Foreign Investment in Agricultural Business in Australia: Taxation Laws and Implications

This paper discusses the taxation laws and implications of foreign investment in agricultural business in Australia. It covers land ownership, foreign investment thresholds, definition of foreign person, tax treatment, and recommendations for law reforms.

Executive summary
Every country has its policies concerning investors who are country residents and those who are
nonresidents. Australia has taxation laws that are implemented in small and big entities on both
residents and non-residents in this paper. We talk about the issues of land ownership in Australia
and what is required for one to own land. The paper talks about foreign investments focusing on
those who want to invest in agricultural business in the country as well as giving a definition of a
foreign investor according to the Australian taxation law and the implications of the Australian
law to foreign investors.
Contents
Executive summary.........................................................................................................................1
Introduction......................................................................................................................................1
Agricultural investment................................................................................................................2
Thresholds for agricultural business in Australia........................................................................2
Definition of foreign person.........................................................................................................4
A Foreign government.................................................................................................................4
An international company............................................................................................................4
How to determine interest in a company..................................................................................5
Requirements of Foreigners to investing in agricultural business in Australia........................5
The tax treatment and Implications to foreigners in Australia.....................................................6

Conclusion.......................................................................................................................................7
References........................................................................................................................................8
Introduction
Many countries have the resources they need to invest in agricultural business but most of them
have resorted to food importation except for a few countries among them brazil, Pakistan, Korea,
gulf estates and a many countries in the African continent .Australia invests in agricultural
business with 93% of its food supply coming from within the country. Many countries cannot
manage large farms and have failed in their quest to invest in agriculture, but Australia is among
those countries that are doing well in the agricultural business. Many investors now have the
interest to invest in agricultural business in Australia. Although purchasing land in Australia is
expensive compared to other countries, there are many advantages to investing in their
agricultural business. There is a developed infrastructure, ready markets for farm produce,
skilled labor, and a transparent government.
Agricultural investment
According to McLaren, (2015) foreign persons including foreign government investors need an
approval to invest in the agricultural business if the value that has been accumulated on
agricultural land holdings is more the $15 million. Only those countries that are part of the

Australian Trade Agreement act are excluded. All foreigners require approval to acquire
agricultural land.
The Australian taxation office register must approve ownership of foreign persons acquiring land
in Australia despite the interest value of the acquisition. Any foreigner who wishes to agree to
take a notifiable action should make their wishes known to the treasurer before they enter the
agreement (Butler, 2019)
The Treasury may decide Investing in the land that is a notifiable action requires the following;
 The treasury can decide to object to the action by not imposing condition not to oppose
as long as conditions are complied with to make sure the action doesn't go to the interests
of the nation and order a no objection notification that imposes requirements.
 He can order the stop of the proposed action if he decides that the action is against the
national interest. If significant action against the national interest as already been taken,
the treasurer can issue a disposal order to unwind the action then he can impose actions
(Hearn, 2016)
Thresholds for agricultural business in Australia
According to DeLong (2016), the threshold value of a foreign investor is determined by country
where the foreigner comes from. It will depend on whether the person is or is not a foreign
government investor. If the investor is a foreign government investor, the threshold value is nil
but for the non-foreign government investors, a cumulative threshold value of $15 million is
applied based on the interest value of the land and the acquisition of interest in the land held by
the foreign investor that amounts to more the $ 15 million.

The following are determinant factors, whether transparency and openness were applied in the
selling process or not.
 The scale of the process and the timetable of the sale process
 Given a number of those who were interested in the purchase as well as the number of the
Australian parties who participated in the sale process.
 Whether Australian parties who participated had a chance to bid for the land being
sold(Rogers, Lee, and Yan, 2015)
To be transparent and open in the whole process, the land being sold should be advertised in
public mediums like television, radio, newspaper and on a real estate website that is widely
known .the advertisement within six months before selling the land. All these are to make sure
there are equal chances for bids to purchase the land while it’s still on the market (Moshin, 2015)
Definition of a foreign person
According to the Australian taxation law, a foreigner is a person who is not ordinarily an
Australian resident.
A Foreign government
A foreign company
A company in which a person who is not an "ordinary" resident in Australia holds a significant
interest.
A firm in which a foreign government or organization own significant interest.
A trustee in which a foreign government, corporation or resident hold huge interest (Krause,
2015)

The following are also considered foreigners according to the Foreign Acquisitions and
Takeovers Regulation section 18.
 .limited partnerships in which the general partners are not ordinarily Australian residents,
foreign companies, or governments but they hold not less than 20% in the partnership.
Limited partnerships where two or more people who are not Australian residents, a
foreign government or company but they hold at least 40% interest in the limited
partnership (Landsberg and Scott, 2015)
Australian citizens who live abroad can be foreign persons according to the FITR act. No
specific section in the law determines whether an Australian citizen is "ordinarily resident" or
not.
How to determine interest in a company
According to section 18 of the FITR act, interest of a given percentage in a corporation is
 A portion of potential voting power in the company that the individual can control.
 Percentage of issued security in the firm that the individual with associate would hold at a
given time with assumptions that future right they hold to securities in the company were
exercised.
 Percentage of issued securities held by the individual in the firm (McGregor and Cross,
2019 )

Requirements of Foreigners to investing in agricultural business in Australia
The register of land ownership in Australia is not maintained because it is the responsibility of
the government to give land title information and the need for the land purchaser to state whether
they are Australian or not is not required in the duties. The Queensland government is an
exception because it has a register. The FIRB has a minimum threshold of $224 million for a
foreign investment in land to be considered in the national interest. This threshold does not apply
to accumulated purchases but only to a single purchase making it difficult for individual
purchase to be subject to review by the FIRB. When foreign governments purchase farms, they
are subject to FIRB review, but the extent of the purchase is not published. (Bath, 2015)
Foreigners who are planning to start an agricultural business in Australia must put in mind the
Australian policy that requires them to meet the country’s labor requirements from its workforce.
The foreigner should acquire an appropriate visa before his departure to confer legality of the
foreigner’s presence in Australia. The Visa issued depends on the kind of service he will offer
and how long he plans to stay. A business visa permits the foreigner to stay in the country for six
months (Morgan and Castelyn, 2018)
The tax treatment and Implications to foreigners in Australia
In most countries, taxation laws need a certain degree of relationship or connection between the
person who is to be taxed and the area concerned.

Taxation law in Australia allows the government to impose revenue laws to money made under a
contract that was signed and carried out in a different country if the person concerned is a
resident in Australia. Tax levied on the income of foreigners who are in business in Australia is
affected by the revenue generated by the transaction. Comprehensive income of an Australian
resident is liable to tax as opposed to no residents who are liable only on their Australian sourced
income. The non-residents, however, are not entitled to any concessions and statutory rebates as
do the Australian residents (Goldsmith, Gray, and Smith, 2016)
A foreigner can still apply for Australian resident status and remain a resident in his country
because of income tax, but this will make him liable to taxation in Australia and his home
country on similar transactions unless Australia has a double taxation act (DTA) with his home
country
According to ITAA 1997 section 6-5(2), the assessable income of an Australian resident is the
income received from all sources directly or indirectly, in or outside Australia but section 6-5(3)
applies to nonresidents. If one is not a resident, the assessable income will include income
received from sources in Australia and any other income received outside Australia (Ingles and
Stewart, 2018)
Since ITAA fails to define the term ‘source,' it becomes difficult to levy a tax on the resident,
which is derived from Australian sources. Dividends, royalties, and interest transactions must be
classified to tax the resident.
According to Oliveira (2018) foreign investors in Australia are taxed on the income they obtain
from investments they have in Australia. Tax is held back for royalties, dividends and interest
during payment but if a foreigner collects rental income from his properties in Australia or profit
from selling their Australia asset, the amount received must be declared in the tax returns.

Tax returns that should be declared include dividends rom shares, rental income from real
estates, annuities from managed funds, interest from bonds and bank deposits, royalties and
government pensions.
If a foreigner buys an asset in Australia before becoming a ‘resident’ the asset will be considered
theirs after becoming a resident and if the foreign investor ceases to be an Australian resident
while owning assets in the country, the asset is considered disposed of from the moment you one
ceases to be a resident.
Foreigners investing in Australia are affected by the changes that were made to the taxation laws
in the 2017/2018 budget which include deductions for property investors, withholding profits
where the threshold was reduced to $750,00 as tax rate increased to 12.5% from 10%. This
means that if a foreigner buys a property with a market value that is not below $750,000, 12.5%
of the purchase must be withheld and be paid to the commissioner of taxation as non –final
withholding tax. Those selling property valued above $750,000 must get a clearance form to
make sure they don’t withhold tax retained by the buyer on settlement. Other changes include
residential property transactions (Heading and Luck, 2016)
The 2017-2018 budget also made changes on residential property transactions whereby any
purchase of land for residential purposes or buying residential premises, annual vacancy charge
of under-utilized residential property, doubling of transfer duty surcharge to 8% from 4%.
Recommendations for law reforms in Australia

The Australian government needs to reform its laws regarding the treatment of the foreign
investors in the country. This will help the government to better the services that are essential to
Australians. Converted trading income should be subjected to management investment trust.
Subjecting all agricultural investments to management investment trust withholding at the
corporate tax rate.
Restricting the foreign pension funds withholding tax exemption for dividends and interest to
investments.
Come up with legislative frameworks for immunity exemption.
Income and profit earned from agricultural land owned by foreign investors will be undedicated
management investment trust income. Arrangements should also be made to ensure income from
assets continues to be untaxed (Plunkett, 2015) If all this reforms are implemented, they will
positively impact the financial and commercial outcomes for foreign investors in real estate and
infrastructure.
Conclusion
Agricultural business in Australia plays a significant role in building the country’s Economy.
The Agricultural Sector continues to offer more jobs to those who are unemployed, an increase
in exports, better incomes and excellent services to the community. The agricultural business in
Australia has become a major contributor in the Australian government by sustaining regional
and rural areas. Its considered one of the main pillars .With appropriate systems in place, tax
collected from agricultural business helps improve the economy. Tax is levied from the income

of foreigners residing in Australia who has invested in agricultural business to ensure the country
benefits from the product as well. All foreigners must pay taxes from all their income
transactions.

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