‘Foreign persons’ will soon be required to notify the Australian Taxation Office (ATO) of their legal interests in ‘registrable water entitlements’ and ‘contractual water rights’, under a bill to amend the Register of Foreign Ownership of Agricultural Land Act 2015 (Cth).
The Register of Foreign Ownership of Agricultural Land Amendment (Water) Bill 2016 (Cth) (Bill) seeks to create a register of foreign ownership of water entitlements, which will contain information on Australian water entitlements held by foreign persons. The Bill was introduced to Parliament on 12 October 2016 following public consultation on an exposure draft of the legislation.
How will the register work?
The register will be maintained by the ATO and will operate in a similar way to the Agricultural Land Register. It will take effect by amending the Register of Foreign Ownership of Agricultural Land Act 2015 (Cth) (Act).
In summary, foreign persons will be required to notify the ATO within 30 days after the end of each financial year if they:
acquire or dispose of a registrable water entitlement or contractual water right (where the remaining term of the contractual water right is reasonably likely to exceed five years); or
there is a change to the volume of water referred to in an entitlement.
What is a ‘foreign person’ for the purposes of the register?
The existing definition of ‘foreign person’ from section 4 of the Act will apply for the purposes of the register. This section provides that ‘foreign person’ has the same meaning as in the Foreign Acquisitions and Takeovers Act 1975 (Cth).
What will ‘foreign persons’ be required to register an interest in?
Foreign persons may be required to register an interest in:
‘registrable water entitlements’; and
‘contractual water rights’.
1. Registrable water entitlements
Under proposed section 5A(1) of the Act, a ‘registrable water entitlement’ will be any of the following:
an irrigation right relating to a water resource in Australia; and
a right conferred by or under a law of a State or Territory to hold or take water from a water resource in Australia, including an ‘Australian water access entitlement’.
An ‘Australian water access entitlement’ means a perpetual or ongoing entitlement, by or under a law of a State or Territory, to exclusive access to a share of the water resources of an area in the State or Territory.
A registrable water entitlement may be held by a person alone or jointly with others.
Under proposed section 5A(2) of the Act, a registrable water entitlement does not include:
stock and domestic rights;
water allocations; or
a right prescribed by the Minister as excluded from the definition.
2. Contractual water rights
Under a proposed amendment to section 4 of the Act, a ‘contractual water right’ will mean a contractual right (including a deed) that a person holds to another person’s registrable water entitlement, water allocation or a contractual right held to any other kind of right prescribed by the Minister.
A contractual water right may be held by a person alone or jointly with others.
It will only be necessary to register a contractual water right if the remaining term of the contract (including any extension or renewal) is reasonably likely to exceed five years. This likelihood is assessed at the time of the relevant event that triggers the notification requirement.
3 events that must be notified to the ATO
The ATO must be notified when any of the following events occur:
a foreign person starts or ceases to hold a registrable water entitlement or a contractual water right;
a foreign person becomes or ceases to be a foreign person while holding a registrable water entitlement or a contractual water right; and
there is a change to the volume of water or the share of a water resource referred to in a registrable water entitlement or a contractual water right (proposed ss30L to 30Q Act).
Interests will be registered by submitting a notice in an approved form (which is yet to be released) using the same online portal as for the Agricultural Land Register. There will be no cost to register interests.
NOTE: Irrigation Infrastructure Operators will only be required to register their interests if they:
meet the definition of ‘foreign person’; and
hold registrable water entitlements that are not subject to irrigation rights.
The Bill’s explanatory memorandum notes that during public consultation on the exposure draft of the Bill, Irrigation Infrastructure Operators expressed concern about the costs involved in determining whether they meet the definition of ‘foreign person’.
According to the explanatory memorandum, additional consultation will be conducted with Irrigation Infrastructure Operators to consider options to reduce the impact of the register, with a view to effecting any necessary arrangements through subordinate legislation.
What is the timeframe for notification?
From 1 December 2017 onwards, the ATO must be notified within 30 days after the end of the financial year of any notifiable events that occurred during the financial year (proposed s30K(1) Act).
This is different from the timeframe for notification that was proposed in the exposure draft of the Bill (which was that notification was to be given within 30 days of the occurrence of the specific event). The new timeframe is designed to reduce the administrative burden on foreign persons, as this was a concern raised during the public consultation period of the exposure draft.
The Bill specifically provides that the 2017-2018 financial year will start on 1 December 2017 and end on 30 June 2018 (proposed s30K(2) Act).
Will the ATO need to be notified of existing interests?
Yes. As with the Agricultural Land Register, there will be a stocktake period.
Between 1 July 2017 and 30 November 2017, foreign persons will be required to notify the ATO of their interests in registrable water entitlements and contractual water rights which are held (or will be held) at the end of 30 November 2017. If a foreign person starts to hold a registrable water entitlement or contractual water right shortly before the start of 1 December 2017, then notification to the ATO must be given by the later of 30 November 2017 and 30 days after the foreign person started to hold that entitlement or right (proposed s30H Act).
Exemptions from notification
Another difference between the Bill and exposure draft of the legislation is that there are now proposed to be two exemptions under the regime. The ATO is not required to be notified if:
a person became a foreign person during the course of a financial year, but then also ceased to be a foreign person during the same financial year; and
during the course of the same financial year, a person acquired a registrable water entitlement or contractual water right, but no longer holds that same entitlement or right at the end of the financial year (proposed s30K(3) Act).
Penalties will be imposed under the Taxation Administration Act 1953 (Cth) and may apply for non-compliance.