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Do you need FIRB approval before purchasing ‘agricultural land’ in Australia? Consider three key questions

Do you need FIRB approval before purchasing ‘agricultural land’ in Australia? Consider three key questions

By Sandy Lai

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As a foreign non-governmental investor and an intending purchaser of agricultural land in Australia, you should consider the following three key questions (among the other issues) from the FIRB’s perspective before entering into any binding contract or arrangement:

  • Will the land be considered as agricultural land?
  • Will the land also be considered as other type of land?
  • What are the monetary thresholds applicable to each relevant type of land? 

 

1.Will the land be considered as agricultural land?

‘Agricultural land’ is defined under the Foreign Acquisitions and Takeovers Act 1975 and its regulations (together the Act). It is defined as ‘land in Australia that is used, or that could reasonably be used, for a primary production business’. 

This includes land which is partially used for a primary production business, or land where only part of the land could reasonably be used for a primary production business.

‘Primary production business’ in the Act has the same meaning as in the Income Tax Assessment Act 1997 and means a business of:

  • cultivating or propagating plants, fungi or their products or parts (including seeds, spores, bulbs and similar things), in any physical environment
  • maintaining animals for the purpose of selling them or their bodily produce (including natural increase)
  • manufacturing dairy produce from raw material that you produced
  • conducting operations relating directly to taking or catching fish, turtles, dugong, bêche-de-mer, crustaceans or aquatic molluscs
  • conducting operations relating directly to taking or culturing pearls or pearl shell
  • planting or tending trees in a plantation or forest that are intended to be felled
  • felling trees in a plantation or forest
  • transporting trees, or parts of trees, that you felled in a plantation or forest to the place (i) where they are first to be milled or processed; or (ii) from which they are to be transported to the place where they are first to be milled or processed

The definition of agricultural land includes not only land which is currently used for a primary production business but also land that ‘could reasonably be used for a primary production business’. The question as to whether land ‘could reasonably be used for a primary production business’ depends on the facts and circumstances of the land in question.

Factors that may provide a reasonable indicator include the following:

  • the primary uses allowed on the land under its zoning
  • land use history
  • land characteristics, such as, climate, crop yield, land size, remoteness, soil quality, stock holding capacity, topography, vegetation and water availability
  • lease or licence conditions or limitations which allows or do not permit use for one or more primary production business

Notwithstanding the land in question falls within the general definition of agricultural land, there are numerous express exclusions from the definition of agricultural land. Land which is being used for certain specific purposes (such as an operating mine) or with certain characteristics (for example, the area of the land is one hectare or less) is expressly excluded. You should consider if any one or more of the exclusions apply to the land in question.

If the land in question is not considered to be agricultural land, you should consider what other type of land it will be classified as, and consider whether FIRB approval is required accordingly.

 

2. Will the land also be considered as other type of land?

If the land in question is considered to be agricultural land, you should also consider whether the land will at the same time also be considered as other type of land. FIRB has issued guidance notes to provide some explanations in this respect.

According to guidance notes issued by FIRB, there are circumstances where different types of land may coexist on the same title of land and multiple applications for FIRB approval may be required in one acquisition (subject to applicable monetary thresholds, if any).

Land with an established residential dwelling may also be considered as residential land. In general, acquisitions will be considered on a case-by-case basis. Consideration will be given to numerous factors, which include: the number, nature and size of the dwelling(s), their existing use and tax treatment. You will need to seek detailed information from the vendor for this purpose.

The typical example of residential dwelling being incidental to an agricultural land is when that land is currently being used as a primary production business, there is one established dwelling on the land used as the farmer’s residence and the dwelling takes up a small portion of the total area of the land in question.

FIRB pointed out in a guidance note that unless the residential dwelling is considered as incidental to land currently used wholly and exclusively for a primary production business, the acquisition of an agricultural land with a residential dwelling will still be a notifiable action for residential land (i.e. FIRB approval for acquiring residential land is required, no matter whether FIRB approval for acquiring agricultural land is required).

 

3. What are the monetary thresholds applicable to each relevant type of land?

Different monetary thresholds apply to different types of land. FIRB approval for purchasing is not required unless the proposed acquisition is above the applicable threshold.

There is no monetary threshold for residential land. 

The standard monetary threshold for agricultural land is A$15 million cumulative, which includes the purchase price for the proposed acquisition of land in question and takes into account of the total value of all interests in Australian agricultural land held by you (as a foreign person) and your associates. Definition of ‘associate’ is broad and includes for example relatives of an individual, holding company and senior officer of a company, and trustee of a trust. 

The standard monetary threshold for agricultural land applies to most of the non-governmental investors, including investors from China, Japan, Korea and Singapore. Different monetary thresholds apply to investors from Chile, New Zealand, United States and Thailand.

4. Important note

Each proposed acquisition should be considered separately in the context of the particular factual circumstances. You should consider seeking professional advice on any proposed acquisition before entering into any binding agreement or arrangement. There are criminal and civil penalties for contravention of the requirements for FIRB approval. 

 

Sandy Lai, special counsel, HWL Ebsworth Lawyers

 

Want to find out more? Register for the LIV's Foreign Investment Update on 28 March where Sandy Lai will be speaking on foreign investment business transactions. This update will also explore what your client should know when investing in Australian property, and the latest developments in tax and foreign residents.For more information, see here.


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