Australia - changes to Business Investment Program
The Australian Government announced reforms to the Business Innovation and Investment Program (BIIP), which it states will see an improvement to the quality of investments and maximise the economic benefits for Australia.
Critical detail is yet to be released on how the proposed changes will be applied to Investor Visa applicants. However, based on the information which has been released, we are concerned that the changes have reduced the attractiveness of Australia’s investor immigration program compared to our major global competitors.
Globility Group is also concerned that the Australian Government have failed to address some significant integrity issues with the administration of the Business Innovation and Investment Program.
Key changes that come into effect from 1 July 2021:
The investment amount for the Investor stream will increase from $1.5 million to $2.5 million. The investment amount for the Significant Investor stream will remain at $5 million.
The Complying Investment Framework (CIF) will be applied to both investment streams—Investor and Significant Investor.
The venture capital and private equity component of the CIF will be increased from 10 to 20 per cent, with a further 30 per cent dedicated to emerging companies.
The balancing investment component will be reduced from 60 to 50 per cent.
Funds will be required to provide annual independent audit reports showing their compliance with the CIF.
The use of Fund of Funds, debentures and derivatives will be clarified in the CIF.
In summary, from 1 July 2021 the following CIF ratios will apply to both the Investor and the Significant Investor streams:
20 per cent venture capital and Private Growth Equity funds (VCPE)
30 per cent funds investing in emerging companies
50 per cent in balancing investments
In the media release announcing the changes, the Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs, Alex Hawke, stated that “strong compliance measures are in place to maintain the integrity of Australia's borders and economic migration program”.
Whilst Globility Group broadly agree with this statement by the Minister, in our professional opinion the robust compliance and integrity measures are not what they should be in the Business Innovation and Investment Program.
Investor Stream
Globility Group applaud the increase to the investment amount from $1.5 million to $2.5 million for the Investor stream. The threshold investment amount for the Investor stream was set at disproportionately lower level to other investor streams in Australia’s Investor Immigration Program, which sometimes resulted in lower quality applicants accessing residency in Australia and not delivering the economic and business benefits to the Australian community which are so important at a time where economic growth is front of mind for the government.
The Investor Visa program has an important policy objective of attractive high quality business applicants who have a demonstrated track record of business or investment success overseas, and who can demonstrate a tangible benefit to Australia because of their previous business or investment success.
Significant Investor Stream
The Significant Investor Visa (SIV) stream has been the most contentious of the Business Innovation and Investment Program.
This visa is for people who invest at least AUD5 million in Australian investments that meet certain requirements and maintain investment activity in Australia. The visa has attractive concessions which are not available under other Investor Visa categories, such as no English language requirement and reduced physical residency requirements in Australia before qualifying to apply for permanent residence.
The changes announced to the Significant Investor Visa follows a report released by the Productivity Commission in Australia recommending that the visa stream should be abolished. In its report, the Productivity Commission asserted that the economic benefits of such visas accrue mainly to the visa holders and fund managers selling assets to wealthy foreign nationals.
It is positive that the Australian Government did not abolish the Significant Investor Visa program in the changes announced in December 2020. However, if the SIV program is to realise its potential to generate economic growth for the Australian economy, changes are required beyond the changes announced by the Australian Government to the Complying Investment Framework.
Here are some questions which the Australian community deserve answers to if we are to retain confidence in the Significant Investor Visa stream.
What benefits flow from the Significant Investor Visa program to the Australian community? Should the Australian Government be required to publish the return-on-investments results of the program annually?
“Over $15.9 billion has been invested into the Australian economy since 2012 and the changes taking effect from 1 July 2021 will see this figure continue to increase," Minister Hawke stated in his media release. How does the capital inflow from the program tangibly benefit the Australian economy (job creation, local business investment and the results of those investments to the businesses, etc.)?
Are perceived conflicts of interest created because of blurring the lines between independent investment decisions and the parties servicing this industry sector such as immigration advisors, wealth management firms - for example, referral fees and commissions, sponsorships by wealth management firms with industry bodies representing the immigration advisory industry?
Is it in the interests of vulnerable foreign investors to have a single wealth management provider service all three elements of the Complying Investment Framework, or should there be an enforced separation of independent providers servicing the venture capital and Private Growth Equity fund and emerging companies’ components?
Funds will be required to provide annual independent audit reports showing their compliance with the Complying Investment Framework – will the results of the audit be open to public scrutiny? Will the audit include an analysis of the wider benefit of the fund to the Australian community?
Strategies to build confidence in the Investor Immigration Program
The following four integrity measures by the Australian Government may help to better align the Investor Immigration Program with the evolving needs of Australia’s recovering economy post-COVID.
Appropriate policy measures within these areas of focus will help to reinforce business and community support in the program which has the potential to deliver significant capital injection and entrepreneurial talent to Australia.
Step 1: Diversify investment portfolio providers
The SIV program targets a particularly vulnerable group of consumers. There has been a proliferation in markets such as China of business advisors, agents, as well as SIV product-based complying fund firms, who are specifically product driven in the SIV programs. This risk to consumers is heightened, in our view, if one fund manager offers all complying products.
A logical step to consider would be to separate the Venture Capital & Growth Private Equity (VCPE) component of the Complying Investment Framework to prevent it being bundled with the other components of the Complying Investment Framework.
Step 2: Return on investment tests
This is a particularly difficult area to address in a policy setting sense. The government needs to balance building an investor immigration program which is globally competitive, with the need to ensure that the program delivers a tangible return on investment for the local economy and contributes to wider societal objectives.
For investor visas outside the SIV category, the return-on-investment tests are applied across two primary areas, namely:
the State or Territory where the visa applicant intends to reside have scope to apply their own application requirements which reflect their local economic circumstances; and
the Australian Government applies several application thresholds, including a points test, across areas such as applicants age, business turnover, qualifications as well as business and personal assets.
However, once the initial temporary visa is granted, there are limited ongoing measurements applied to the contribution the visa applicant is making to Australia, and limited visa cancellation provisions.
The risk to the visa applicant arises when they apply for permanent residence following the initial period of temporary residence. However, in this case the integrity measures are applied at the point of applying for permanent residence.
Currently the return-on-investment focus in the SIV program relies on the criteria applied by the Australian Government to the Complying Investment Framework. The Australian Trade and Investment Commission – Austrade – is the government agency responsible for establishing the criteria applied to the Complying Investment Framework.
The Productivity Commission concluded in its review of the SIV program that the Venture Capital & Growth Private Equity (VCPE) component was unlikely to deliver a material amount of additional economic activity in Australia. Under these circumstances, raising the amount visa applicants are required to invest in this component as part of the complying investment would risk serving the interests of fund managers rather than the interests of the Australian economy.
The government has regrettably increased the percentage of the total investment in the Venture Capital & Growth Private Equity (VCPE) component.
An additional integrity measure would require fund managers who administer this product offering to meet minimum performance measures, and for performance results to be publicly available (ideally on the Austrade website) to help inform visa applicant due diligence. The Minister’s media release is silent on this issue, but hopefully the fund audit arrangements will address this important issue.
Step 3: Ban commissions and referral fees amongst providers servicing investors
As the Investor Immigration Program has matured, there has been a proliferation of referral and commercial arrangements between immigration advisors, fund managers and other mobility and settlement services.
Government should consider further measures to increase consumer awareness, increase transparency and disclosure of professional fees, referral fees and other benefits, and other measures to improve the integrity of the program and ensure that the best interests of the consumer are served.
Similarly, measures to limit, or prevent, commissions from fund managers to immigration advisors should be introduced to help ensure that visa applicants are able to make an independent decision around the most suitable providers for their circumstances.
Step 4: Strengthen offshore arrangements
Australian registered migration agents who work overseas are subject to the same Code of Conduct, professional development and regulations as registered migration agents based in Australia.
Legal practitioners who practice immigration law are subject to a strict professional regulatory regime administered by the Law Society in their respective State or Territory in Australia.
However, we assert that there is scope to apply more robust and regular compliance mechanisms to businesses servicing the investor visa cohort outside Australia.
There has been several service providers who have entered the investor immigration market who act more as aggregators rather than advisors. These organisations tend to generate most of their revenue in this area from referral agreements, which often are counter to the interests of the consumer.