[Case Study] A Chinese citizen was fined $508,000 for an FIRB breach

A Chinese citizen was fined $508,000 for failing to build a dwelling on the vacant land within four years.

1. Background & Facts

The respondent, Ms. Li (a citizen of China), contracted to purchase vacant residential land in Australia. As a foreign investor, she applied to the Foreign Investment Review Board (FIRB) and received a "no objection notification" under the *Foreign Acquisitions and Takeovers Act 1975* (Cth) (FATA).

The Treasurer imposed a strict condition: the respondent had to build a dwelling on the vacant land within four years.

Ms. Li failed to build the dwelling, left Australia, and subsequently informed the Australian Taxation Office (ATO) that she lacked the funds to either commence construction or apply to vary the notification condition. She stated that she intended to sell the undeveloped property.

Following this, Ms. Li completely disengaged from the legal process, resulting in the Court issuing a default judgment under rule 5.23(2)(c) of the Federal Court Rules 2011.

2. Legal Issues

The Commissioner of Taxation initiated proceedings seeking:

• A declaration that the respondent contravened section 96(1) of the FATA.

• A pecuniary (financial) penalty under section 82(3) of the Regulatory Powers (Standard Provisions) Act 2014 (Cth) (RPA).

• The transition of a previously granted interlocutory freezing order over the property into a formal statutory charge to secure the penalty debt.

3. The Court's Decision

Justice O'Bryan ruled in favour of the Commissioner, detailing the severe financial consequences of breaching foreign investment conditions:

• Penalty Caps and Calculations:

  
  

  Under FATA s 96(4), the base maximum penalty is doubled to the greatest of three amounts: (1) double the expected capital gain; (2) 50% of the purchase consideration paid; or (3) 50% of the property's market value. In this instance, double the capital gain ($254,000) was the highest threshold.

  
  

• Daily Accumulation for Continuing Contravention:

  
  

  Crucially, under RPA s 93, non-compliance with the condition constituted a "continuing contravention," meaning a separate civil penalty accrued each day. Ms. Li was in breach for over 2,300 days. With the maximum daily penalty sitting at $254,000 (and later increasing to $508,000 due to legislative amendments), her theoretical maximum liability was astronomical.

  
  

• Final Penalty Imposed:

  
  

  Weighing the relevant factors under RPA s 82(6), the Court accepted the Commissioner's requested penalty figure, ordering Ms. Li to pay $508,000.

  
  

• Securing the Asset (Freezing Order vs. Statutory Charge):

  
  

  After the Court delivered its judgment, the temporary freezing order on the property would naturally expire, theoretically giving the respondent a short window to sell the land secretly with "clear title". To prevent this, Justice O'Bryan practically extended the freezing order by 28 days. This gave the ATO adequate time to properly register a statutory charge over the property under FATA s 104(3), ensuring the land could be used to satisfy the $508,000 debt.

  
  

4. Significance of the Ruling

This case marks the second time the ATO has successfully obtained a civil penalty order against foreign investors engaging in residential "land banking" (buying property and leaving it vacant despite development promises). The ruling sets a strong precedent that Australia will strictly enforce its foreign investment framework; offshore investors cannot escape massive civil penalties simply by leaving the country, claiming financial hardship, or ignoring court proceedings. Ultimately, the ATO can force the sale of the Australian land to recover the penalty.

Source: Commissioner of Taxation v Li (No 2) [2026] FCA 1424, summarised by ChatGPT

Disclaimer: This article is intended to provide general information only and does not constitute professional advice for specific circumstances.  It should not be relied upon as a substitute for tailored advice.