Australia’s foreign investment law reforms to impose huge fees and taxes on receiving gifts in Will

Law Update

Australia’s foreign investments laws have undergone major reform as of 1 January 2021. One of the significant changes to the foreign investment approval (FIRB regime) affecting estate planning and administration includes the removal of the exemption in section 29 of the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) (‘Regulations’). Section 29 excused from the FIRB regime, acquisitions of an interest in securities, assets, a trust or Australian land that was acquired via a Will. (1)

The removal of this provision will cause difficulties to arise where a distribution of an estate is to a beneficiary who is a ‘foreign person’ under the FIRB regime. If professional advice is not given considering the recent amendments, this can bring about huge fees and unintended tax consequences for the beneficiary in question.

Foreign person definition

Section 4 of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (‘the Act’) defines a foreign person to include any individual not ordinarily resident in Australia. There is a high onus on individuals who are not Australian citizens to meet the definition of ordinarily resident, as they must establish that they have been physically present in Australia for 200 days or more in a period of 12 months, and at that time, their continued presence in Australia is not subject to any time limitations as imposed by law (section 5). The effect of this is that an Australian citizen who is living overseas, such as for work-related purposes, may be considered a foreign person under the FIRB regime.

How to avoid foreign investment issues in Succession Law

Actions can be taken in the estate planning stage to avoid issues which arise out of the amended FIRB regime. For example, a conditional gift clause in a Will can ensure that that a beneficiary is not subject to the definition of ‘foreign person’ under the FIRB regime and will consequently face undesirable outcomes.

If a beneficiary fails to obtain FIRB approval or does not wish to be liable for FIRB fees, they may consider the following alternative options: disclaiming the gift so that it is not transferred, the sale of the property or making an arrangement with other beneficiaries of the estate, if any.

When it comes to foreign investments, it is important to seek help from a succession lawyer to ensure your wishes are protected.

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