Foreign-owned land entitlements
WHO SHOULD READ THIS
- Foreign investors who hold water entitlements in Australia.
THINGS YOU NEED TO KNOW
- The stocktake period ends 30 November 2017, and penalties will soon apply to foreign investors who have not yet registered their water entitlements.
WHAT YOU NEED TO DO
- Conduct a review of your water entitlements, confirm if registration is required and register before 30 November 2017.
As discussed in our Focus Alert dated 27 June 2017, under the Register of Foreign Ownership of Water or Agricultural Land Act 2015 (Cth) (the Act), a foreign person that holds an interest in certain agricultural land and water entitlements is required to register that interest with the Australian Tax Office (ATO). This registration obligation has applied to agricultural land since 2015, but with amendments that came into effect from 1 July 2017, foreign persons are now also required to register certain water rights.
The government has allowed a stocktake period lasting from 1 July 2017 to 30 November 2017, during which time any existing interests in water entitlements held by foreign persons must be registered. All new interests in water entitlements must be registered within 30 days of acquisition.
Register of water interests
Foreign persons must register their interests in ‘registrable water entitlements’ and ‘contractual water rights’ with the ATO. Generally, ‘registrable water entitlements’ includes perpetual and ongoing entitlements to water, irrigation rights, rights to hold and take water granted by a state or territory government (above an annual allocation) and ‘contractual water rights’ granted by one party to access another party’s registrable water entitlement which are reasonably likely to run for five or more years. The Act specifically excludes the need to register stock and domestic rights, riparian rights and annual water allocations granted by a state or territory government.
Following the registration of existing water entitlements during the stocktake period, ongoing notification obligations will also arise when:
- a foreign person starts to hold a registrable water entitlement or contractual water right
- a person becomes a foreign person while holding a water entitlement or contractual water right, or
- there is a change in characteristics of a water entitlement or contractual water right such as an increase in the volume held by a foreign person.
The registration process requires the provision of a significant amount of information, including:
- how much water the water right provides
- who granted or contracted that water right
- any identifying information concerning the water right (e.g. licence number)
- reliability of the water supply and whether its flow is controllable or not
- purpose of the entitlement (e.g 80% crop irrigation and 20% dust suppression)
- how long the water right runs for (if relevant), and
- why the registering party is foreign.
McCullough Robertson has conducted a number of registrations since 1 July 2017 and a reoccurring issue has been confirming the exact nature of the licence. As the level of information provided by each state or territory’s water scheme varies, there are often gaps in the information immediately available.
Secondly, the descriptions, names and purpose used in each state or territory’s water scheme do not align perfectly with the Act and relevant amendments. This may require further investigation beyond a review of a particular water licence document. Helpfully, some Rules have been released by the ATO which as well as providing further carve outs to the registration requirements also provide worked examples to assist with matching any given state or territory regime with the language in the Act.
Penalties for failing to notify
Foreign persons who fail to notify the ATO or do not give notice on time may be liable to pay an administrative penalty in respect of each interest that they hold or cease to hold in agricultural land or a registrable water entitlement.
Administrative penalties are calculated in accordance with the Taxation Administration Act 1953 (Cth) and range from $210 to $5,250 (per interest and per breach), depending on the number of days the notice is overdue and the size of the relevant entity.
Further, a consideration of the Foreign Investment Review Board (FIRB) and the ATO when deciding on an application for investment approval, is whether the applicant and its associates have acted in compliance with the law. A failure to register a water interest could impact future unrelated investment approvals.
Recently FIRB and the ATO have increased their focus on ensuring compliance with the relevant foreign investment laws. Although currently the focus is on land acquisitions and compliance with FIRB approval conditions, the increased public attention on certain entities and their alleged manipulation of the water entitlements scheme will surely see FIRB and the ATO increase their compliance monitoring of entities registering (or not registering) their water entitlements, especially post 30 November 2017.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.