Australian Court issues first residential real estate penalty to foreign investor
The Federal Court of Australia issued handed down the first penalty order for a breach of Australia’s inbound foreign investment rules in respect of residential real estate, on 8 April, resulting in a total fine of AUD250,000 for the foreign investor.
In Commissioner of Taxation v Balasubramaniyan  FCA 374, the Australian Taxation Office (ATO) had identified the purchase of multiple properties by a foreign investor without permission from the Foreign Investment Review Board (FIRB) and therefore in breach of the Foreign Acquisitions and Takeover Act 1975 (FATA).
During 2016 and 2017, Australian temporary resident Vijay Balasubramaniyan made a series of four acquisitions of residential properties in in outer Melbourne. In July 2020, after a compliance investigation, the ATO filed proceedings in relation to six breaches of the FATA by him, for the purchase of the four properties without permission and for simultaneously owning two established properties at once, in contravention of the FATA.
Foreign investors are limited in the type of residential property they can acquire in Australia and must apply to the FIRB before doing so. Foreign investors found to be in breach of the FATA face civil penalties to enable the government to recapture capital gain or 25% of value of the property, whichever is greater.
As the acquisitions occurred in 2016 and 2017, the penalty and infringement regime in effect at that time was applied by the Court. The properties were sold as a result of ATO compliance action. In this case, the penalties imposed on the foreign investor was broadly in line with the net capital gain on the sale of the properties.
However, significant reforms to Australia’s inbound foreign investment rules came into force on 1 January 2021, which included substantial increases to the severity of penalties for non-compliance, as well as greater flexibility for the regulators to impose penalties via infringement notices without applying to a court.
“We welcome this decision as it is the first penalty decision under the FATA. This serves as a clear deterrent to other foreign investors who believe they can operate outside of the law,” said ATO Assistant Commissioner Keir Cornish.
“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 ATO said the case showed the strength of ATO’s data driven approach to monitoring compliance with Australia’s foreign investment rules.