INTRODUCTION
This article looks at compliance issues, in general, for business migrants (particularly under subclass 188A/888A visa) who wishes to migration through investing in property for the purpose of satisfying the business visa conditions.
I must emphasize two (2) important points:
- Firstly, passive investment (and more specifically, provision of rental properties to the public) and smaller “project” based property development will NOT satisfy the investment requirement under our current 188A/888A business migration regime.
- Secondly, even if the business migrant’s proposed business in property investment meets the guidelines on the State’s level in bringing in substantial and exceptional benefits, this itself does NOT automatically satisfy the requirements on the Commonwealth’s level. There are numerous other compliance issues that you need to consider.
COMPLYING WITH MIGRATION REQUIREMENTS
There are three (3) requirements under the Commonwealth legislation (the Migration Act) that the migrant must satisfy:
- Firstly, the business proposed or carried on by the migrant must be an “eligible business”;
- Secondly, the migrant must have obtained a substantial ownership interest in the eligible business; and
- Thirdly, the migrant must actively participate at a senior level in the day-to-day management of the eligible business.
If the migrant fails to satisfy these requirements and the Court decides that the migrant has not made a genuine effort to satisfy the requirements and does not intend to continue to make genuine efforts, the Minister may cancel the 188a visa.
“ELIGIBLE BUSINESS”?
Section 134(10) of the Act defines “eligible business” to mean a business that the Minister reasonably believes is resulting or will result in one or more [emphasized] of the following:
- the development of business links with the international market;
- the creation or maintenance of employment in Australia;
- the export of Australian goods or services;
- the production of goods or the provision of services that would otherwise be imported into Australia;
- the introduction of new or improved technology to Australia;
- an increase in commercial activity and competitiveness within sectors of the Australian economy.
On interpretation of the provision in isolation, it is easy to assume that if the proposed business will result in one (1) (or more) of the six (6) conditions, it will be adequate to be an “eligible business”.
However, under the Common Law, the test of what constitutes an “eligible business” requires more than just meeting one (1) of the six (6) conditions. More particular, the Courts require that the business has repetitiveness of activities and some permanence characteristics.
See: Hope v Bathurst City Council (1980) 144 CLR 1 (High Court) and Puzey v Commissioner of Taxation [2003] FCAFC 197 (Full Federal Court).
To be an “eligible business”, it must have a continuous and repetitive nature and some permanence characteristics. This means that one-off property development project (especially small project) will not satisfy the “eligible business” test.
There are many cases where the new migrants have failed to satisfy this “eligible business” requirement leading to cancellation of their visas.
In the case of Zhonghua v Minister for Immigration and Citizenship (BC201102754) (“Zhonghua’s case”), the migrant, holder of sub-class 132 Business Talent visa, invested AUD$3,000,000 into a property development project. There were submissions by the migrant that application to re-zone the property was made to develop apartments. The Tribunal found that the investment did not pass the initial stage of purchasing the land. No actual development has taken place other than owning the land and making application to re-zone the land. For this reason, it cannot be described as a business or even commencement of a business. As such, the migrant’s investment did not satisfy the “eligible business” definition.
COMPLYING LEGAL STRUCTURE
The Migrant must have substantial ownership (or “ownership interest”) in the business.
The general rule to meet this substantial ownership requirement is that if the business turnover is less than AUD$400,000, fifty-one percent (51%) is required. If more than AUD$400,000, thirty percent (30%) is required. If the business is a listed company, at least ten percent (10%) is required.
In Australia, a business can be owned in different structures, including company, trust, partnership, joint venture, sole proprietorship, etc. The question is, which structure complies with your migration requirement?
There have been past cases where migrants have failed the “substantial ownership” requirement due to technical difference between ownership interest and beneficial interest.
In the judgment of his Honour Greenwood J in Minister for Immigration and Citizenship v Hart (2009) 179 FCR 212, his Honour stated that “The definition [of “ownership interest” under section 134(10)], inelegant and not in conformity with the ordinary understanding of the general law as it may be, makes plain that a shareholder in a company that carries on the business has an interest in the business, and that interest is an ownership interest.”
It is very common in Australia that business is owned by a trustee company of a trust. However, if you are merely a beneficiary of the trust, you have only a “beneficial interest”, NOT a “legal interest”. This means you will NOT meet the “substantial ownership” requirement.
Now, a further issue to consider, what if the trust is a discretionary trust, or more commonly known as a family trust?
Under a discretionary trust, the migrant only has a “mere hope or expectancy” to receive benefits from the trust asset, there is no definite entitlement to distribution. In this instance, even if the migrant has shareholding in the trustee company, will you still meet the “substantial ownership” test?
Beware! It is extremely important to properly structure your investment and your business.
COMPLYING MANAGEMENT STRUCTURE AND INVOLVEMENT
Many business migrants have their visas refused or cancelled for failing to demonstrate that they have been involved in adequate management, or made genuine effort to do so, in the business.
You need to be able to demonstrate that you have been involved in making senior level decisions and active management of the business affairs. If there are too many people sitting on the Board in the company or a control panel established for a particular project, thereby diluting your ability to have control over the business, this will suggest one thing – your involvement in the business is unnecessary.
Prior to committing your investment into a business (whether it be a property development business or other type of business), you need to consider: how you are needed in the business; why is your involvement and participation required; how will you set up the management structure so as to enable you to have the requisite management and control; etc.
OTHER COMPLIANCE ISSUES
There are many other compliance issues. Below are only some of them.
- Complying with State Government’s Sponsorship Requirements
Agreement with State Government: You would have submitted a business plan and entered into a legal agreement with the State Government before you were granted sponsorship by the State Government. It is a legal agreement and you have legal obligations that you must fulfil. However, by the time you enter Australia, circumstances may have changed. Your ultimate investment in Australia may be different to the State Government agreement. Remember, you need to immediately inform the State Government who sponsored your application for visa and obtain their consent to vary the terms of your agreement.
- Compliance with Corporations Law
The company law is a very comprehensive and complex area of law. It regulates what a company can do or cannot do. It also regulates how a director should behave or conduct himself. Failure to comply may result in personal liability, heavy penalty and in severe cases, criminal charges.
- Complying with other State and Commonwealth Regulations
In the agreement with the State Government, you will have agreed in writing to employ a minimum number of employees and commit a minimum amount of investment. In relation to employment issues, you need to make sure you comply with the taxation regulations and employment legislations (at State and Federal level).
In relation to your investment, if you are a subclass 163 or 188 visa holder, at the time of entering into any agreement to invest, all such agreements must comply with the Foreign Acquisitions and Takeovers Act 1975 (Cth). You may also need to apply for approval from the Foreign Investment Review Board BEFORE you complete your investment.
CONCLUSION
I emphasize that passive property investment and small scale “project-based” property development will NOT satisfy the 188A/888A requirements for business migration.
That said, if structured correctly and implemented properly, your investment in property development may satisfy the 188A/888A requirements.
Ultimately, the purpose of your investment is to fulfill migration requirements. Compliance should you be priority in ensuring that you achieve your migration goals.
