Elderly grandmas used as fronts for illegal foreign real estate investment, ATO tells inquiry

Own investment properties in Queensland and pay land tax. Spread the portfolio among other states and you won't. <i>Photo: Getty</i>

Own investment properties in Queensland and pay land tax. Spread the portfolio among other states and you won't. Photo: Getty

Elderly grandmas are being used as fronts for illegal residential real estate purchases by foreign investors, the Australian Tax Office has told a parliamentary inquiry.

Not one person has been prosecuted by the ATO for breaching laws governing foreign investment in residential real estate, the ATO told the Joint Committee of Public Accounts and Audit on Wednesday.

ATO deputy commissioner Mark Konza described the “difficulties” in pursuing criminal convictions by pointing to the case of an elderly woman suspected of being a “front person” for a foreign property investor.

“We looked at prosecuting that person but they turned out to be someone of limited education, limited language skills, advanced age and other sympathetic factors,” Mr Konza told the committee.

“In the end, we decided on advice that the prospects of litigation were poor.”

Committee deputy chair and Labor MP Julian Hill told The New Daily that the government has not done enough to crack down on illegal investment in real estate, a “perennial” issue for the community.

It’s difficult to accept that the best the government’s done is not to prosecute one grandma,” Mr Hill said.

At Wednesday’s hearing, Mr Hill lambasted the tax office for displaying a “lack of curiosity” towards investigating breaches of Australia’s foreign real estate investment laws by “dodgy” investors.

“This is an enormously important issue for community confidence in foreign investment,” Mr Hill said.

“I would hope for a sense of curiosity, and analysis of the data … The language [the ATO is] using is ‘It might take a couple of years, we’re not really sure’.”

Illegal foreign investment in residential real estate is a “perennial” issue, according to Labor MP Julian Hill. Photo: AAP 

There is a lack of community confidence that “the rules are [being] applied fairly”, according to Mr Hill.

“In Melbourne there’s the sense that a whole number of purchasers are just dodgy,” he said.

Foreign investors from around the globe pump billions of dollars into Australian residential real estate each year, and are largely restricted to new builds and developments that add to the existing housing stock.

The real estate investment boom peaked in 2015-16 with 40,149 real estate approvals for foreign investors worth a total of $72.4 billion, according to the Foreign Investment Review Board (FIRB).

That slumped to 13,198 approvals and $25.2 billion in 2016-17.

The number of residential real estate approvals for foreign investors dropped sharply in 2016-17. Source: FIRB

The government’s policy for foreign investment in residential property is to “channel foreign investment into new dwellings to support additional jobs in the construction industry as well as economic growth”, according to the FIRB.

“Foreign investment applications are considered in light of that policy and the overarching principle that the proposed investment should increase Australia’s housing stock.”

Treasury tasked the tax office with overseeing compliance with foreign investment in real estate laws in 2015.

Mr Konza defended the ATO’s track record in Wednesday’s hearing, telling the committee that the agency has overseen “a significant crackdown on non-compliance”.

The agency has completed 3940 investigations and identified 1158 breaches, resulting in 1067 financial penalties totalling $5.5 million since 2015.

The average fine for a foreign buyer found to be in breach of Australia’s real estate investment laws is just over $5000, the ATO admitted.

The ATO’s investigations have resulted in the forced disposal of 231 foreign-owned properties, valued at $284.9 million.

However, buyers forced to sell illegally purchased properties are still able to benefit from any capital gains that may have accrued, the committee heard.

Magnitude of non-compliance unknown

The committee’s second hearing on the issue follows a report by the Australian National Audit Office (ANAO) released in June which raised issues about the ATO and Treasury’s “management of compliance with foreign investment obligations for residential real estate”.

“The key challenge for the ATO going forward will be addressing the more serious instances of non-compliance with the foreign investment framework; namely, demonstrating wilful non-compliance with obligations and applying criminal and civil penalties,” the report said.

At the time of the audit, the ATO was unable to estimate the magnitude of non-compliance.

On Wednesday, Mr Konza told the committee that the ATO is still unable to put “a firm time” on when it will be able to work out “the underlying level of non-compliance”.

The ATO was also tasked with compiling a national register of residential real estate purchases by foreign investors.

The organisation relies on “sophisticated data-matching capability combined with other sources of intelligence, including community referrals” to “detect and investigate any instances of potential non-compliance”, it said in a submission to the committee.

In June, the ANAO identified “serious deficiencies” in “populating the register with reliable data”.

The report cited a “likely under-reporting of self-registrations, over-reporting of foreign identity information in state property data, and low levels of matching between datasets for foreign investment applications, self-registrations of foreign investment in residential property and state property data”.

The ATO admitted during Wednesday’s hearing that it is not on track to finish compiling the national land register by the end of the year.

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