Australia's Foreign Investment Framework: 
Proposed Reforms Signal Streamlining – But Read the Fine Print

The Government will expand the Treasurer's ability to impose more flexible conditions in NONs and ECs to mitigate risks. New conditions may extend to the pre-acquisition period – potentially requiring an investor to do or not do something before, when, or after the investment is made – with requirements tailored to the risks of proposed medium- or high-risk transactions.

The Government will also enable the Treasurer to accept statutory undertakings from applicants or third parties to mitigate identified risks. Under the current legislation, the Treasurer can only impose conditions on persons undertaking 'actions' subject to the FIRB legislation. The announcement indicates that strengthened conditions and undertakings may allow some investments that could currently be subject to prohibition to proceed, although it will be interesting to see further detail once the proposed amendments are released for consultation.

The Government will expand the definition of associate relationships to include additional roles capable of exercising influence, including direct interest holders or persons with debt arrangements that allow the exercise of influence, to allow better mitigation of risks arising from third parties linked to a foreign investor via a relationship of obligation or control which is outside the current definition.

Given the already broad scope of the associate concept under the FATA, further expansion may significantly widen the range of investors and structures captured by the regime, particularly for private capital and fund structures.

The Government will amend the tracing provisions to focus screening on circumstances where upstream entities have material interests or control, removing the current burden of notification and reporting obligations on upstream entities in transactions where those entities have minor influence and economic interests but are nonetheless currently "deemed" to have a substantial interest under the framework.

At the same time, the amendments propose to introduce a new limb allowing screening of acquisitions where an upstream entity materially increases its level of control or influence by acquiring interests directly despite earlier screening on the basis of tracing. Transitional arrangements are proposed for transactions that straddle the commencement of these changes. 

The existing tracing rules – under which substantial interests of 20% or more are traced through unlimited layers of corporations, trusts and unincorporated limited partnerships – have long been a source of complexity. The proposed amendments are framed as a recalibration rather than a fundamental overhaul, but how the line between "material" and "minor" influence is drawn in practice will require very careful analysis once the draft legislation is available.
 

Restrictions on sharing protected information collected in the assessment of foreign investment applications will be eased to allow:

• sharing with non-government third parties (such as financial institutions and legal advisers); and
• targeted public disclosure for educational and deterrence purposes. 

The key watch points are the scope of disclosure to non-government third parties, what will constitute a "specified limited circumstance" sufficient to trigger sharing, and what safeguards will apply. The extent to which this may affect the candour with which applicants engage in the FIRB process – and their ability to claim privilege or confidentiality over materials submitted – will need to be carefully assessed once draft legislation is released.
 

The Government is extending the temporary ban on foreign purchases of established dwellings by 2 years and 3 months, until 30 June 2029. Investors involved in commercial transactions should remain mindful of the interaction between the ban and corporate acquisitions where the asset base of a target entity includes residential property as a component of an otherwise commercial transaction – in particular where the residential property component is incidental to a genuine commercial deal and the acquisition is not, in substance, a purchase of established dwellings. 

The announcement indicates that the current “sole or dominant purpose” test will be updated to align the foreign investment framework with other modern anti-avoidance frameworks to better deter investors, advisers, agents and vendors from avoidance behaviour. While the new framework is said to be intended to distinguish legitimate structuring from avoidance, how that distinction is applied in practice will be important for transaction planning.

The call-in power will be extended to cover notifiable actions, addressing current gaps where certain transactions cannot be reviewed under existing powers. This reinforces the broader trend towards increased flexibility for Government intervention across both notified and non-notified transactions.

The Government will amend the last resort power by introducing a lower threshold for circumstances where the Treasurer seeks to impose new conditions, prohibit an action or partially unwind an action. The existing higher bar will remain for circumstances where the Treasurer seeks to issue a disposal order. This could meaningfully expand the reach of the last resort powers.