New laws have passed the Australian Parliament that require foreign persons who own, or have an interest in, Australian agricultural land to notify the Australian Taxation Office (ATO) of their interest.
The Register of Foreign Ownership of Agricultural Land Act 2015 (Act) takes effect from 1 December 2015. Under the new Act, notification requirements will be imposed on foreign persons who have an interest in Australian agricultural land at 1 July 2015 or acquire an interest or change that interest after that date. All such interests must be notified on or prior to 31 December 2015. Failure to comply with the notification requirements may attract penalties.
In this eBulletin, we outline the application of the new requirement to notify the ATO of foreign interests in Australian agricultural land.
The Government has introduced a new compliance regime for foreign investment in Australia through a legislative package which takes effect on 1 December 2015. The aim of the package is to "strengthen the integrity of Australia's foreign investment framework, ensuring Australia maintains a welcoming environment for foreign investment that is not contrary to Australia's national interest".
The legislative package consists of the:
- Foreign Acquisitions and Takeovers Legislation Amendment Act 2015;
- Foreign Acquisitions and Takeovers Fees Imposition Act 2015; and
- Register of Foreign Ownership of Agricultural Land Act 2015 (Registration Act).
For a summary of the proposed changes contained in the first two Acts mentioned above, please see our eBulletin: Foreign buyers beware - Changes to the foreign investment regime introduced to Parliament released 31 August 2015.
Purpose of the register
The Registration Act provides for the creation of the Register of Foreign Ownership of Agricultural Land, which has been established and is maintained by the Australian Taxation Office (ATO) to record foreign interests in Australian agricultural land. The Registration Act requires foreign persons to give notice to the ATO of their interest in agricultural land.
According to the explanatory memorandum, the purpose of the Registration Act is to increase transparency around foreign investment and ownership of agricultural land in Australia through the creation of a land register which records foreign ownership interests. The Registration Act will allow for "the collection of information, and [the] publication of statistics, about foreign interests in agricultural land in Australia".
The ATO has been accepting voluntary notifications of foreign interests in agricultural land since 1 July 2015 but the mandatory requirement to notify only commences on the date the Registration Act commences. As noted above, the Registration Act will commence on 1 December 2015.
Foreign person and agricultural land
The definition of foreign person in the Registration Act is the same as the definition that appears in the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA), and this definition is being amended from 1 December 2015 as part of the legislative package.
In the FATA, the amended definition of foreign person means:
- an individual not ordinarily resident in Australia;
- a corporation in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest;
- a corporation in which two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest;
- the trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest;
- the trustee of a trust in which two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest;
- a foreign government; or
- any other person that meets the conditions prescribed by the regulations.
Foreign persons have a controlling interest in a company or corporation if they hold a substantial interest in that company or corporation.
A foreign person has a substantial interest (and therefore a controlling interest) if they, or their associates, have an interest of 20% or more in the entity, or if there is an aggregate foreign interest (which can be held by several persons) of 40% or more in the entity.
For a trust, a foreign person will have a substantial interest if they hold a beneficial interest of 20% or more in the property or income of the trust; an aggregate substantial foreign interest (which can be held by several persons) is a beneficial interest of 40% or more of the trust property or income.
The definition of "agricultural land" is broadly defined in the Registration Act as "any land in Australia that is used, or could reasonably be used, for primary production business". Primary production business is defined in the Income Tax Assessment Act 1997 (Cth) (and this is the definition that the Registration Act incorporates by reference) as including land which is used for:
- cultivating or propagating plants;
- maintaining animals for the purpose of selling them or their bodily produce;
- conducting operations relating directly to taking or catching fish and certain other marine animals;
- planting or tending trees in a plantation or forest that are intended to be felled; or
- felling trees in a plantation or forest.
The definition of agricultural land will include land which is partially used for a primary production business.
There are two types of interests in agricultural land, or changes to interests, which need to be reported to the ATO:
- freehold interests in agricultural land; and
- rights to occupy agricultural land under a lease (including subleases) or a licence, where the term of the lease or licence (including any options for extension or renewal) is reasonably likely to exceed five years.
As the definition of agricultural land is broad, we encourage foreign entities that are unsure about their obligations under the Registration Act to contact us for assistance in determining if they have an interest in agricultural land.
Notifying the ATO
Foreign persons will be required to notify the ATO if, on or since 1 July 2015, they have held, acquired or disposed of an interest in Australian agricultural land.
The Registration Act contains two requirements to notify the ATO:
- first, the Registration Act requires foreign persons who hold an interest in Australian agricultural land, or held an interest in Australian agricultural land on 1 July 2015, to notify the ATO; and
- second, the Registration Act requires foreign persons to notify the ATO if, on or since 1 July 2015, certain events involving Australian agricultural land occur. These events include:
- if the person held, acquired or disposed of an interest in Australian agricultural land;
- if a person becomes, or ceases to be, a foreign person whilst holding an interest in Agricultural land; or
- if land becomes, or ceases to be, Australian agricultural land.
Whilst the ATO has been accepting notification of interests in agricultural land since 1 July 2015, the obligation to notify the ATO only commences on 1 December 2015. The Government has indicated that it anticipates the ATO will consider any early notifications of interests in Australian agricultural land as fulfilling the notification requirements contained in the Act.
Under the registration requirements, foreign persons are required to notify the ATO of certain information about their holdings, and any acquisitions and disposals, of Australian agricultural land which have occurred on or since 1 July 2015. The requirement to notify the ATO extends to foreign persons who have acquired, disposed of or still hold Australian agricultural land since 1 July 2015.
The report to the ATO must be completed within 30 days of the commencement of the Act (to be 1 December 2015), that is by 31 December 2015, for all foreign persons with an interest in Australian agricultural land, or who have held an interest since 1 July 2015.
The Act will also allow the ATO to collect information and require the ATO to publish statistics online about foreign ownership in Australian agricultural land.
The ATO, which manages and maintains the register, started collecting data for the register on 1 July 2015. The ATO is also required to report the statistics to the Australian Treasurer annually. When producing reports from the register, the ATO is required to remove any information which could reasonably be used to identify a person.
The register itself will be kept in two parts: a basic part and a statistical part. The basic part of the register will contain all of the information which was provided to the ATO by the reporting foreign holder and is to be maintained by the ATO on a confidential basis. The statistical part of the register will contain statistics which are derived from the information in the basic part of the register. The information contained on the statistical part of the register will be de-identified.
Penalties for failing to notify
The Act includes penalties for foreign persons who deal with agricultural land and fail to notify the ATO. The penalties under the Act will be calculated in accordance with the Taxation Administration Act 1953 (Cth).
The possible penalties range from minor administrative penalties to criminal sanctions. For example, the penalty for late reporting starts at A$180, but can increase considerably depending on the circumstances. As the penalty provisions are relatively complex, we recommend you seek advice if you consider you may be in breach of the Act.
If you are unsure how you or your interests will be defined under the Registration Act, please contact our Corporate team for further information. It will be important to determine your interests and notify the ATO to avoid penalties once the Act takes effect on 1 December 2015.
As part of amendments proposed to the Foreign Acquisitions and Takeovers Legislation Amendment Act 2015 by the Greens in the Senate, which were accepted by the Government and passed by both Houses of Parliament on 24 November 2015, there is a strong probability that a register of foreign interests in water entitlements will be established on or before 1 December 2016 to operate in conjunction with the Register of Foreign Ownership of Agricultural Land.