Seven Mile Beach, Broken Head
“Bold and Excellent”
Fast Track to Residence
It has become increasingly difficult to obtain a long term Australian Visa which leads to Residence then Permanent Residence (“PR”) especially if you speak very little Englishi or are over 54. The Significant Investor Visa 188 (SIV) helps overcome these barriers if you have money to invest. High net worth individuals or cashed up folk (“CUF”) with $A5,000,000+ can migrate to Australia without the strict age and language requirements. This is using a Significant Investor Visa (SIV) as part of the Business Innovation and Investment Programii.
The SIV visa has a basic English language requirement, no age restriction and is not points based. A huge benefit is that those holding this visa become eligible for permanent residence (PR) after a relatively short period of compliance, if the CUF wants that option.
Extra benefits for the CUF are that they can include their family unit in the application, which reduces the average investment per person. These visas also allow the visa holder and their family unlimited travel in and out of Australia for the term of the visa. There is no minimum stay in Australia to keep the initial visa. You could receive the visa, keep doing business in your home country and not break all your ties at once.
Whilst a sum of money is required upfront, these funds can be invested and yield a return for the CUF. The CUF maintain beneficial ownership of the funds and full rights to the return on the funds.
Of course, a Return on Investment (“ROI”) will be sought from the investment. Some Funds we have reviewed in Australia are achieving significant and impressive returns, by worldwide standards.
This is despite a widespread criticism thrown at the program based on misinformation that any good ROI in Australia is not possible and that a poor return is a ‘necessary’ cost to be borne to obtain the visa and keep compliant for the term of the visa.
This misinformation helps some specialised SIV Investment Funds, with less than good returns, keep operating, by:
- Keeping clients invested with Assets Under Management (“AUM”), because clients accept poor returns and simply don’t know they can have better returns;
- Obtaining new clients that accept “non-redemption”, or minimal ability to withdraw, exit and “switch” without penalty, (which ability to switch without penalty is fair);
- Paying large referral fees or kickbacks to migration agents or other adviser referrers, which then further reduce the overall ROI of the AUM for the client, which fees might not be noticed by the investor as they are disguised as administration or set up fees; and
- Locking in the investor to a less than optimal ROI on the AUM for the duration of the visa with the connivance of their adviser referrers who have been paid the large referral fees.
But this misinformation is not reality. The policy of the program is to encourage investment in Australia with generous criteria and returns and there are some great SIV funds in Australia with excellent returns. See the benchmark ROIs which are set out below.
Even if you are not receiving such a high an ROI as you could earn elsewhere, there is an immediate risk abatement in your portfolio that comes with the very diversity of the risk in Australia to where one normally invests (e.g. Australian equities in listed ASX dividend paying businesses versus the property market in Beijing, China or London, England).
And there is a “lifestyle return” that Australia has to offer. Australia offers a relaxed, clean and safe lifestyle with excellent business opportunities.
The funds used for investment must be unencumbered and must not be used as security or collateral for a loan. The visa applicant must also have sufficient funds for settlement in Australia.
- Australian VCPE: At least 20% or $A A1,000,000 in eligible Australian VCPE (“Venture Capital or Growth Private Equity funds’), which invest in start-ups and small private companies.;
- Emerging Companies: At least 30% or $A1,500,000 in eligible managed funds or LICs (“Listed Investment Companies”), which invest in “Emerging Companies”. These are companies or managed investment schemes with a market capitalisation of less than $A500m at the time of investment. If the investment grows above this amount then the managed fund cannot invest more than 30% of the value of its net assets in those which have grown to $A500m or moreiv; investments must be in ASX listed securities or other quoted Australian securities exchange or unquoted Australian securities (but not direct investment into Australian residential real estate, and if indirect capped at 10% of the Fund’s NTA and no dominant purpose of ownership of land by the investor or family); foreign quoted securities; cash, CDs, bank bills or cash like instruments – but not more than 20% held in ADIs; and hedging derivatives excluding options, but not speculative derivatives;
- Balancing investment: of 50% or $A2,500,000 in funds or LICs that can invest in a range of assets including: ASX-listed companies; Australian corporate bonds or notes issued by an ASX listed company or unlisted company but with investment grade certified bonds or notes; annuities and real property, subject to restrictions on real property investment being non-direct investment in residential real property and made through the Fund. No other residential real property investment may be made unless: the value of all residential property is no more than 10% of the fund’s assets; the investment is not made for the dominant purpose of deriving financial benefits; and the investment is not made for the dominant purpose of assisting the investor or their spouse or family to reside in or gain legal ownership of residential real propertyv).
Another policy behind the program is to discourage the ownership, directly through the visa, of residential real estate and to encourage investment through authorised Australian Financial Services (“AFS”) Licensed Funds, into Australian start-ups, emerging companies, and investment into listed Australian equities and interest rate products.
The results have been a staggering win for Australia. Since 24/11/2012 until 30/06/2020, being not quite 8 years, $A11.745 billion has been put into new complying investments in Australia following 2,349 visa grants of SIVsvi.
The biggest source countries of the SIV grants were China (84.9), Hong Kong (3.6%), Malaysia (1.7%), South Africa (1.4%) and Vietnam (1.4%)vii.
The term of this visa is 4 years and 3 months from the date of grant but after 4 years of complying with the SIV the visa holder may be eligible to apply for PR and the SC888 Permanent Visa. You can also extend the visa for a further 2+2 years.
The visa applicant is allowed to switchviii the components of the investment. This may be very useful where an investment performs badly. This is empowering to an investor. So, if the ROI is too low, then look to switch or choose a fund that will allow you to switch, without a significant penalty of redemption!
The “switching period” allows for investors to withdraw or cancel their investment and re-invest the funds into a “new” complying investment. If this is done within 30-days the investment is taken have continued during the switching period and the applicant remains compliant with the visa.
Performance of SIV funds can be analysed using standard Benchmarks. SIV funds will generally state which benchmark index they seek to outperform. Some general benchmarks, which may be useful indicators of performance include the following:
- The VCPE investment (20% of total invested funds) is comparable to the S&P/ASX 200 Index (XJO) (1 year annual returns 23.56%ix or the S&P/ASX Small Ordinaries (XSD) – 1 year annual returns 26.17%%x) at 31 August 2021.
- The Emerging Companies investment (30% of total invested funds) is comparable to the S&P/ASX Emerging Companies Accumulation Index (XEC) – 1 year annual returns 40.29%xi) at 31 August 2021
The Balancing Investment (50% of total invested funds) is comparable to the S&P/ASX 200 Index (XJO) – 1 year annual returns 23.56%xii).
The range of benchmark annual returns in Australia of between 32.56%to 40.29%across the bundle of investments in the theoretical complying investment, may be compared on 31 August 2021 to the indices internationally, say in New Zealand, Japan, and the USA:
Index- 1 year return ROI
S&P/ASX200 – AUS 23.56%
S&P 500 – USA 29.10%
S&P/NZX 20 Index 4.06%
S&P Japan 500 22.32%
Clearly, the ROI in the USA (29.10%) outstrips the benchmark ROI in Australia (23.56%). However, this is only slight and the Australian ROI compares favourably to an annualised inflation rate of 3.8%xiii in the context of the target set by the Reserve Bank of Australia of 2 to 3%.xivAustralia’s ROI has experienced high levels of growth over the past few years and is expected to continue to do so. The makes it a desirable place to invest.
We have reviewed SIV portfolios with actual ROIs in the range of annualised returns of between 20 to 30%, depending on the appetite for risk, and in a climate of low volatility, and low interest rates, which Australia offers. This is impressive. While the ROI is conceded to be not as great as some ROI offered internationally, the ROI in Australia in context are not as volatile and are still very good returns.
The SIV isan elite visa pathway. With astute investment and the monitoring of fund returns and utilisation of switching rights, there are impressive positive returns (ROI) on offer for a Significant Investor.
With priority processing in place these visa sub classes provide a fast track to residence in Australia, a safe country with a stable economy.
Jonathan de Vere Tyndall, Breanna Jackson and Nina Spencer
Updated 31 August 2021
This article contains comment only and not legal or financial advice, for which you should retain a solicitor or an AFSL holder for specific advice. No responsibility is accepted for the accuracy of the contents. All rights are reserved (C) and prior written permission is required for republication in whole or part.
Bibliography and End Notes
i Required scores with decreasing difficulty Superior, Proficient, Competent, Vocational and Functional levels; IELTS scores 8.0, 7.0, 6.0, 5.0 and 4.5; at time of application for RSMS/ENS or invitation GSM; test completed within 3 years (exc. Functional within 12 months) of lodgement.
ii Business Innovation and Investment (Provisional) SC 188 and the (Permanent) SC 888.
iii Migration (IMMI 15/100: Complying Investments) Instrument 2015 Here: https://www.legislation.gov.au/Details/F2021C00656
iv Migration (IMMI 15/100: Complying Investments) Instrument 2015 Part 2 para. 9(6).
v Migration (IMMI 15/100: Complying Investments) Instrument 2015 Part 2 para. 11(7-8).
vi Dept. Home Affairs Statistics: https://www.homeaffairs.gov.au/research-and-statistics/statistics/visa-statistics/work/significant-investor-visa
viii Op.Cit. para 11(11)
ix S&P Dow Jones Indices https://au.spindices.com/indices/equity/sp-asx-200
x S&P Dow Jones Indices https://au.spindices.com/indices/equity/sp-asx-small-ordinaries
xii S&P Dow Jones Indices https://au.spindices.com/indices/equity/sp-asx-200.
xiv By comparison, Hong Kong is notably currently only 1.7% annual inflation rate and China 1.8% in December 2017.