Recent developments in foreign investment (FIRB) regulation

What you need to know 13 min read

The Federal Government's recent changes to foreign investment policies released on 14 March 2025 introduce significant modifications.

In this Insight, we:

• examine the Government's latest foreign investment policy changes in respect of the acquisition by foreign persons of established dwellings, application fees in competitive bid processes, concessional fee treatment for build to rent investments and scrutiny of tax arrangements, each as reflected in updated guidance notes released on 14 March 2025;
• explain how, and to what extent, the upcoming federal election is expected to impact FIRB applications;
• consider the Federal Opposition's proposal to establish a 'white list' for trusted investors from Quad, Five Eyes, and AUKUS countries;
• comment on Treasury's new Foreign Investment Portal for applications and compliance reporting; and
• identify some points of interest from Treasury's latest quarterly report on foreign investment.

Key takeaways

• Foreign persons are banned from buying established dwellings from 1 April 2025 to 31 March 2027, subject to limited exceptions in relation to certain redevelopments, commercial scale developments and build-to-rent (BTR) projects.
• The Government has now published its policy on fee refunds and fee credits where a bidder is unsuccessful in a competitive bid process. While further clarity is helpful, there are prescriptive criteria which must be met. Decisions will still be made on a case-by-case basis.
• Application fees for investments in BTR projects are now subject to lower commercial land fee tiers.
• The Government's scrutiny of tax arrangements continues to increase. There are additional tax conditions (which we have seen imposed over the past 12 months or so) which may be imposed on a case-by-case basis.
• Once a federal election is called, the Government will enter into caretaker mode. During the caretaker period, Treasury officials still have delegated authority to determine certain applications. However, expect deferred decisions in respect of sensitive applications as they will need to be decided directly by the Treasurer.
• The Federal Opposition's 'white list' process is a welcome proposal, though it will be interesting to see what, if any, differences there are with the Government's existing policy of streamlining low-risk investments.
• Treasury's new Foreign Investment Portal is now live. Non-residential land compliance reports must now be submitted through the Portal. Once the final stage of the Portal is launched, the entire FIRB application process will be facilitated through the Portal.

Two-year ban on foreign persons buying established dwellings

For many years, successive federal governments have maintained a policy setting that generally prohibits foreign persons from purchasing established dwellings. There were limited exceptions, the main one being that temporary residents could apply for approval to purchase and retain ownership of an established dwelling so long as it was their principal place of residence.

On 16 February 2025, the Government closed this exception by announcing a ban on foreign persons buying established homes for at least two years, from 1 April 2025 to 31 March 2027. The stated objective was that 'Australians will be able to buy homes that would have otherwise been bought by foreign investors'.

On 14 March 2025, Treasury released an updated Residential Land guidance note which notes the ban, removes the exception for temporary residents and sets out limited exceptions to the ban. These exceptions include the following.

• Redevelopment into at least 20 additional dwellings: approval may be granted to a foreign person who proposes to redevelop an established dwelling into at least 20 additional dwellings, with no sales permitted prior to completion of construction. The previous exception only required a redevelopment to result in one additional dwelling.
• Commercial scale established dwellings: approval may be granted to a foreign person for an acquisition that supports the availability of housing on a commercial scale. For example, multi-unit developments such as retirement villages, assisted living or aged care facilities and student accommodation. This is a new exception in the guidance note, however it more or less reflects current practice.
• Build-to-rent developments: approval may be granted to a foreign person for acquisition of established BTR developments, provided certain conditions are met. The exception applies not only to direct acquisitions, but also to indirect acquisitions such as those of equity securities in entities that own BTR developments. The conditions include that the BTR development consists of at least 50 dwellings where each dwelling is offered for lease terms of at least five years, at least 10% of the dwellings are 'affordable dwellings', and that the foregoing remain satisfied during the shorter of the period in which the foreign person holds the interest and 15 years after the completion of the development.

A few observations:

• The 'exception' regarding BTR developments was first announced by the Government on 1 May 2024, but it is only now that further details have been made available.
• The guidance note does not allow for situations where a foreign person may have difficulty in procuring compliance with the conditions. For example, an acquirer of a minority interest would not normally have control over how the BTR development is managed. Unless a minority investor is able to obtain appropriate contractual protections regarding compliance with the conditions – such as a veto right to block any changes that could cause the development to cease to comply with the conditions – then the investor could in the future be forced to dispose of their interest so as to avoid breaching the conditions.
• Not all BTR developments will necessarily be characterised as 'residential land' under the FIRB regime. It is common for BTR developers to acquire vacant commercial land with the aim of developing BTR apartments, and for investors to provide funding at a time when the land has yet to become residential. Such a scenario is not caught by the recently announced ban.

Refund or credit of application fees in competitive bid processes

The Government's May 2024 Budget provided that foreign investment applicants would have 75% of their application fees refunded if they were unsuccessful in competitive bid processes. However, further details regarding this policy were only made available on 14 March 2025, with Treasury's release of an updated Fees guidance note.

The key takeaways are as follows.

A choice between a 75% refund or a 100% credit

• Options for a refund or credit: bidders can choose between a 75% refund (which must be applied for within six months after being informed of an unsuccessful bid) or a 100% credit for a subsequent FIRB application that is made within 24 months of the failed bid.
• Fee credit use: if a fee credit is issued, it can only be used once, even if the full value of the credit is not used for the first subsequent application where the credit is claimed.

Eligibility

• Criteria for a competitive bid process: there must be a competitive bid process where two or more parties place bids for an asset, and where the outcome is uncertain at the time the bids are made.
• No refund for a bid withdrawal: bidders cannot withdraw from the process before being notified that their bid was unsuccessful. Refunds or credits are not available if a bidder changes their mind or if the investment does not proceed for any other reason.
• Residential land not covered: bidders for residential land (such as bidders at public auctions) are not eligible for fee refunds or credits.
• Case-by-case decisions: decisions regarding fee refunds or credits are not automatic and will be made on a case-by-case basis. Supporting documentation will need to be provided to justify the refund or credit request.
• Supporting documentation: bidders should state in their FIRB application that they are participating in a competitive bid process. When applying for a fee refund or credit, a bidder should provide supporting documentation, preferably a statement from the vendor that the bidder participated in a competitive bid process and was genuinely unsuccessful. This will need to be built into sale processes if vendors require bidders to lodge FIRB applications upfront before the successful bidder is chosen.

There are some scenarios that are not addressed by the guidance note, and would therefore need to be dealt with via submissions in individual cases. For instance, the guidance note contemplates that an entity can apply for a refund or credit of a fee paid by another entity in the same corporate group. However, the guidance note does not address whether the credit is transferable between funds managed by the same manager or where there is a bid by a consortium.

Concessional fee treatment for BTR investments

On 10 December 2023, the Government announced that FIRB application fees for BTR projects would be subject to commercial land fee tiers, rather than the significantly higher residential land fee tiers. However, further details regarding this concessional fee treatment were only made available on 14 March 2025, with Treasury's release of an updated Fees guidance note.

However, the guidance note does not (but ought to) extend the concessional fee treatment to other types of land that are used for commercial-scale housing dwellings, such as retirement villages, assisted living, aged care facilities and student accommodation. We are aware that certain acquisitions of such types of land have, in the past, had the benefit of concessional fee treatment, so we encourage Treasury to reflect this in the guidance note.

Greater scrutiny of tax arrangements

On 14 March 2025, Treasury released an updated Tax conditions guidance note. It reflects the Government's increasing scrutiny of tax arrangements, being that the impact of tax risks in foreign investment proposals on Australian tax revenues is a key consideration of the national interest. The release of the updated tax guidance note was first foreshadowed in a 1 May 2024 announcement.

The updated guidance note largely codifies the tax risks that the Australian Taxation Office (ATO) has been focusing on over the past 12 or so months in the course of its review of foreign investment applications.

It also sets out more examples of tax conditions than in prior versions of the guidance note. These conditions largely reflect those that have been imposed in various no objection notifications over the past 12 months or so and may be imposed on a case-by-case basis. The guidance note no longer sets out 'standard tax conditions' relating to compliance with Australia's tax laws. It may be that the ATO no longer proposes to impose these types of conditions, given they merely replicate obligations already covered by Australia's extensive tax legislation.

Also of note is a revised Tax checklist containing the tax-related information that the ATO expects to be included in a FIRB application, in response to a list of questions set out in the checklist. Where such information is not included, the application must state when the information will be made available. The questions largely reflect those that are commonly put to applicants post-lodgement of an application. Given the foregoing, foreign investors will need to move away from the common practice of not including tax submissions in the application, and of waiting to see if the ATO asks the questions. It is expected that the new application Portal (discussed below) will contain tax-related questions which must be answered upfront in order to submit a FIRB application.

The impact of the upcoming federal election on FIRB applications

In Australia, there is a long-standing practice for the Government to enter into 'caretaker mode' once the Prime Minister advises the Governor-General to call an election (technically when the House of Representatives is dissolved). The caretaker period continues until the election result is clear or, if there is a change of government, until the new government is appointed.¹ Normally, the caretaker period lasts for about four to six weeks, but it will depend on how long in advance of an election it is called and how long it will take for a new government to be formed.

Key points to note regarding the caretaker period.

• Deferral of decisions on sensitive applications: during the caretaker period, the Government traditionally avoids making major policy decisions that are likely to commit an incoming government.² Given this, applications that relate to particularly sensitive investment proposals and which are to be decided directly by the Treasurer will likely be delayed until after the end of the caretaker period. If the election results in a change of government, expect that the new Treasurer will take at least a few weeks after formation of the new government to start making decisions on delayed applications.
• Continued decision-making under delegations: many applications can be decided by Treasury officials under delegated authority. For example, under a Treasury delegations instrument, Treasury and ATO officials generally have authority to make decisions on applications involving acquisition consideration of not more than A$100 million. Such applications will generally continue to be decided under delegation during the caretaker period.
• Continued assessment by government agencies: the review of FIRB applications by Treasury and government agencies continues during the caretaker period. However, there can be delays in reviews by government agencies if, as part of their review, they consult with government ministers on policy matters.

Federal Opposition's 'white list' proposal

On 5 March 2025, the Federal Opposition announced that, if elected, it would design a 'white list' process for trusted investors from Quad, Five Eyes and AUKUS countries (ie US, Canada, UK, New Zealand, India and Japan).

The Federal Opposition stated that the goal of the proposed white list process is to 'reduce the volume of paperwork', 'increase the pace of decisions' and reduce 'the number of times trusted partners need to go through the process, and pay the fees which are increasingly being used as a revenue source rather than genuine cost recovery'. The Federal Opposition also stated that 'rigorous national security checks will stay in place'.

The proposal is a welcome one, though by no means a new idea. It is similar to the 'fast-track' path that many foreign investors from Five Eyes countries have requested be put in place. The Federal Opposition has yet to release details on how the 'white list' process will operate, including what types of investors are eligible (eg whether investors need to have a minimum level of ultimate ownership by persons from those countries). It will be interesting to see how such a process might operate differently to the current Government's policy of streamlining low-risk investments as reflected in the current Foreign Investment Policy document.

Treasury's new Foreign Investment Portal

Treasury released the first stage of the new Foreign Investment Portal on 24 February 2025. Since then, all compliance reports under non-residential no objection notifications and exemption certificates must be submitted via the Portal. Such reports can no longer be made via email to Treasury, despite what is stated in a no objection notification or exemption certificate. This is the effect of the Foreign Acquisitions and Takeovers (Manner of Notification and Application) Approvals 2025 instrument.

It is expected that the final stage of the Portal will be launched by the end of April 2025, after which the entire FIRB application process will be facilitated via the Portal. This includes the submission of applications, payment of application fees and communications with Treasury. Foreign investors seeking to submit FIRB applications via the new Portal will need to set up a Portal account or have the applications submitted by an adviser's Portal account.

A key objective of the new Portal is to streamline the assessment process for applicants. However, the new Portal will result in some significant practical changes.

• Application cover letters will not be permitted under the new Portal. Rather, the Portal will contain fields for insertion of information. This will mean foreign investors and their advisers need to reconsider how they present complex or detailed information or information that is not fixed. For example, it is unlikely that the new Portal will accommodate information in tables, nor footnotes, nor diagrams that appear next to text to facilitate understanding of the relevant information, and it may be that the insertion of investor ownership percentage ranges are not permitted.
• The need to complete information fields will likely mean foreign investors will no longer be able to submit an application without providing all required information (eg information on the investors who have interests in the applicant).
• Applicants will no longer be allocated a case officer or case team. In fact, applicants will not know who at Treasury is looking after their application. Further, all communications in the Portal will be in writing, and Treasury has indicated that only in exceptional circumstances would there be calls or meetings between applicants and Treasury. For the more complex and sensitive investment proposals, we consider it important that Treasury continue its current practice of meeting with applicants or their advisers during an application assessment period.

Treasury's latest quarterly report on foreign investment

On 25 February 2025, Treasury released its latest Quarterly Report on Foreign Investment for the period from 1 July 2024 to 30 September 2024.

Some points of interest from the report.

• There was a median processing time of 34 days for approved commercial investment proposals for the quarter, compared to 41 days for the previous quarter. Note that this is a 'median', not 'average'. Given the lengthy processing times of many sensitive applications, the 'average' processing time would be significantly longer.
• During the quarter, 17 out of 20 mandatory national security investment proposals were approved without conditions, compared to 17 out of 25 for the previous quarter. It would be interesting to know whether any proposals were withdrawn due to high prospects of a rejection. The report discloses that 32 commercial investment proposals in total were withdrawn during the quarter.
• There were no commercial investment proposals prohibited during the quarter, compared to one for the previous quarter. Again, it would be interesting to know whether any proposals were withdrawn due to high prospects of a rejection.
• During the quarter, there were numerous approved residential investment proposals for applicants from Asian countries. We expect this figure will fall dramatically once the established dwellings ban described above takes effect on 1 April 2025.

If you wish to discuss how these developments could affect you, please contact any of the people below.