The political significance of agriculture is clear when looking at the vastly different treatment for agricultural land and agribusiness.
5.1 Agribusiness
All foreign persons making a direct interest (which is generally 10% but may be less – see paragraph 1.6) for consideration of $71 million or more (including the value of any existing investment in that agribusiness) must obtain FIRB approval before proceeding.
An agribusiness entity is a business that:
- derives earnings from carrying on a prescribed class of agricultural businesses which represent more than 25% of the entity’s EBIT; or
- uses assets in carrying on a prescribed business and the value of the assets exceeds 25% of the total asset value of the entity.
The prescribed agricultural businesses are based on Australian and New Zealand Standard Industrial Classification Codes and include agriculture, forestry, fishing and food product manufacturing (with some exceptions). Given that entities do not typically separate their books and accounts along these lines, a fair amount of work is required to segregate the earnings and asset values, including apportionment where assets have mixed use. It may be a challenge for an acquirer to find out such information even with the full cooperation of the target.
5.2 Agricultural land
Agricultural land is land in Australia that is used, or could reasonably be used, for a primary production business. The Income Tax Assessment Act 1997 (Cth) definition of primary production applies, being production resulting directly from:
- cultivation or propagation of plants;
- maintenance of animals for the purpose of selling them or their bodily produce; and/or
- fishing, forestry or horticulture operations.
The definition of agricultural land is expansive (including as a result of the extension to potential use) and includes land which is partially used for a primary production business and land where only part of the land could reasonably be used for a primary production business.
FIRB’s Guidance Note on agricultural land investments states that factors that may provide a reasonable indicator that land could (or could not) reasonably be used for a primary production business include: the primary uses allowed on the land under its zoning, land use history, land characteristics, and lease or licence conditions or limitations.
However, exemptions from the definition of agricultural land
apply for:
- land for which its zoning requires approval for primary production businesses, or where an application has been made to rezone the land that would not allow for use a primary production business;
- applications for approval for ‘mining operations’ (which includes oil and gas operations), associated waste storage and to locate related infrastructure on the land;
- applications for approval (including accreditation) for establishing or operating a wind or solar power station to be located on the land (whether on or beneath the surface);
- land that is used wholly or predominantly for a mining operation, associated waste storage or to locate related infrastructure;
- an approval from a government authority (other than a mining or production tenement) for mining or oil and gas projects, related infrastructure and waste storage, and land acquired or used wholly or predominantly to meet a condition of such approval;
- land that is used wholly or predominantly for a wind or solar power station located on the land (whether on or beneath the surface);
- an approval from a government authority (including accreditation) allowing a wind or solar power station to be established or operated on the land (whether on or beneath the surface), and land acquired or used wholly or predominantly to meet a condition of such approval;
- land used wholly or predominantly for environmental protection, conservation, tourism or outdoor recreation;
- land within industrial estates; and
- small areas of land (1 hectare or less).
All acquisitions of agricultural land that will give a foreign person (and associates) total agricultural landholdings valued at more than $15 million will require approval. That means that once a foreign person holds $15 million of agricultural land, any further acquisition of agricultural land needs approval, no matter how small.
The Government’s general policy is not to grant FIRB approval for an acquisition of agricultural land, or an interest in a land entity that holds agricultural land, if Australian investors were not offered an equal opportunity to invest in that land or entity through an open and transparent sale process.