Introduction
Two recent Federal Court decisions show that Australia’s foreign investment regulators are monitoring compliance with conditions attached to foreign investment approvals – and they are not afraid to go to court when those conditions are not met. This coincides with an ongoing review by Treasury on whether current conditions typically attached to FIRB approvals are fit for purpose.
The land banking cases
Foreign investors can buy vacant residential land in Australia. But under Australia’s Foreign Investment Review Board (FIRB) regime, approval is generally given on the condition that a home is built on the land (or continuous construction begins on the land) within four to five years, and that the land is not sold until construction is complete. The aim is to ensure foreign investment in Australian vacant land adds to our housing supply, rather than land being left vacant while its value rises – a practice known as ‘land banking’.
In September 2026, in two cases brought by the Commissioner of Taxation, the Federal Court of Australia (Federal Court) ordered two individual foreign investors to pay civil penalties for breaching these conditions: A$370,000 in Commissioner of Taxation v Handojo (No 2) [2026] FCA 1363 (Handojo) and A$508,000 in Commissioner of Taxation v Li (No 2) [2026] FCA 1424 (Li). They are the first court-imposed penalties achieved by the Australian Taxation Office (ATO), which administers the FIRB regime for residential property.
Each investor had bought a vacant residential lot in suburban Melbourne in 2016 or 2017, subject to the four-year development condition. Neither built a home on the land. Neither took any part in the Court proceedings, and the Court entered default judgment in each case. Both decisions are subject to appeal. Three aspects of the decisions stand out.
- Each day is a separate contravention. The Court held that the obligation to build continued after the four-year deadline had passed. Each further day without a home on the land was a fresh contravention – in Li, more than 2,300 of them, one for each day.
- Penalties are linked to the gain. The maximum penalty for each contravention is calculated by reference to the capital gain on the land. In Li, the A$508,000 penalty was the maximum available for a single contravention.
- The land itself is at risk. The ATO obtained court orders freezing both properties and has said its powers may include forcing the sale of land held in breach of these conditions. Under the FIRB legislation, on imposition of a pecuniary penalty by a court, a charge can be created on land to secure payment of the penalty.
A regulator resourced to monitor and enforce
Conditions are a routine part of FIRB approvals: in 2024–25, around two-thirds of approved residential land proposals and one-third of approved commercial land proposals were subject to conditions. The regulators are now well resourced to check them.
- Residential land: The Government has committed dedicated funding to the ATO and Treasury for an audit program targeting residential land banking. The ATO is auditing every foreign investment approval that requires residential land to be developed. In 2024–25 it required 217 breaches to be remedied, including through the disposal of 111 residential properties.
- Commercial land: Treasury, which administers the FIRB regime for commercial investments, assessed more than 2,600 compliance reports required by approval conditions in 2024–25. Of the 99 independent compliance audits completed that year, 46 found non-compliance. Treasury can also compel the production of documents and enter premises.
- Other investments (outside land): FIRB receives around 1,300 applications a year. The overwhelming majority are approved — fewer than 2% are blocked. Conditions are often imposed as a mechanism to allow a foreign investment proposal that raises national interest risks to still proceed. Typical conditions cover a wide range of matters, including tax, board and governance arrangements, land development, access restrictions on sensitive land or facilities, the management of sensitive data and infrastructure, and reporting.
Our perspective
Investors should assume that their compliance with conditions will be tested, potentially years after approval is granted. In the case of land investments, where a development deadline is at risk of being breached, it is far better to apply to vary the condition before it passes than to explain a breach once enforcement has begun. In Li, the Court noted that the investor had not applied to vary the condition. The Government’s confirmed reform package will also give it more powers to enforce compliance and penalise avoidance (see our June 2026 update).
Conditions generally in the spotlight
As part of the reforms announced in the 2026–27 Budget, Treasury began reviewing conditions on existing FIRB approvals on 1 July 2026. A public consultation followed, which closed on 15 September 2026. The review has two objectives. On the one hand, Treasury wants conditions to remain an effective and enforceable way of mitigating the national interest and national security risks identified when a foreign investment proposal is approved. On the other hand, Treasury accepts that some longstanding conditions that are often applied no longer reflect current circumstances and impose compliance obligations that are ineffective or duplicate other regulatory regimes. The review initially started with tax conditions before turning to other types of conditions. The purpose of the review is to strike the right balance with the settings for conditions so that they still protect the national interest but without causing an undue administrative burden or detracting from the economic rationale that prompts foreign investors to allocate their investment capital into Australia.
The review is not an opportunity to revisit conditions imposed on existing approvals. Treasury has said it will not retrospectively reassess the risks that informed the imposition of existing conditions. Therefore, existing conditions continue to apply while the review is under way, and any variation must still be sought through the Foreign Investment Portal, with the applicable fee paid.
The review is expected to conclude by mid-2027. Treasury will then issue an update on the outcome of the review, including any proposed adjustments to, or removal of, conditions.
The land banking cases and Treasury’s review into conditions send a consistent message. Compliance with existing conditions will continue to be monitored and enforced. Investors can raise conditions that no longer serve their regulatory purpose, both by making submissions through consultation processes as they arise or, more directly, by applying for a variation of their specific conditions.
How we can help
Our national FIRB team can help you:
- Review your existing approvals – map conditions, deadlines and reporting dates across your group.
- Act before a development deadline passes – seek variations early and, if a breach has occurred, manage voluntary self-disclosure, which attract lower penalties.
- Apply to remove or vary conditions that no longer fit – identify conditions that may be ineffective or duplicative and apply to Treasury to have them removed or varied.
- Negotiate ‘better’ conditions on pending approvals – if you have a pending or prospective FIRB application, use the current review process into conditions, and the extensive submissions made in the public consultation process, as leverage to negotiate fewer, less onerous conditions before the review process concludes and its outcomes are reported in mid-2027.
- Respond to the regulators – manage ATO and Treasury enquiries, audits and investigations.
- Manage FIRB risk in transactions – check the target’s compliance with its existing FIRB conditions during due diligence and keep what you tell FIRB consistent with your deal documents and public announcements.
If you would like to discuss how these decisions affect your existing FIRB approvals or upcoming transactions, please get in touch.
Contact our team
Alberto Colla
Partner
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