ATO foreign buyer crackdown claims another scalp

By Leith van Onselen

Earlier this month, the Australian Taxation Office (ATO) revealed that 125 foreign real estate buyers had taken advantage of the Government’s amnesty to fess up to buying homes illegally, with another 523 buyers under investigation by the ATO for possible breaches.

Now, the Herald-Sun has revealed that a Chinese tycoon has been ordered to sell his $5 million Hawthorn mansion in Melbourne after being caught breaching Australia’s foreign ownership laws, which preclude the purchase of established dwellings:

The property is the first in Victoria to be slapped with a divestment order and is one of five in Melbourne that will be forcibly sold after investigations by the Australian Taxation Office…

He used $300,000 bids to knock out rivals at the auction. Records list the owner as Li Jian Guo.

Treasurer Scott Morrison said the house was bought without approval from the Government…

“These forced sales demonstrate that the Coalition Government’s strengthened foreign investment framework is ensuring that foreign nationals who are illegally holding Australian property will not be allowed to get away with it,’’ Mr Morrison said.

On 1 December, the new penalty regime for illegal foreign property purchases comes into effect, which will for the first time capture third party facilitators like real estate agents, accountants, and lawyers, who will face fines of $45,000 for individuals and $225,000 for a company if they knowingly assist foreign buyers to break the law.

For those who are interested, Assistant Treasurer, Kelly O’Dwyer, gave a good run-down of the new regime in her recent speech to parliament (click here).

Contrary to popular belief, the ATO – which took over the enforcement of the foreign investment regime in May – is also taking breaches of Australia’s foreign ownership rules very seriously.

As reported in The AFR in August, ATO assistant deputy commissioner, Michael O’Neill, flagged that the ATO “is preparing to unleash a massive taskforce to tackle the problem” and is “in it for the long haul”, with 50 investigators and data analytics experts set up to use sophisticated data-matching technology to cross-check property titles against immigration, AUSTRAC and FIRB data.

In short, the new regime, which begins on 1 December 2015, looks to have teeth.

While the above divestment orders are merely the ‘tip-of-the-iceberg’, once the ATO gets going, it could have a material impact on the Melbourne housing market in particular, where foreign buyer demand is rampant:

ScreenHunter_10012 Oct. 29 12.24

Next year could get interesting.

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  1. I always wonder why they can’t get a court order to take records from banks on who brought what, as the banks seem to spurk the market to foreigners and must have thousands of records on foreign ownership.

  2. If some of these foreign criminal bastards have obtained ancient from Australian banks and the banks take losses in connection with the forced sales, you could quickly see the banks become private sector enforcers of the FIRB rules…

  3. They just need to add a reward for people who dob in their neighbours and we could pull house prices back down to the 1950’s level!

    Just remember that witch hunts like this have a tendency to get out of hand quickly. First it is the illegal buyers. Next it will be linking VPN use to address to source of funds and searches in the name of preventing terrorism. Thin end of the wedge. If they fix the data entry piece and enforce it on the front-end I would applaud, but this is a dangerous game they play. This announcement is on WeChat already and I am waiting to hear what the impact will be. Last one in Sydney scared quite a few judging by the increase in Black Diamondz promotional offers.

    • I don’t agree with this law/rule, on practical grounds, but if it is place then…enforce it and any prior breach. The Thin End of the Wedge was disregard for Australian Law some significant time back. That those breaches will now be brought to book is simply legitimate law enforcement. As I was schooled when I first started work, “The Tax Office has an infinite capacity of time and money to hunt you down and make you pay. Don’t mess with the (ATO) !”

    • Witch hunt!? Fair shake champ, it’s law! Just because it’s been poorly enforced for yonks isn’t an excuse to never enforce. Do you not believe in law enforcement, or perhaps just parts of it?

      • I have no objections to laws being enforced. Without the AML piece in place and any changes to the regime to collect citizenship and rights to purchase on the front end, this has a lot of risks associated with it. Fix the front-end problems! But just be cognisant that once handed powers, government will never revoke them. Think Income Tax in the US started out as limited time tax to be revoked after war. Did that ever happen? Think about all the objections on this site to the metadata collection laws. Now think about the latest articles like this one: VPN and encryption are used every day by businesses. I use it to access my servers in Hong Kong and Osaka. But so do money launders and terrorists.

        I am watching an erosion of personal liberties and privacy. I agree with this crackdown totally. But I am also a student of history, and you have to be very careful with the unintended consequences of such programs. Fix the front-end data, enforce the laws, but be mindful of the implications of who is doing the enforcement, like Janet says “The Tax Office has an infinite capacity of time and money to hunt you down and make you pay. Don’t mess with the (ATO) !”. God save the Queen and Audits for All!

      • Ok John thanks, fair enough on the property aspects that also need improvement, and thought provoking stuff on VPN/encryption.

    • Looks like the stock of waterfront mansions must be getting tight for Black Diamondz ………I saw a house last week in St Ives ( latest sellout ground ) with a big sold by BLack Diamondz sign on it …………….I hope this company is firmly in the sights of ATO as they actively promote that their buyers are from overseas .
      People may not like Scomo ……….but he is a rare politician in that he does get things done ( even if people don’t always agree with what he gets done ) …..this is one area that I have no problem with him cleaning up as it may help my children and thousands of other young Australians who are being displaced as foreigners stick their fingers up to our laws …… bring it on ! …….and while the ATO is at it I hope it uncovers the flow of this money and taxes the bejesus out of it . A win all round for straya……..

      • They have been reported to the ATO. They think they are immune because of their political connections to the Liberal and Labour party, so you may want to watch this one closely.

      • Who needs enemies when there’s the RE Silk Road duo (Juwai and Black Diamondz). Look at the “our people” page for more information on complicit possibles. This should be shooting fish in a barrel for the authorities come Dec 1.

    • I am a keen supporter of privacy and government non interference, but your post is just hysteria.

      Cracking down on VPN use? Never had a job where VPN is required for offsite work? Welcome to the 21st Century mate. VPNs are as likely to become suspicious as owning a mobile phone is suspicious. Why do you need a mobile phone anyway, are you a drug dealer?

      This is the ATO enforcing an existing law. If you want to freak out go after the ISP data rentention stuff. There you and I will agree completely.

      • Read my post above – it is not my hysteria – it is in the MSM:

        “Think about all the objections on this site to the metadata collection laws. Now think about the latest articles like this one: VPN and encryption are used every day by businesses. I use it to access my servers in Hong Kong and Osaka. But so do money launders and terrorists.”

        Study history a little and you will see how these laws of best intentions get perverted. I support the crackdown as I have said. But seriously Brian, read the EU media on this and look at what is happening in the UK with Internal Revenue service ads everywhere.

      • VPNs in and of themselves will not become suspicious.

        VPNs terminating at places other than a whitelist of known providers (all of whom offer handy taps to suitable three-letter agencies), or registered businesses, however, will.

      • With technology moving ahead so fast, especially wireless point to point links becoming quite cheap, I have 6 x 450mbps 802.11AC Point-to-Point dishes in my office that are capable of doing decent speed links of a few km and only cost about $150 each. Obviously you need to know how to use things, but as technology gets cheaper, its become easier to play and learn.

  4. My concern is that he will just do a deal behind the scenes with a local “PR” proxy and just divest it to “himself” (with that proxy giving him beneficial ownership).

    Please keep your eyes out for any articles on the buyer, I bet they are a Chinese, Australian PR or student visa holder.

    • I hope that this happens. It will give the ATO an opportunity to test the powers and laws that relate to proxy bullshit buying. And get them strengthened, if found lacking.

      It will also generate some excellent outrage as the rich old white guys find themselves being locked out of Hawthorn mansions.

      • Agreed. Perhaps ATO could view proxy people as tax avoidance complicits, at a minimum. These people need to be dealt with via immense fine, followed by immediate deportation for non-citizens (criminal/failure of character test), or a loooong time in jail for citizens.

      • Correct Andy! The risk of participation in this scam needs to be dialed up to the point where it outweighs the perceived upside.

    • It would have to be completely informal – FIRB legislation already includes catch-all provisions that cover effective ownership.

      • Sure – the legislation is designed to prevent it, but beneficial ownership is far more difficult to establish.

        Look at what happened with Vill Del Mare – the first high profile divestment. Bought by the mysterious Lola Wang Li. I suspect she just did a deal with the original owner.

      • “…beneficial ownership is far more difficult to establish.”

        I do agree but if people are willing to make arrangements that can’t legally be enforced then it’s almost impossible to stop them. The only was I can see it to use unexplained wealth laws to change the onus of proof back to the purchaser.

      • That is precisely where it will need to go. Otherwise we’ll be seeding another cottage industry such as fake uni essays etc. Those of us born in Australia simply struggle to fathom the level of motivation there is to cheat. If there’s a way to do it, it will be found and exploited, and by apparently upstanding people. In many ways like how the Packers of this world will go to extraordinary lengths to pay no tax.

    • Yes tripster, I would imagine that is the first thing illegal buyer will try and do. Keep the property in family or in some kind of associate trust set-up.
      Remember, the $39M Piper Point property forced to sale earlier this year. That trophy home was bought up by a business associate of the original buyer (Xu Jiayin – Golden Fast Foods/Evergrande RE Group).

      One way around this would be to force all sales of illegal property to market via State Trustees.
      Mandatory one month advertised on the market, then open to offers or public auction.
      Force foreign speculators out of this market and government to bank proceeds of crime. Win win.

      • Yes, well I suspect the crack-down may simply have the unintended consequence of pushing more prospective owners into using proxies or shady hidden beneficial ownership arrangements (which are far more difficult to police).

        Ironically this then comes back to an argument about in favour of a land tax. Beneficial owner wouldn’t be legally liable for the land tax (but title owner would). Title owner would then presumably be reluctant to hold for beneficiary even with a “promise” by the beneficiary to meet any tax liability.

      • “Yes, well I suspect the crack-down may simply have the unintended consequence of pushing more prospective owners into using proxies or shady hidden beneficial ownership arrangements (which are far more difficult to police).”

        More difficult to police is worse than not actually policing at all as was previously the case? Even if you do force some down the proxy route, I think you’re still going to deter completely a far greater number.

  5. This is great. These criminals deny Aussies a home in their own country, and can now enjoy the full extent of the law. Fk them all and their accomplices. Hope the papers parade the scalps as this excellent development continues.

  6. My concern is the vast number of purchases via proxies. These guys are extremely cunning and would use any devious tactic possible. I would suggest a far more effective approach is to ban all non-citizens from acquiring property. No-one on a visa should be speculating on Australian homes or laundering money on behalf of others.

    • Then those proxies would be guilty of tax evasion. They would be taking an overseas income without reporting to the ATO and paying tax. Luckily overseas income tax evasion is also an area ATO is cracking down on.

  7. Sounds like being whipped by a wet lettuce to me. Does he get to keep the capital gains? This foreign tycoon treats our laws with contempt and then is asked to sell the house? Aren’t we tough! It should be confiscated, no compensation. In Singapore, a person who breaks the foreign investment rules in housing is not only liable for a huge six figure fine, but also for a caning. No exceptions. Now that is a place where the rule of law means something.

  8. For all the talk that it’s only the mega-mansions that are being investigated and so there will be no effect on the lower-end market…

    “Mr Morrison has ordered four other properties to be sold off, after overseas owners were found to be holding them ­illegally.

    They are an $802,000 house at Springvale and three Carlton properties worth $225,000, $235,000 and $585,000.”

      • Presumably the carlton ones are student dog boxes of which an additional 10 000 odd have joined carlton housing stock in recent times.

      • There are some horrible bedsits that are valued in the middle $200k in Carlton that were built in the early 2000’s, so possibly with large maintenance fees.

  9. My question is, what did the FIRB actually do for the last decade? The ATO has found hundreds of possible breaches in the law in a single year.

    • Supporting the RBA required China put to ensure that the housing market elevates thus making all members millionaires, giving the chosen few time to sell out near the market top to lock in the gains and then say its too hard so that enforcement can be passed to the ATO who will then drive the market back down so that members can once again buy back in at a lower price and purchase more?

      • “What an indictment of FIRB.”

        Absolutely. The only agency more incompetent than APRA (with ASIC a close third).

  10. No need to worry. All the latent demand from those locked out of the market by the Chinese will be ready to step and buy into this “crash”.

  11. Watch this place get flogged off in a ‘private sale’ to some company or trust where a ‘local’ handles the paperwork and the dodgy Chinese millionaire enjoys the property.

  12. And yet almost every week the MSN is running articles saying foreign investors are ball deep in Oz real estate and plan to get deeper . So better but Now Now before the 1.3B Chinese all show up . The banks seen to regularly run reports saying Foreigners own a significant percentage of housing stock
    Which is illegal for established dwellings – depending on who you are

  13. Hi X,

    Why don’t we get serious about illegal foreign property investment in Australia?

    The damage it has done to this country, to young generations, will be felt for decades.

    What are we really doing about it?

    – Ban negative gearing.
    – Ban property investment.
    – Jail real estate agents for aiding and abetting.

    This will go a very long way in helping our kids.

    These are things that can be done and done a lot faster than any other measure.

    Vested interests and bending over for the rich are the only reasons we sell out our youth in favor for self-absorption and gluttony.

    And then pretend to speak up in advocacy for youth we have well and truly left behind.

    The future seems pretty clear. When the boomers are no longer the main voting power, then maybe just maybe policy might start to reflect and represent those generations who can least afford to incur the financial burden that their predecessors largely amassed, while simultaneously bypassing the obligation they should have respectfully shared to help address Australia’s economic woes.

    As long as reform does not negatively impact baby boomers, then generations that follow them are open slather to feel the pain of what is to come.

    Australia’s “voluminous in numbers” of baby boomers have the most wealth relative to any generation, and not just because they have worked longer. Relative to other generations, GenX and GenY etc are poorer at the same age. Jobs are fewer for these generations, property is a pipe dream for many. Many are altering their dreams because of this such as having children etc etc. The boomers never had to compete in a truly globalised world. They enjoyed localised wealth undulated by global competition and pressures. They will quickly bypass this fact.

    So before we go kicking these younger generations with more ‘pain’ when they are down, consider such things. Consider who can most afford to pay for these reforms and who cannot. Consider the fairness of bypassing a generation and spare them from pain and burden sharing simply because they amass a political force that could affect votes.

    It is simply unfair that the can of debt is put onto generations that are far worse off at the same age as the baby boomers.

    While the baby boomers complain and shirk
    off any responsibility for carrying some of the load, our kids will have to pay off a debt that their forefathers fuelled more than any other generation in history.

    And the same generation that has done this is the same generation that is still calling the shots and stealthily but surely ensuring that no major political decisions favor subsequent generations due to fear of impacting the luxuries they currently enjoy.

    If the baby boomer generation want true reform and prosperity for future generations, they could make change.

    Unfortunately, all we see is more of the same – self-interest.

    It is this problem which everyone knows is there, but the media are reluctant and p..weak to go there….out of cowardice, fear, and repercussions.

    I thought in Australia we believed in a fair go. The baby boomers have proved that a fallacy.

    Baby boomers are the most self-absorbed generation on history. Collectively, they have and are destroying Australia faster than anything else in this country.

    Devoid of acknowledging their contribution to Australia’s demise, active in being inactive in positive political decision making that will help improve prospects for future generations, everything revolves around themselves.

    From property investment outbidding kids at auctions, to living up to their name as the ‘Me’ generation, they will leave as their legacy a message of how not to live your life of greed and self-interest.

    They will happily kick the can of debt down the road to their kids, as they jetset off and pass an Australua on to subsequent generations in the worse condition in many a decade.

    As long as reform doesn’t effect them and they can buy another investment property, all is good.

    If you want to help people afford health insurance, I suggest we first look at what is driving this exodus – high property prices.

    Australia has only one main draw card left: maintaining the ridiculous property Ponzi scheme to keep alive to draw more people onto the overpriced property market.

    As such, most peoples disposable income goes towards servicing ridiculous rents and mortgages, leaving diddly squat left in the kitty for other services including health insurance.

    And you know why this property frenzy is being allowed to happen?
    1.Property investment by predominantly cashed-up baby boomers.
    2.The turning of a blindeye by our government to effectively curb illegal foreign property investment by mostly Chinese investors.

    What is clear is this – no one thus far is listening, and no one this far is publicising with fervour these facts.

    Thus, nothing will happen, other than more verbage and hot air.

    As a parent, I want to see a future for my children that is more prosperous than mine.
    As a generation, I want mine to leave the world in a better state for our kids than we received it.

    Why then, are we doing everything contrary to the above?

    There are so many examples now in the world where our young people feel that there is no hope in the future. That there is no point to working given the high costs of everything, leaving them no disposable income for long-term planning.

    Why does it surprise so many people that drugs are a major problem? That crime is rife. That anti-establishments are forming all over the world in a protest at this inter-generational disconnect? Of this growing separation between the ages.

    And our older generations seem to miss the point entirely, either by design or by ignorance.

    Instead of looking within, they seek answers externally, when the answers are staring them right in their face. So many examples of self-interest fuel the disconect. Among some that follow.
    – Our cashed up older generations are buying up property like there is no tomorrow.
    – We allow illegal foreign investment.
    – We decimate our kids dreams by importing wealth and skills eg.457s at our kids expense.
    – We postpone urgently needed reform so that our kids will incur that pain, and preserve the current crop of self-indulgents.

    We have chosen to isolate our children and their generation/s.
    ISIS, drugs, crime, are but some outcomes of this disconnect.

    We think silo, insular, selfishly.

    You cannot take your selfish wealth with you on your deathbed.
    All you have is your legacy. So why not change it?

    Congratulations boomers. Your inaction as a generation to advocate for Australia’s future is breathtaking in the extreme. Unfortunately, this will be your legacy as a generation and it is fact.

    Look at how you’ve left America and now Australia.

    You X, are one.


  14. FIRB failure demands that all senior management in agencies issue a report each year to parliament confirming that they are actively enforcing all laws for which they are the designated regulator. The Auditor General should audit the truth of such statements. False statements ought result in compulsory termination without compensation for remaining contract, subject to a right of appeal if breach was inadvertent, minor etc.

    • Note that the FIRB is not itself a regulator – it is a body which advises the Treasurer, who is the designated regulator of the Foreign Acquisitions and Takeovers Act.

      • The role of the FIRB is to
        “•monitor and ensure compliance with the Foreign Acquisitions and Takeovers Act;”
        It is a regulator.

      • Immediately above your cut-and-paste job –

        “The Board’s functions are advisory only. Responsibility for making decisions on the Policy and proposals rests with the Treasurer”

        Read the act – count the references to the FIRB, Count the references to the Treasurer. It is clear who has the responsibility and authority.

      • I will admit to having been unaware of this framework thing.

        Love first dot point btw : “Do not unnecessarily impede…”
        No chance of that happening with our FIRB eh?

        6 dot points and none of them include ‘ensure regulations enforced throughout jurisdiction’ or anything similar.

        Brilliant – KPIs for regulators to make sure they don’t regulate too much.
        I still think a ‘regulator’ who has no power to enforce a law isn’t one, and the government’s inclusion of entities which monitor and advise into their definition is dubious.

      • A regulator who has the power to enforce the law but chooses not to for 8yrs, is still a regulator….albeit an incompetent one.

      • What power? The power to politely suggest something to the Treasurer?
        I think you meant ‘impotent regulator’.

        In any case, it’s lucky we’ve got this Regulator framework to ensure that we’re not unduly menaced by the FiRB, isn’t it? Even better than the Grocery Code of Conduct.
        Like a muzzle for a toothless dog.

      • Explain what these teeth are exactly?
        What powers are you saying the FIRB actually has apart from the earlier mentioned ability to make suggestions to the Treasurer?

  15. Don’t think it will be just Black Diamondz being reported to the ATO. I have a strong feeling that every agency certainly on the upper north shore of Sydney (St Ives, Turramurra, Wahroonga, Hornsby) will be reported too. Interesting times ahead. They could always have abided by the rules.