The Federal Court of Australia has issued the first penalty order for breaches of Australia’s foreign investments rules, attracting $250,000 in penalties. In addition, the foreign investor in breach has been penalised for purchasing several properties in outer Melbourne without obtaining authorisation from the Foreign Investment Review Board (FIRB).
From July 2016 up until April 2018, Vijay Balasubramaniyan spent over $1.4 million on three residential properties and one block of residential land in Melbourne’s outskirts.
Mr Balasubramaniyan moved to Australia on a temporary visa in 2015 before marrying his Australian wife in 2017.
Justice Jonathan Beach concurred with the ATO that Mr Balasubramaniyan, who was in the country on a temporary visa at the time, breached foreign investor rules six times – four times for the purchases, which occurred without permission, and for owning two established properties.
Mr Balasubramaniyan admitted buying into the Hoppers Crossing, Werribee and Aintree properties from 2016 to 2018 without noticing FIRB.
Ensuing the first prosecution of such a case, Justice Beach ordered penalties of $250,000, comprised of four $30,000 penalties and two $65,000 penalties. The amount was considerably higher than the $162,839 that Mr Balasubramaniyan proclaimed was his net gain.
“The judgment provides a strong base from which we will progress our penalty litigation work as part of the ATO’s overall compliance approach,” Keir Cornish, ATO assistant commissioner, stated.
The judgment sets a significant precedent for how the law manages foreign investors in Australia who do not notify authorities of their appropriation. It is the initial ruling since the government rewrote the Foreign Investment Review Board Act in 2015 to introduce civil penalties.
In July 2020, following a compliance investigation, the ATO filed proceedings concerning six breaches of the FATA by Mr Vijay Balasubramaniyan. As a result, the foreign investor purchased four properties without permission and simultaneously owned two established properties despite the Foreign Acquisitions and Takeover Act 1975.
Mr Balasubramaniyan admitted buying into the Hoppers Crossing, Werribee and Aintree properties from 2016 to 2018 failing to give notice to Foreign Investment Review Board, as required under the Foreign Acquisitions and Takeover Act 1975.
Foreign investors are restricted in the type of residential property they can acquire in Australia and must apply before doing so. Foreign investors in contravention of the Foreign Acquisitions and Takeover Act encounter civil penalties to enable the government to recoup capital gain or 25% of the property’s value, whichever is greater.
The foreign investor made capital gains amounting to $710,300 in gross terms. Making various deductions, the Commissioner said that the investor’s net gain was approximately $425,000. The investor had admitted the contraventions and disposed of each property, which the Judge considered.
Justice Beach was satisfied that a figure of around $250,000 represents no less than the investor’s net gain, which he wiped out by the total penalty he imposed. He stated that it is necessary to achieve the principal objective of general deterrence. He also governed that the investor should pay the Commissioner’s costs of the proceeding.
As it stands, the four Melbourne properties have been sold, putting them back on the market for Australian residents.
ATO Assistant Commissioner Keir Cornish embraced the decision concerning the first penalty order under the FATA and said that it served as a clear deterrent.
Mr Cornish stated, “There are obligations under Australian law for foreigners that have invested in, or plan to invest in Australian residential real estate. The ATO promotes voluntary compliance of the rules by foreign persons, but where foreign investors resist compliance action, stronger enforcement action is taken.”
The case shows the strength of ATO’s data-driven approach to monitoring compliance with Australia’s foreign investment rules. The properties were sold because of ATO compliance action, making these houses available to Australian residents.
Foreign investment is crucial to Australia’s prosperity. It has assisted in building Australia’s economy and will continue to amplify the well-being of Australians by reinforcing financial growth.
The ATO and the FIRB are the co-administrators of the Foreign Acquisitions and Takeover Act 1975 and have been responsible for monitoring foreign investment compliance in residential real estate since 2015. From 2015 to 2021, 434 properties were disposed of because of ATO compliance action.
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