Australian Taxation Office and its Roles in Foreign Investment

In February 2015, the Australian Government announced that the Australian Taxation Office (“ATO”) will be given the responsibility for both approving foreign investment in residential real estate and a new register of foreign investment in agricultural land. 

Reasons for giving ATO such power 

All foreign investment in Australia will be approved by the Australian Treasurer if there is no contrary to Australia’s national interest. Traditionally, the Treasurer only focused on factors such as the impact of the investment on the community and the economy. However, the potential loss of tax revenue through neglecting to consider the tax affairs has become an increasingly consideration. Accordingly, the then Treasurer Joe Hockey warned that he would take foreign investor’s tax affairs into account when considering whether or not a foreign investment proposal would contrary to Australia’s national interest. 

Further, the ATO’s effectiveness as an enforcer of Australia’s foreign investment rules is recognised by the Treasurer due to ATO’s ability to undertake data matching of Foreign Investment Review Board with other government-held information to identify any tax evasion by non-residents as well as non compliance with foreign investment rules. 

To further assist with the monitoring and enforcement of the new foreign investment rules, the ATO will refine and improve the use of its data matching system which enables them to electronically match documents and other data to identify non-compliance with registration, lodgement, reporting and payment obligations under the Australian taxation laws. The type of data and documents that typically go through the ATO’s data matching system will typically be information from tax returns, ASIC, land title offices, residential tenancy authorities, Australian Transaction Reports and Analysis Centre, and Foreign Investment Review Board, and other data received under the Common Reporting Standard. 

ATO’s powers 

The new powers are given to the ATO in the following stages: 

1. From May 2015, the ATO will immediately commence compliance activities to ensure foreign investors investing in Australian residential property meets their obligations under the Foreign Acquisition and Takeover Act 1975 (Cth). 

2. From 1 December 2015, the ATO will be responsible for: 

(a) processing and approving of applications received from foreign persons proposing to invest in Australian residential land; 

(b) the collection of fees in relation to all foreign investment applications; and 

(c) administering of the Agricultural Land Register. 

3. From 1 July 2016, the ATO will also be responsible for the administration of a register related to foreign ownership of residential real estate. 

The establishment of the Registers will strengthen the reporting requirements and compliance and to provide a clear picture of foreign investment in Australia’s residential real estate and the agricultural sector. This is largely due to the fact that foreign investment in residential real estate and agricultural land, regardless of its investment value, must registrate with the Register. 

Failure to comply with the requirements under the new regime would allow ATO to impose both civil and criminal penalties.

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