Back in December, a parliamentary committee into Managing Compliance with Foreign Investment Obligations for Residential Real Estatelambasted the Australian Tax Office (ATO) for failing miserably to enforce the rules precluding foreign nationals from purchasing established homes:
Despite at least 877 breaches of the country’s foreign ownership laws being uncovered in Victoria, the Australian Taxation Office has failed to land a single criminal prosecution since tough new laws came into effect more than three years ago…
Labor MP Julian Hill, the deputy chairman of the Public Accounts and Audits Committee, said it was “astonishing that there had been no prosecutions”…
A fortnight earlier, the parliamentary committee also revealed that not one intermediary facilitating illegal foreign sales (e.g. real estate agents, developers or conveyancers) had been prosecuted by the ATO.
Worse, in the case of the 316 forced disposals, the illegal foreign investors were allowed to keep the capital gains on the properties. So, there was zero downside from breaching the laws.
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Yesterday, the Foreign Investment Review Broad (FIRB) released its 2017-18 Annual Report, which outlined the following residential real estate compliance activities:
The data reported in this section is based on residential real estate compliance investigations undertaken by the ATO from 1 July 2017 to 30 June 2018.
During 2017–18, 1,710 cases18 were identified for investigation (up from 1,669 cases in 2016–17). Of these, 1,404 investigations were completed (1,409 in 2016–17), which identified 600 properties that were in breach of Australia’s foreign investment rules (up from 549) (see Table 4.1)…
As a percentage of the total number of breaches, this was an increase of four percentage points from 2016-17 (see Table 4.2 for further details on these outcomes).
In most circumstances (approximately 72 per cent of outcomes), an infringement notice, which imposes a financial penalty on a foreign person, was applied to breaches even if the application was subsequently given approval or conditions of approval changed. Infringement notice data is reported in Table 4.5…
As you can see, there were only 131 divestments (forced sales) in the 2017-18 year, whereas the average fine issued was a mere $5,073 – basically a slap on the wrist and more like a cost of doing business than a deterrent.
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The ATO’s lack of enforcement comes despite the legislation explicitly stating that a foreign national found having purchased an established dwelling without prior Foreign Investment Review Board (FIRB) approval, or having failed to dispose of a property once they have left Australia (in the case of temporary residents), faces the following penalties:
Criminal penalty of $135,000 or 3 years imprisonment; or
Civil penalty of the capital gain made on divestment of the property or 25% of the purchase price or market value of the property (whichever is greater).
Third parties that knowingly assist foreigners to illegally purchase Australian homes are also supposed to face penalties of $45,000 individually or $225,000 for a company, under the legislation.
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It is quite frankly astonishing that the ATO can vigorously pursue small businesses and individuals for minor avoidance or errors in tax returns, but turn a blind eye to illegal foreign buyers scooping-up Australian homes and pricing younger Australian out of the opportunity for home ownership.
Clearly, the Australian Government has little interest in actually policing illegal foreign buyers of real estate, and is tacitly complicit with the dirty money flooding into Australia’s homes and robbing young Australians of a housing future.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
