Foreign Investment Laws and Wills
It is essential that every testator regularly reviews and updates their will, not only to reflect changes in their own life but also to take into account any legislative changes that may affect their will. This is especially the case when a testator owns controlled assets, such as certain types of businesses. On 1 January 2021, the Australian government introduced new legislative changes to the federal foreign investment laws (also known as the FIRB Regime) that directly impact wills that include “foreign persons” as beneficiaries. This article outlines the changes and suggests how a testator can update their will to comply with the statutory changes.
Federal Foreign Investment Laws
Previously, the Foreign Acquisitions and Takeovers Act 1975 and the Foreign Acquisition and Takeover Regulation 2015 allowed an exemption from the FIRB Regime for any testamentary bequest of interest in assets, securities, land or a trust. This allowed testators to leave their assets to their chosen beneficiary, regardless of whether or not this individual was a foreign person. The Foreign Investment Reform (Protecting Australia’s National Security) Act 2020 and the Foreign Investment Reform (Protecting Australia’s National Security) Regulations 2020 removed these exemptions in relation to wills.
As such, if a “foreign person” under the FIRB regime is a beneficiary of a certain class of assets in a will, the bequest is likely to be flagged as a “notifiable national security action” (it may also be described as a “significant action” or a “notifiable action”). In this event, the Treasurer must review the details of the bequest and will either approve the acquisition or deny permission for the transfer.
What types of Assets are Included in foreign investment laws?
A testator cannot bequest certain assets to a foreign person without the express permission of the Treasurer. The types of assets that are subject to this scrutiny include ownership of:
- Media businesses
- Agricultural Land
- Sensitive Commercial Land
What is a Foreign Person?
Federal legislation defines a “foreign person” to be:
- A foreign government or foreign government investor;
- Someone who is not ordinarily a resident in Australia (someone is ordinarily resident if they are an Australian citizen or permanent resident who has been in Australia for at least 200 days in the year before the acquisition of the asset);
- A corporation, trust or partnership owned by a foreign government;
- A corporation, trust or partnership which is at least 20% owned by a person who is not ordinarily resident; or
- A corporation, trust or partnership that is at least 40% in aggregate owned by people who are not ordinarily resident people.
Responding to These Changes
It can be difficult to understand the definition of foreign person under the FIRB Regime. As can be seen from the definition above, even if someone is an Australian citizen they can still be considered a foreign person for this purpose if they do not meet the residence requirements of being in Australia for at least 200 days prior to the acquisition of the controlled asset. As such, it is essential that a testator carefully consider these legislative provisions when they draft or review their will, otherwise certain bequests may fail because of FIRB Regime screening. If the gift does fail, the executor of the estate will have to apply to the relevant Supreme Court for direction. The court may order a new distribution of the asset in question, or potentially sell the controlled asset to an eligible resident buyer and distribute the proceeds of sale to the foreign person. Alternatively, the executor could explore using a deed of family arrangement to comply with the requirements of the legislation. Each of these options would require specialist legal and taxation advice.
It is recommended that a testator who has these types of protected assets update their will to include a default provision in case a bequest fails because of these new statutory changes. For example, a testator could:
- Specify that a gift should only succeed if the beneficiary is not considered a “foreign person” according to the FIRB Regime, otherwise the gift reverts to the residuary estate; or
- State that if a beneficiary is considered a foreign person under the FIRB Regime, the gift should only succeed if the Treasurer authorises the beneficiary to receive the acquisition by issuing a “no objection notification not imposing conditions”.
The experienced solicitors at Armstrong Legal can assist you to incorporate a default provision in your will, or advise you on options to bequeath gifts to friends and family members living overseas. Our solicitors can inform you further on the impact of the new foreign investment rules on wills and all aspects of estate planning. The contested wills team can also help if you are an executor administrating an estate affected by these legislative changes, or a designated foreign person who is a beneficiary of an Australian will. Please contact us on 1300 038 223 without delay to discuss this issue further.