the higher threshold ($1,094 million) that applies to signatories of the Free Trade Agreement.
The key difference here is that Singapore and Thailand are not considered for the purposes of buying an agribusiness. This means that the lower threshold of $55 million applies.
What does “direct investment” mean?
This means that you either have:
- An interest of at least 10% in the agribusiness.
- A 5% stake in the business if the person who acquires the interest has entered a legal arrangement relating to the businesses of the person and the business.
- Any interest in the business if you have some control over business decisions or management.
Is it an agribusiness?
The activities undertaken by the agribusiness should be of significant commercial purpose and on a regular ongoing basis.
Although it doesn’t have to be its sole source of revenue, the earnings before interest and tax (EBIT) for the past financial year should be more than 25% of total earnings.
According to FIRB, agribusiness activities include but isn’t limited to:
- The production of meat, poultry, seafood and dairy products like milk, cream, and cheese.
- Fruit and vegetable processing.
- Sugar production.
How to get FIRB approval
When buying Australian farmland, it’s essential that non-residents be compliant with the foreign investment framework.
There are certain things that you can do to make the process smooth and avoid hefty fines.
When should I notify FIRB?
If you meet the requirements of notifying the government of your proposed purchase, you should submit your FIRB application before applying for a commercial loan.
You simply won’t be able to go ahead with the purchase without getting a statement of no objection from the board so it will be a waste of your time applying for finance.
If you proceed with the transaction prior to getting FIRB approval, you could face heavy fines and the Treasurer may issue a disposal order to unwind the acquisition.
Fines can range anywhere from $45,000 to criminal penalties of up to $135,000 or 3 years imprisonment.
By following the right process and getting approved, we can then help you qualify for a farm loan.
Non-residents can actually qualify for the same interest rates and borrow up to 70% of the purchase price just like Australian citizens.
How do I notify FIRB?
If you’re required to notify Treasury of your proposed purchase, you can simply apply via the ‘Applications‘ page on the FIRB website.
It can take up to 10 days to receive a reply from FIRB regarding your application.
How much does it cost?
Application fees vary depending on land value:
- $1 million or less: $5,000
- $1 million to $1,999,999: $10,000
- $2 million to $2,999,999: $20,000
- Over $3 million: $10,000 per $1 million up to a maximum of $100,000
An application fee of $25,000 applies to an acquisition of an agribusiness or assets of an agribusiness valued at $1 billion or less while a $100,000 fee applies to acquisitions of interests in agribusiness valued above $1 billion.
What happens next?
Upon reviewing your application, Treasury may decide to either allow the purchase with no conditions or on the condition that certain requirements be met so the purchase is in the national interest. This is known as a no objection notification.
FIRB may, of course, decide to knock back the purchase altogether in which case you won’t be able to buy the land.
This rarely happens although the purchase of farmland by foreigners has come under heavy scrutiny by the government and media over the past few years so it’s not out of the question.
Can I apply for an exemption?
You may be able to get an exemption from FIRB if the maximum value of the purchase is $10 million. Other conditions apply so it’s best to make an enquiry with the board.
Investment in farmland and agribusiness by non-residents is growing which means there are still opportunities for savvy foreign investors.
However, it also means a higher level of scrutiny placed on these types of acquisitions.
Why does FIRB care about farms?
In a nutshell, the Foreign Investment Review Board was tasked to oversee purchases in the agricultural land and agribusiness space because concerns from all sides of politics have long been raised about food security, competition and protecting Australia’s revenue base.
This is the reason why changes were made to decrease the reporting threshold from $252 million to $15 million and requiring all proposed acquisitions to be reported to the ATO via the Foreign Ownership Land Register.
The register was essentially introduced because really didn’t have good data on the location, property sizes, and size of interest acquired on new foreign investment in agricultural land.
Lower screening thresholds for agricultural land and agribusiness will also mean that more of these acquisitions are actually seen by FIRB
Why do foreigners invest in agricultural land?
There are several reasons why agricultural investment is ramping up but, of course, you should seek your own independent financial advice before making any substantial financial decision.
These reasons include:
- Being able to use the land for life if used sustainably.
- Demand for meat, dairy and produce is growing, particularly in the Asian region so investors are willing to pay a premium for good farmland.
- New industries like biofuel production are also pushing up demand for land.
Do you need a commercial loan?
We’re experts in commercial property loans for non-residents!
As specialist mortgage brokers, we know exactly what banks want to see in an application.
Please call us on 1300 889 743 or fill in our online enquiry form today.