PENALTIES will soon apply to foreign investors who have not yet registered their water entitlements for agricultural assets in Australia.
The Australian Tax Office’s stocktake period ends on 30 November this year, foreign owners are warned.
Under the Register of Foreign Ownership of Water or Agricultural Land Act 2015, any foreign person holding an interest in agricultural land and water entitlements is required to register that interest with the Australian Tax Office.
This registration obligation has applied to agricultural land since 2015, but with amendments that came into effect from 1 July this year, now also require registration of certain water rights.
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 this year.
The Federal government has allowed a stocktake period lasting from 1 July to 30 November, 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, which has conducted a number of registrations since 1 July, says a re-occurring 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.
Further, a consideration of the 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.
* Duncan Bedford is a solicitor and partner in Brisbane agribusiness law firm, McCullough Robertson. He is recognised for his expertise in foreign investment and his management of matters before the Foreign Investment Review Board. He can be contacted on (07) 3233 8706.