Reform overview
Last year the Treasurer flagged reforms to make Australia's foreign investment regime "much stronger where risks are high and much faster when risks are low". In the wake of the 2026-27 Federal Budget and following consultations with the investment community, the Government has now unveiled a package of reforms to deliver on the Treasurer's objective. This article follows on from our November 2025 update, analysing the reform proposals, and what they mean for foreign investors.
Below we unpack the key changes and how they will impact investors.
A 30-day decision target for low-risk applications
From 1 January 2027, the Treasury will aim to decide all 'low-risk' foreign investment applications within 30 days (and in cases where a decision can't be finalised, an explanation for why not). What 'low-risk' means will be narrowly defined. At a minimum, the requirements will include investors having received a foreign investment approval in the past 24 months, a clean compliance record, the investment being in a non-sensitive sector, and the transaction having a clear and transparent structure. The 30-day target will not apply to exemption certificate (EC) applications, variations or retrospective applications. Where ACCC clearance is required, FIRB approval will continue to be issued only after the ACCC's decision, but the Treasury will seek to align decision dates where possible.
Review of ineffective conditions from existing FIRB approvals
From 1 July 2026, the Treasury will start reviewing conditions on existing approvals, initially focusing on tax conditions. These conditions (which sometimes require investors to report annually on tax law compliance for the life of the investment) can be burdensome, and the possible deletion of such conditions is welcomed. Outside tax, conditions that duplicate other regulatory regimes or whose reporting burden is disproportionate to their value may also be removed or modified.
Broadened Exemption Certificate regime
The EC regime will be expanded so that the Treasurer can approve ECs under more flexible terms. Investors will be able to ask for ECs that switch off or adjust the operation of key FIRB concepts like foreign government investor (FGI) status, private foreign person status, tracing, associate rules and reporting obligations.
Targeted exemptions from mandatory approval
An explicit objective of the reforms is to reduce the number of FIRB applications that are required to be filed. The Treasury proposes to achieve this by:
- excluding transactions that are caught on 'technicalities' from needing FIRB approval (e.g. incremental increases in existing shareholdings without any change of control, as well as land subdivisions or amalgamations);
- increasing the (current) $347 million monetary threshold for investments in non-sensitive sectors that do not already benefit from the higher FTA-country thresholds; and
- expanding exemptions for professional trustees and extending the interfunding exemption to unregistered schemes.
Tracing reforms: focusing on substance over form
One of the hallmarks of the FIRB regime is the tracing provisions, which (in simple terms) deem an upstream entity with a 20% or greater interest in an entity to hold the full downstream interests of that entity regardless of actual economic exposure. These rules will be amended to shift the focus to situations where upstream entities have material interests or genuine control. This will be a welcome change in many cases where the operation of the tracing rules alone triggers a FIRB approval requirement. However, the changes will operate in both directions. In future, some upstream transactions may require FIRB approval where presently they do not. An example is where an offshore entity holds interests in a national security business downstream. Under the current rules, a foreign investor may not require FIRB approval to increase their stake in the upstream holding company from 20% to, say, 50%, because they are already deemed to hold 100% in the downstream national security business entity. The new rules could make such an increase notifiable.
Enhanced conditions and court-enforceable undertakings
The reforms will provide the Treasurer with broader powers to impose tailored conditions in FIRB approvals (no objection notifications) and ECs and to accept statutory undertakings from investors or third parties. Some investments that would currently be prohibited may proceed under appropriate safeguards. Investors proposing to undertake sensitive transactions may need to think creatively about undertakings they can offer to help secure FIRB approval.
A new legislative tool for sensitive sector designation
The Treasurer will gain a new tool to adjust mandatory notification requirements rapidly for investments in emerging sensitive sectors (without needing to amend primary legislation each time). What these sensitive sectors are is not defined – but that is partly the point. These changes are premised on the idea that technological, geopolitical and economic changes are occurring so quickly that the Government may not have advance notice of what sectors are likely to become sensitive, and thus needs the tools to respond as conditions change.
Expanded associate definition
Alongside tracing, the associate rules are another crucial pillar of Australia's foreign investment regime. The existing "associates" definition is already broad, and the future reforms will take this definition further. The new objective is to capture persons in a position to influence an entity despite having minimal or no ownership of the entity (e.g. lenders).
Call-in power for non-ownership arrangements
An innovative new power will permit the Treasurer to call in for review commercial arrangements such as offtake agreements and lending arrangements that could pose national security risks through foreign control without ownership. The Government emphasises that this power would be exercised rarely. We will watch the drafting closely, as it may have a significant impact on transaction certainty for lenders and offtake counterparties in sectors adjacent to national security.
Bolstered anti-avoidance regime
The new reforms will strengthen the anti-avoidance regime. The avoidance threshold may be lowered from the current "sole or dominant purpose" test, being a high bar that has proved difficult to meet. Importantly, penalties will be introduced for serious avoidance activities. This is a big change from the existing regime which does not have an express "avoidance" offence. It is intended that genuine avoidance will be distinguished from ordinary professional advice and legitimate transaction structuring.
Other strengthening measures
Some technical changes have also been proposed to strengthen the foreign investment regime. The "last resort" power will be updated to make it easier for the Treasurer to take post-transaction measures to protect Australia's national security. The "call-in" power will also be enhanced to capture actions that are "notifiable" but not "significant". The Government will be permitted to share protected information it gathers from FIRB applications with non-government parties (e.g. financial institutions) in limited circumstances for compliance purposes. The Government may also be permitted to disclose certain information publicly to educate investors and deter non-compliance.
Residential property ban extended
The temporary ban on foreign purchases of established dwellings, which commenced on 1 April 2025, has been extended to 30 June 2029.
Our perspective
These reforms may be the most significant changes to the FIRB rules since the introduction of the national security reforms in 2021. There is a lot for foreign investors to be happy about in terms of reducing the current broad reach of the FIRB regime and the associated compliance impact for them. In particular, the streamlining measures should reduce friction for low-risk applications that have contributed to congestion in the Treasury's caseload. It is hoped that there will be fewer applications needing FIRB approval merely because they trip up a technicality under the law. On the other hand, the proposed strengthening measures could introduce heightened regulatory risk for some transactions. The global trend of governments applying closer scrutiny to foreign investment will likely continue for the foreseeable future. We expect that FIRB will remain a critical consideration for future deals.
What you should do now
- Audit your existing FIRB conditions – particularly tax conditions. The July 2026 review is an opportunity to remove outdated obligations. Talk to us about any ongoing conditions you'd like removed.
- Assess your eligibility for the 30-day pathway – investors with a clean compliance record and a recent history of FIRB approvals should consider whether they are eligible for fast-tracking under FIRB's 30-day approval target.
- Consider broadened ECs – low-risk investors currently relying on an EC should undertake blue-sky thinking about how an alternative EC could be structured to ease FIRB compliance.
- Assess your go-forward risk – tougher anti-avoidance rules, the broader associate definition and non-ownership call-in power may increase the risk landscape for future transactions.
- Monitor sensitive sector designations – new rules will allow the Treasurer to expand mandatory notification requirements rapidly. Investors in or adjacent to critical infrastructure, critical minerals, critical technology and data centres should expect dynamic, changing FIRB requirements going forward.
- Engage with exposure draft consultation – investors will have the opportunity to comment on draft legislation before the changes are finalised. We will review these drafts closely, so stay tuned for updates from us.
If you would like to discuss how these reforms may affect your FIRB strategy, upcoming transactions, or existing FIRB conditions and EC strategy, please get in touch. Our national FIRB team remains dedicated to working with clients globally to tailor solutions for their business goals.
