If you are a foreign person, or entering into a transaction with a foreign person involving relevant water rights, the proposed Water Register will affect you.
If you are a foreign person who holds, or will hold, a "registrable water entitlement" or a "contractual water right", it is likely that from 1 July 2017 you will have to register it with the Australian Taxation Office.
On 24 August 2016, the Federal Government released an exposure draft Bill to amend the Register of Foreign Ownership of Agricultural Land Act 2015 and establish a national register of foreign ownership of water entitlements.
The Government's aim is to enhance transparency of the level of foreign ownership of water entitlements in Australia, inform it and the community about emerging investment trends, and improve the information for future policy development.
Unlike the Agricultural Land Register, the Water Register would capture all industry sectors, not just water used for agricultural purposes.
Why the Government is creating a Water Register
The Government's new foreign investment laws came into force on 1 December 2015 and established a modernised framework for the assessment of foreign investment in Australia. Part of the reforms included the establishment of the Water Register.
While the States and Territories are already responsible for maintaining a number of water related registers, the only official source of national data on foreign investment in water is the Agricultural Land and Water Ownership survey, managed by the Australian Bureau of Statistics.
The Government undertook initial consultation in February 2016, seeking views on the establishment of the Water Register. Submissions and comments indicated that stakeholders (including the Queensland State Government and the Northern Territory Government) generally welcomed the reform.
Who needs to register?
The concept of a "foreign person" is central to the obligation to register. A foreign person is:
- an individual that is not ordinarily resident in Australia;
- a foreign government or foreign government investor;
- a corporation, trustee of a trust or general partner of a limited partnership where an individual not ordinarily resident in Australia, foreign corporation or foreign government holds a substantial interest of at least 20%; or
- a corporation, trustee of a trust or general partner of a limited partnership in which two or more foreign persons hold an aggregate substantial interest of at least 40%.
Irrigation Infrastructure Operators will only be required to register their interest where they are a "foreign person" and hold registrable water entitlements that are not subject to irrigation rights.
What types of water entitlements need to be registered?
Foreign persons will need to register their interests in a "registrable water entitlement" or a "contractual water right".
A "registrable water entitlement" will be defined as:
- an irrigation right – as defined in the Water Act 2007;
- a right (including an Australian water access entitlement as defined) conferred by or under a law of a State or Territory to:
- hold water from a water resource in Australia; and/or
- take water from a water resource in Australia.
The following types of water rights would be excluded:
- stock and domestic rights;
- annual water allocations; or
- riparian rights.
A "contractual water right" of a person will be defined as a contractual right (including a deed) that the person holds (alone or jointly) to another person’s "registrable water entitlement".
What needs to be registered?
There are a number of events which trigger the requirement to register. The relevant events are when a foreign person:
- starts to hold or ceases to hold a "registrable water entitlement" or "contractual water right" where the remaining term is reasonably likely to exceed five years;
- becomes or ceases to be a "foreign person," while holding a "registrable water entitlement" or "contractual water right";
- holds a right that starts or ceases to meet the definition of a "registrable water entitlement" or "contractual water right"; or
- holds an interest in a "registrable water entitlement" or "contractual water right" where there is a change to the volume of the water (or other stated characteristic) referred to in the "registrable water entitlement" or "contractual water right".
When (and how) you can register your water interests
Registration is done by giving the Commissioner notice in the approved form (which is yet to be released).
A stocktake period is planned for 1 July-1 December 2017, allowing foreign owners six months to register and providing a baseline against which changing levels of ownership can then be assessed.
From 1 December 2017, foreign persons will have 30 days after any changes to their water-related holdings to notify the Commissioner.
What happens if I don't register my water interests?
The Commissioner will be able to assess whether foreign owners are complying with the registration obligations through a number of information requirements (including an offshore information notice) provided for under the Income Tax Assessment Act 1936 (Cth) and the Taxation Administration Act 1953 (Cth). The consequences of failing to comply with these requirements are dealt with under those Acts.
Getting ready for the Water Register
If you are a foreign person or are proposing to enter into a transaction with a foreign person involving relevant water rights, you should be aware of the proposed Water Register, and factor in registration requirements.
It should however be remembered that currently all we have is an exposure draft of the Bill, which might change when it is introduced into Parliament. Additionally, the Minister may make rules to implement certain aspects of the Water Register, which may contain exemptions from the obligation to register. In short, while we know the broad shape of the proposed new regime, the finer detail is yet to be confirmed.