The federal court of Australia has, for the first time, hit a foreign investor with a $250,000 penalty following the investor’s failure to get permission from the Foreign Investment Review Board to buy multiple properties in Victoria.
Four purchases of property were made by Vijay Balasubramaniyan without the permission of the review board; these were detected by the Australian Taxation Office using its data-matching and -compliance approach.
Balasubramaniyan also owned two established properties at that same time.
The tax office, which has been responsible for monitoring compliance with foreign investment rules affecting residential properties since 2015, filed proceedings in July 2020 against Balasubramaniyan related to six breaches of the Foreign Acquisitions and Takeover Act 1975.
Any foreign investor caught failing to comply with the rules that restrict how many properties they can purchase can be hit with civil penalties.
These can be either the government being able to recapture the capital gain on the property or 25% of the property value, depending on which of the two is greater.
Justice Jonathan Beach determined the $250,000 penalty would erase any capital gain Balasubramaniyan received when he sold the properties he failed to get permission to purchase.
“I do not propose to linger on the arithmetic, save to say that I am satisfied that a figure of around $250,000 represents no less than the respondent’s net gain,” the Beach judgement says.
“I have taken into account the fact that the respondent has disposed of the properties, denying himself income from rent and further capital appreciation, and suffering transaction costs in the process.
“These economic losses are a direct result of the contraventions. And I accept that, to some extent, any proposed penalty should take into account, as I have done, any financial loss already borne as a consequence of the divestment of the properties.”
Keir Cornish, an assistant commissioner at the tax office, said the exercise of the powers represents a deterrent to people who think they dodge foreign investment rules.
“There are obligations under Australian law for foreigners that have invested in, or plan to invest in Australian residential real estate,” Cornish said.
“The ATO promotes voluntary compliance of the rules by foreign persons, but where foreign investors resist compliance action, stronger enforcement action is taken.”