House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)

Chapter 4 - Offences and civil penalties

Outline of chapter

4.1 To promote compliance with the obligations imposed by the legislation a number of offences and civil penalty provisions are included in new Part 5 of the Act.

Summary of new law

4.2 The Bill ensures that regulatory action can be taken in response to an alleged contravention which is commensurate with the seriousness of the alleged breach. To this end, the Bill provides for the imposition of criminal and civil penalties, as well as the issuing of infringement notices for less serious offences.

4.3 A person may commit an offence or be liable to a civil penalty if the person:

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fails to notify the Treasurer before taking a notifiable action;

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gives a notice to the Treasurer stating that a significant action (including a significant action that is a notifiable action) is proposed to be taken and takes the action before the end of the applicable time limit;

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contravenes an order made by the Treasurer which prohibits a proposed significant action, is related to a prohibition order, is an interim order or is a disposal order; or

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contravenes a condition in a no objection notification imposing conditions or an exemption certificate.

4.4 A foreign person who fails to comply with the obligations imposed by this Act in relation to residential land may also be liable to a civil penalty.

4.5 Each civil penalty provision in this Act is enforceable under Part 4 of the Regulatory Powers (Standard Provisions) Act 2014 (Regulatory Powers Act).

4.6 An infringement officer may issue an infringement notice if the infringement officer believes on reasonable grounds that the person contravened a civil penalty provision relating to land. The framework for the use of infringement notices created by the Regulatory Powers Act applies to infringement notices given for suspected contraventions of this Act.

Comparison of key features of new law and current law

Detailed explanation of new law

Offences and civil penalties

Failing to give notice

4.7 A foreign person may commit an offence or contravene a civil penalty provision if the person takes a notifiable action without first notifying the Treasurer. If a person takes an action by entering an agreement, the agreement is entered into when the agreement becomes binding. [Schedule 1, item 4, sections 84, 91 and 94]

4.8 The maximum penalty for an individual who commits this offence is imprisonment for three years, a fine equivalent to 750 penalty units ^[4] (currently $135,000), or both [Schedule 1, item 4, section 84]. If a body corporate is found guilty of this offence subsection 4B(3) of the Crimes Act 1914 allows a court to impose a fine equivalent to 3,750 penalty units (currently $675,000). ^[5]

4.9 For actions which do not relate to residential land, if the relevant court is satisfied that an individual has contravened the civil penalty provision, it could order the person to pay a pecuniary penalty equivalent to 250 penalty units (currently $45,000). By virtue of paragraph 82(5)(a) of the Regulatory Powers Act the maximum pecuniary penalty that could be imposed on a body corporate that contravenes the provision is 1,250 penalty units (currently $225,000). [Schedule 1, item 4, section 90 and 91]

4.10 For actions which relate to residential land there are additional civil penalties which are considered below.

Entering agreements before end of time period

4.11 If a foreign person gives a notice to the Treasurer stating that they propose to take a significant action (including a significant action that is a notifiable action) and the action is taken before the applicable day specified in new section 82, the person may commit an offence or be liable to a civil penalty. If a person takes an action by entering an agreement, and if a provision in an agreement does not become binding on a person until one or more conditions are met, the person is taken to have entered into the agreement only when the provisions become binding.

4.12 If an individual commits this offence the maximum penalty is imprisonment for three years, a fine equivalent to 750 penalty units (currently $135,000), or both. If a body corporate is found guilty of this offence subsection 4B(3) of the Crimes Act allows a court to impose a fine equivalent to 3,750 penalty units (currently $675,000). [Schedule 1, item 4, section 85]

4.13 For actions which do not relate to residential land, if a civil penalty order is sought and the relevant court is satisfied that an individual has contravened the provision the court could order the person to pay a pecuniary penalty equivalent to 250 penalty units (currently $45,000). By virtue of paragraph 82(5)(a) of the Regulatory Powers Act, the maximum pecuniary penalty that could be imposed on a body corporate who contravenes this provision is 1,250 penalty units (currently $225,000). [Schedule 1, item 4, sections 90 and 92]

4.14 For actions which relate to residential land there are additional civil penalties which are considered below.

Contravening orders under Part 3

4.15 A person may commit an offence or contravene a civil penalty provision if the person engages in conduct that contravenes an order made by the Treasurer under new Part 3.

4.16 If an individual commits this offence the maximum penalty is imprisonment for three years, a fine equivalent to 750 penalty units (currently $135,000), or both. If a body corporate is found guilty of this offence subsection 4B(3) of the Crimes Act allows a court to impose a fine equivalent to 3,750 penalty units (currently $675,000). [Schedule 1, item 4, section 86]

4.17 If the relevant court is satisfied that an individual has contravened the civil penalty provision it could order the person to pay a pecuniary penalty equivalent to 250 penalty units (currently $45,000). By virtue of paragraph 82(5)(a) of the Regulatory Powers Act the maximum pecuniary penalty that could be imposed on a body corporate that contravenes the provision is 1,250 penalty units (currently $225,000). [Schedule 1, item 4, section 89]

Contravening conditions

4.18 A person may commit an offence or contravene a civil penalty provision if the person engages in conduct that is contrary to a condition included in a no objection notification imposing conditions or an exemption certificate.

4.19 The maximum penalty that may be imposed on an individual who commits this offence is imprisonment for three years, a fine equivalent to 750 penalty units, or both. If a body corporate is found guilty of this offence subsection 4B(3) of the Crimes Act allows a court to impose a fine equivalent to 3,750 penalty units (currently $675,000). [Schedule 1, item 4, section 87]

4.20 For actions which do not relate to residential land, a person who fails to comply with a condition included in a no objection notification imposing conditions or imposed on an exemption certificate given by the Treasurer contravenes a civil penalty provision. If the relevant court is satisfied that an individual has contravened the provision the court could order the person to pay a pecuniary penalty equivalent to 250 penalty units (currently $45,000). By virtue of paragraph 82(5)(a) of the Regulatory Powers Act, the maximum pecuniary penalty that could be imposed on a body corporate who contravenes this civil penalty provision is 1,250 penalty units (currently $225,000). [Schedule 1, item 4, sections 90 and 93]

4.21 For actions which relate to residential land there are additional civil penalties which are considered below.

Failing to advertise new dwellings

4.22 In general terms, new section 57 enables the Treasurer to give a certificate to a property developer who is proposing to sell to foreign persons new dwellings that will be, are being, or have been constructed on land the property developer has an interest in. It is envisaged that such a certificate will generally include a condition imposed under new section 60 that requires the person to whom the certificate applies to advertise the new dwellings in Australia. A developer may commit an offence or contravene a civil penalty provision if the developer disposes of an interest in the dwelling to a foreign person without advertising the dwelling in accordance with the condition.

4.23 The maximum penalty that may be imposed on an individual who is found guilty of this offence is imprisonment for three years, a fine equivalent to 750 penalty units (currently $135,000), or both. If a body corporate is found guilty of this offence subsection 4B(3) of the Crimes Act allows a court to impose a fine equivalent to 3,750 penalty units (currently $675,000). These penalties are justified because of the importance of maximising the supply of residential properties that are available for purchase by Australians. [Schedule 1, item 4, section 88]

4.24 If the relevant court is satisfied that an individual has contravened the civil penalty provision it could order the person to pay a pecuniary penalty equivalent to 250 penalty units (currently $45,000). By virtue of paragraph 82(5)(a) of the Regulatory Powers Act the maximum pecuniary penalty that could be imposed on a body corporate that contravenes the provision is 1,250 penalty units (currently $225,000). [Schedule 1, item 4, paragraph 97(2)(b)]

Fine or imprisonment ratios for certain offences

4.25 The fine or imprisonment ratio for these offences differs from the standard ratio of one year imprisonment or 60 penalty units (or five penalty units or one month imprisonment), which is the ratio generally recommended in the Australian Government's A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers (Guide). ^[6] This departure is necessary because the maximum fine that can be imposed for the most serious contraventions must be sufficient to counter the potential financial gain that may be obtained by a person who commits the offence. However, if the ratio were maintained the maximum term of imprisonment that could be imposed for these offences would be twelve and a half years imprisonment - a punishment which would be disproportionate to the seriousness of the proscribed conduct. The ratio is also consistent with the ratio in current the Act.

Additional civil penalty provisions - residential land

4.26 There are different civil penalties for contraventions which involve residential land.

Acquisition of interests in residential land

4.27 A foreign person who takes a notifiable action relating to a residential land acquisition without notifying the Treasurer is liable to a civil penalty. A foreign person who gives notice of a significant action relating to a residential land acquisition but takes that action before the time calculated in accordance with new section 82 is also liable to a civil penalty.

4.28 An individual who contravenes this civil penalty provision is liable to a pecuniary penalty the equivalent of whichever is the greater of the following:

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10 per cent of the consideration for the acquisition of the interest; or

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10 per cent of the market value of the interest.

4.29 The penalty is fixed to the value of the interest so that it will have the same impact on any gain made regardless of the value of the interest. For that reason, if a body corporate contravenes the provision there is no provision that the person pay five times the penalty that could be imposed on an individual. [Schedule 1, item 4, section 94 and subsection 99(4)]

Acquisition of interests in established dwellings

4.30 A temporary resident (a term defined by new section 4) who holds an interest in more than one established dwelling at the same time contravenes a civil penalty provision. However, a person is not in contravention of a civil penalty provision if:

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the temporary resident is making a genuine attempt to dispose of one or more of the interests;

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if those interests were disposed of, the temporary resident would not have been holding an interest in more than one established dwelling; and

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the person has been holding an interest in more than one established dwelling for less than six months.

[Schedule 1, item 4, section 95]

4.31 An individual who contravenes this civil penalty provision is liable to a pecuniary penalty the equivalent of whichever is the greater of the following:

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the amount of the capital gain;

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25 per cent of the consideration for the acquisition of that interest; or

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25 per cent of the market value of that interest.

4.32 The Bill explains how the amount of capital gain that was made or would have been made is to be calculated. [Schedule 1, item 4, section 98]

4.33 The penalty is fixed to the gain or value of the interest so that it has the same impact on any gain made regardless of the gain or value of the interest. For that reason, if a body corporate contravenes the provision there is no provision that the person pay five times the penalty that could be imposed on an individual. [Schedule 1, item 4, subsection 99(4)]

Contravening conditions in relation to residential land

4.34 A person who fails to comply with a condition imposed on a no objection notification imposing conditions given under new section 74 relating to residential land is liable to a civil penalty. The maximum pecuniary penalty that could be imposed by a court on an individual who contravenes this civil penalty provision is whichever is the highest of the following:

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the amount of the capital gain that was made or would be made on the disposal of that interest;

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25 per cent of the consideration for the acquisition of that interest; or

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25 per cent of the market value of the interest.

[Schedule 1, item 4, section 96]

4.35 The Bill explains how the amount of capital gain that was made or would have been made is to be calculated. [Schedule 1, item 4, section 98]

4.36 The penalty is fixed to the gain or value of the interest so that it has the same impact on any gain made regardless of the gain or value of the interest. For that reason, if a body corporate contravenes the provision there is no provision that the person pay five times the penalty that could be imposed on an individual. [Schedule 1, item 4, subsection 99(4)]

Miscellaneous matters - liability of persons and enforcement

Liability of officers of corporations

4.37 An officer of a corporation that is convicted of an offence against the Act or the regulations commits an offence and contravenes a civil penalty provision if the person authorised or permitted the commission of the offence by the corporation. The maximum penalty is the maximum penalty that could be imposed if the officer contravened the same provision the corporation contravened. [Schedule 1, item 4, section 102)]

4.38 It is appropriate that extended accessorial liability applies to officers of corporations given the importance of ensuring compliance with the obligations imposed by this Act is taken seriously by those ultimately responsible for the conduct of those corporations that engage in activities regulated by this Act. Liability is not being imposed simply because the person is an office holder at the relevant time, but because the officer was personally responsible for the corporation's non-compliance with this Act. This approach ensures fairness and some protection to the individuals involved.

4.39 The officer might also be liable for an offence as a result of Part 2.4 of the Criminal Code.

Extended criminal liability

4.40 The provisions in Part 2.4 of the Criminal Code extend criminal liability to a person who may not directly or individually commit an offence against this Act, but who:

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attempts to commit an offence;

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is an accomplice to the commission of an offence;

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jointly commits an offence;

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procures the commission of an offence by an agent;

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incites the commission of an offence; or

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conspires with another person to commit an offence.

Civil penalties for officers of corporations

4.41 An officer of a corporation is liable to a civil penalty if the corporation contravenes a civil penalty provision and the officer knew that, or was reckless or negligent as to whether, the contravention would occur. However, the officer is only be liable to a civil penalty if he or she is in a position to influence the conduct of the corporation in relation to the contravention and the officer failed to take all reasonable steps to prevent it. [Schedule 1, item 4, section 103]

4.42 An officer is reckless as to whether the contravention would occur if the officer is aware of a substantial risk that the contravention would occur and, having regard to the circumstances known to the officer, it was unjustifiable to take that risk. An officer is negligent as to whether the contravention would occur if the officer's conduct involves such a great falling short of the standard of care that a reasonable person would exercise in the circumstances and such a high risk that the contravention would occur that the conduct merits the imposition of a pecuniary penalty.

4.43 The terms reckless and negligent are defined because the provision is a civil penalty provision and the required standard of conduct should be made clear to enable corporate officers to comply with the law.

Enforcement of civil penalty provisions

4.44 Each civil penalty provision in the Act is enforceable under Part 4 of the Regulatory Powers Act, which sets out a framework for the use of civil penalties to enforce civil penalty provisions created by other Acts. An application for an order that a person has contravened a civil penalty provision must be made within four years of the alleged contravention (subsection 82(2) of the Regulatory Powers Act).

4.45 Part 4 of the Regulatory Powers Act permits an authorised applicant to apply to a relevant court for an order that a person who is alleged to have contravened a civil penalty provision to pay the Commonwealth a pecuniary penalty. The Treasurer is an authorised applicant and the Federal Court of Australia (Federal Court), Federal Circuit Court of Australia (Federal Circuit Court) and a Supreme Court of a State or Territory are relevant courts. [Schedule 1, item 4, section 99]

4.46 Criminal proceedings may be commenced against a person for conduct that is the same, or substantially the same, as conduct that would constitute a contravention of a civil penalty provision even if a civil penalty order has been made against the person in relation to the contravention (section 90 of the Regulatory Powers Act). However, a relevant court cannot make a civil penalty order against a person for a contravention of a civil penalty provision if the person has been convicted of an offence constituted by the conduct that is the same, or substantially the same, as the conduct constituting the contravention (section 88 of the Regulatory Powers Act).

Ancillary contravention of a civil penalty provision

4.47 The effect of subsection 92(1) of the Regulatory Powers Act is that conduct ancillary to the contravention of a civil penalty provision in this Act is considered to be a contravention of the provision itself. Ancillary conduct includes any attempt to contravene a provision that does not succeed, aiding or inducing a contravention of a civil penalty provision, and any conspiracy to contravene a civil penalty provision. This means, for example, that if a person aids a foreign person who is not a temporary resident to purchase an established dwelling (see new section 95), that person may also be liable to a civil penalty.

Infringement notices

4.48 An infringement notice may be given by an infringement officer with respect to the civil penalty provisions that relate to residential land [Schedule 1, item 4, subsection 100(1)]. Infringement notices allow action to be taken against those who engage in less serious contraventions of this Act more efficiently and effectively than through court action alone, and provide the potential for a speedier resolution of matters than may be possible through the courts.

4.49 The framework for the use of infringement notices created by Part 5 of the Regulatory Powers Act applies to these infringement notices. The Secretary may specify in writing that an individual is an infringement officer for the purposes of Part 5 of the Regulatory Powers Act. The Secretary may only appoint an individual who is an employee performing the duties of an APS 6 position under the Public Service Act 1999, or an equivalent or higher position, within the Department or in the Australian Taxation Office (ATO). [Schedule 1, item 4, subsections 100(2) and (3)]

4.50 Under Part 5 of the Regulatory Powers Act, an infringement officer may give a person an infringement notice if the infringement officer believes on reasonable grounds that a person has contravened a provision subject to an infringement notice. An infringement notice must be given within 12 months after the day on which the contravention is alleged to have taken place.

4.51 A person who is given an infringement notice can choose to pay the amount specified in the notice as an alternative to having court proceedings brought against the person for a contravention of a provision subject to an infringement notice under Part 5 of the Act. Payment of the amount is not an admission of guilt or liability. However, if the person fails to pay the infringement notice the person is exposed to the risk that the Secretary may apply to a court for an order that the person pay a civil penalty. If the person pays the penalty then any liability that person has for the contravention of the relevant civil penalty provision is discharged and proceedings cannot be brought against the person for the contravention.

4.52 The Secretary of the Department is the relevant chief executive for the purposes of Part 5 of the Regulatory Powers Act. Under Part 5 of the Regulatory Powers Act the relevant chief executive may grant an extension to pay the amount specified in an infringement notice if a person to whom an infringement notice is given applies in writing for an extension before the period. A relevant chief executive may also withdraw an infringement notice given to a person in response to written representations from that person (section 106 of the Regulatory Powers Act).

4.53 The amount to be specified in an infringement notice for the alleged contravention of a civil penalty provision depends on whether the infringement notice is given for a tier 1 infringement notice or a tier 2 infringement notice. The amount payable for a tier 1 infringement notice is 60 penalty units (currently $10,800) if it is given to a body corporate and 12 penalty units (currently $2,160) if it is given to any other person. The amount payable for a tier 2 infringement notice is 300 penalty units (currently $54,000) if the notice is given to a body corporate, and 60 penalty units (currently $10,800) if given to any other person. [Schedule 1, item 4, subsection 100(6)]

4.54 An infringement notice is a tier 1 infringement notice if the notice relates to an alleged contravention of a civil penalty provision by a person who is discovered because the person informed the Commonwealth of the conduct that constituted the alleged contravention. An infringement notice is a tier 2 infringement notice if the Commonwealth discovers the conduct through some other means, such as information provided by a member of the public or by undertaking data-matching. [Schedule 1, item 4, section 101]

4.55 The amount payable under an infringement notice departs from the maximum that is generally recommended in the Guide (which is one fifth of the maximum penalty that a court could impose on a person, but not more than 12 penalty units for an individual and not more than 60 penalty units in the case of a body corporate). ^[7] This departure is necessary because the maximum penalty that could be imposed by a court is not fixed and the amount payable must be an adequate deterrent.

Recovering unpaid penalties

4.56 Where pecuniary penalties are ordered against a foreign person, recovery of debts will be difficult if the person is not in or has few assets in Australia. Subdivision C of Division 4 of Part 5 seeks to minimise the risk that proceeds are not available for payment of penalties.

4.57 If a person a court finds that a person has contravened Division 3 of Part 5 and a pecuniary penalty is imposed, the penalty is a debt that is due and payable. In addition, the Treasurer may in specified circumstances declare that a charge applies in relation to Australian land the person has an interest in to secure the payment of the penalty, and the charge has priority over any other interest in the land. A declaration made by the Treasurer must specify the period during which the declaration is in force and the land to which it applies. To assist readers the Bill expressly provides that a declaration made under subsection 105(1) or 105(2) is not a legislative instrument. Such a declaration is of an administrative character. [Schedule 1, item 4, sections 104 and 105]

4.58 The charge remains in force until the interest in the land is sold or all of the following are paid:

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the penalty is paid;

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any costs incurred by the Commonwealth in relation to the proceedings for the offence or civil penalty order; and

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any costs incurred by the Commonwealth in relation to recovering the penalty.

The charge on the land is not affected by any change in ownership of the land. The Treasurer has power, on behalf of the Commonwealth, to do, or authorise the doing of, anything necessary or convenient to obtain the registration of the charge on a land register, including executing any instrument that is required to be executed or signing any certificate that states that a charge is created on land and specifies the land on which the charge is created. [Schedule 1, item 4, section 106]

If a charge is created under new section 104 and it is still in force three months after the pecuniary penalty was imposed on the person (or any longer period determined by the Treasurer or the court), the person's interest in Australian land vests in equity in the Commonwealth and vests in the Commonwealth at law once all applicable registration requirements have been complied with. The Commonwealth is entitled to be registered on a land register as the owner of the property. However, new subsections 107(1) to (3) do not apply if at the end of the three month period (or any longer period determined by the court or the Treasurer), a restraining order is in force in relation to the land under Part 2-1 of the Proceeds of Crime Act 2002; a forfeiture order is in force in relation to the land under Part 2-2 of that Act; or an order of a kind prescribed by the regulations is in force in relation to the land under a law of the Commonwealth, a State or a Territory. [Schedule 1, item 4, section 107]

The Treasurer, and persons acting on the Commonwealth's behalf, can generally dispose of, or otherwise deal with, a person's interest in Australian land that vests under new section 107 only after the later of:

•

if the period provided for lodging an appeal against the finding that the person contravened a provision in Division 3 of Part 5 of the Act has expired without such an appeal having been filed, the end of that period; or

•

if an appeal is lodged against the finding that the person contravened a provision in Division 3 of Part 5 of the Act, the appeal lapses or is finally determined.

4.59 However, the Treasurer or other people on behalf of the Commonwealth could dispose or otherwise deal with the land at any earlier point in accordance with the leave of a court and in accordance with the directions of a court. [Schedule 1, item 4, section 108]

4.60 If the Treasurer sells the interest in the land, the Treasurer may give full and effective title to the land free of all other interests. This extinguishes all other interest in the land, allowing the purchaser to have full title. The Treasurer may make and execute any instruments or documents necessary for the purposes of selling the interest in the land such as the transfer of title documents and contracts of sale. [Schedule 1, item 4, section 109]

4.61 The Treasurer may apply the proceeds of the sale against:

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the relevant penalty and any other penalty that is due and payable to the Commonwealth under this Act by the former owner of the land;

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any costs incurred by the Commonwealth in relation to the proceedings for the offence or civil penalty order; and

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any costs incurred by the Commonwealth in relation to recovering the penalty.

4.62 The provision sets out those to whom the Treasurer must pay the remainder [Schedule 1, item 4, subsection 109(6)]. No stamp duty or other tax or fee is payable under a law of a State or Territory in respect of a vesting of an interest in Australian land under new section 107, or anything connected with the vesting of that interest, if the Treasurer declares that the interest in the land has vested under new section 107 in an instrument which specifies the interest in the land. To assist the reader the Bill explicitly provides that an instrument made under new section 110 is not a legislative instrument. Such an instrument is of an administrative character, rather than a legislative character [Schedule 1, item 4, subsection 110].

4.63 If the operation of Subdivision C of Division 4 of Part 5 would result in an acquisition of property from a person otherwise than on just terms (within the meaning of section 51(xxxi) of the Constitution), the Commonwealth is liable to pay a reasonable amount of compensation to the person. [Schedule 1, item 4, section 111]