House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)

Chapter 1 Increasing the transparency of foreign ownership of water entitlements

Outline of chapter

1.1 Schedule 1 to this Bill amends the Register of Foreign Ownership of Agricultural Land Act 2015 (the Act) to establish a Register of Foreign Ownership of Water Entitlements (Water Register) to be administered by the Commissioner of Taxation (Commissioner). This Bill, from now on referred to as the Water Register Bill, provides for the collection of information and publication of statistics about foreign holdings of registrable water entitlements and long term contractual water rights. The Water Register Bill allows for increased transparency on the levels of foreign ownership in water entitlements.

Context of amendments

1.2 This measure was foreshadowed on 25 November 2015, when the Australian Government included provisions in the Act which would mean that the Act would cease to have effect at the end of 1 December 2016 if an Act or the provisions of an Act providing for a register of foreign ownership of water entitlements did not commence before that time.

1.3 There is currently no comprehensive collection of foreign ownership of certain water holdings at any level of government. All the states and territories collect data on the entitlements and rights they confer on a person or business. However, this data does not capture information on the status of the holder as a foreign person. There is also inconsistent data on private or third party arrangements where the rights conferred by the states and territories are subsequently leased or provided to another person through a contractual arrangement.

1.4 The amendments to the Act provide an effective solution for implementing a foreign ownership register for specific water holdings in Australia and build on the increased transparency already provided by the Register of Foreign Ownership of Agricultural Land (Agricultural Land Register).

Summary of new law

1.5 The Water Register Bill amends the Act to establish the Water Register which will be maintained by the Australian Taxation Office (ATO). The Water Register will include information about holdings in registrable water entitlements and long term contractual water rights held by foreign persons.

1.6 The Water Register Bill sets out what holdings in registrable water entitlements or contractual water rights must be reported to the ATO, by whom and by when.

1.7 The Water Register will have two separate parts, a basic part (the full record) and the statistical part. The latter will be published by the Commissioner on a website. In addition the Commissioner must derive statistics from the basic part of the Water Register to report to the Minister (in this case the Treasurer) on an annual basis on the operation of the Act including the statistics derived from the Water Register. The Minister will be required to present this report to the Parliament.

Comparison of key features of new law and current law

Detailed explanation of new law

1.8 The Bill:

•

expands the existing Agricultural Land Register to establish a Water Register; and

•

sets out what holdings of water entitlements and rights must be reported to the ATO, by whom and by when.

Other amendments

1.9 The Water Register Bill amends the Foreign Acquisitions and Takeovers Act 1975 (FATA) to facilitate the Australian Taxation Office's (ATO) administration of the rules around foreign investment in residential real estate.

Establishment of the Register

1.10 The Water Register Bill amends the Act to require the Commissioner to keep a Water Register in addition to an Agricultural Land Register. The Water Register must be kept in two parts: a basic part, and a statistical part. [Schedule 1, item 27, sections 30A, 30B and subsection 30C(1)]

1.11 The basic part must contain all information notified to the Commissioner by persons with foreign holdings of registrable water entitlements or contractual water rights. The Commissioner can add information to the basic part of the Water Register which he or she otherwise obtains about holdings, or changes to holdings, of registrable water entitlements and contractual water rights. The Commissioner can add such information to the Water Register even if it was obtained by the Commissioner before the commencement of the Water Register Bill. The Commissioner may also correct or update information in the basic part of the Water Register. For example, the Commissioner may become aware of updated contact details for a person whose details are on the Water Register because the person has updated those details, for example through the lodgement of their income tax return. The Commissioner will also be able to update those contact details for the Water Register. [Schedule 1, item 27, subsection 30C(2), sections 30D and 30E]

1.12 The statistical part of the Water Register must contain statistics derived from information in the basic part of the Water Register. The Commissioner may correct or update information in the statistical part of the Water Register. The Commissioner must publish the statistical part of the Water Register on a website. The statistics in the statistical part must not identify or be reasonably capable of identifying a person. [Schedule 1, item 27, subsections 30C(3), 30C(4) and section 30F]

1.13 Amendments to section 34 of the Act provide that the Commissioner must also include statistics derived from the basic part of the Water Register in the report prepared for the Minister on the operation of the Act. [Schedule 1, item 32, paragraph 34(1)(b)]

1.14 A number of minor amendments are necessary to enable the establishment and administration of both the Agricultural Land Register and the Water Register. These amendments amend existing references to recognise that the amendments to the Act mean that two registers to be maintained by the Commissioner. [Schedule 1, item 16, section 12; item 17, section 13; items 18 and 19, section 14; items 20, 21 and 22, section 15; items 23 and 24, section 16; items 25 and 26, section 17]

Reporting of holdings of water entitlements

What holdings must be reported

1.15 Foreign persons with holdings of registrable water entitlements or long term contractual water rights held on or after 1 December 2017 must report those holdings to the ATO. [Schedule 1, item 27, sections 30G, 30H and 30K]

Meaning of registrable water entitlements

1.16 A registrable water entitlement is:

•

An irrigation right; or

•

A right conferred by or under a law of a State or Territory to either hold water from an Australian water resource or take water from an Australian water resource, or both. This includes an Australian water access entitlement.

[Schedule 1, items 8 and 12, sections 4 and 5A]

1.17 An irrigation right is defined in subsection 4(1) of the Water Act 2007. Broadly, it means a right that a person has against an irrigation infrastructure operator to receive water; and is not a water access right or a water delivery right. [Schedule 1, item 12, paragraph 5A(1)(a)]

1.18 The definition of registrable water entitlement will exclude stock and domestic rights, riparian rights and water allocations. [Schedule 1, item 12, paragraphs 5A(2)(a), 5A(2)(b) and 5A(2)(c)]

1.19 A water allocation is defined as a specific volume of water allocated to an Australian water access entitlement in a given period. [Schedule 1, item 11, section 4]

1.20 Despite certain water rights falling within the definition of registrable water entitlement, rules made by the Minister may specify that a certain kind of water right is not a registrable water entitlement. Such rules must be made via a legislative instrument and would be subject to Parliamentary disallowance. [Schedule 1, item 12, paragraph 5A(2)(d)]

1.21 As this allows the rules to reduce (but not broaden) the scope of the term 'registrable water entitlement', such rules would generally decrease the regulatory burden. It is anticipated that this rule making provision will be used to exclude rights conferred by a state or territory which would meet the definition of registrable water entitlement but which are considered to be basic rights, such as basic harvestable rights.

Example 1.1

Amy operates a zucchini farm. Amy holds an Australian water access entitlement issued by the state government that enables her to take water from the river running through her farm to use on her zucchini crops. The Australian water access entitlement issued to Amy meets the definition of registrable water entitlement.

Example 1.2

Bob and Jenny own the property neighbouring Amy's property. The river also runs through their property and they pump water from the river for domestic purposes. Bob and Jenny have a riparian right to use the water from the river. This riparian water right is not a registrable water entitlement.

Example 1.3

Australian Ore Corporation is a foreign person operating outside of a water resource plan area. Australian Ore Corporation holds a licence issued by the state government to enable it to extract water for two-years as a by-product of its operations. The licence meets the definition of a registrable water entitlement as it is a right conferred under state law to take water from a water resource.

1.22 The definition of registrable water entitlement requires three new definitions to be inserted into the Act.

1.23 The definition of Australian water access entitlement means a perpetual or ongoing entitlement, conferred by or under a law of a State or Territory to exclusive access to a share of the water resources of an area in the State or Territory. [Schedule 1, item 4, section 4]

Example 1.4

ABC Irrigation Ltd is an irrigation infrastructure operator in NSW. It holds a number of water access licences issued by the State government, which provide it with exclusive and perpetual access to shares of a water resource named in the entitlement. ABC's water access licences are Australian water access entitlements, and meet the definition of a registrable water entitlement.

Example 1.5

Michael owns an orchard in an irrigation district in Victoria and buys a water allocation in the market for the given year, which entitles him to receive the water allocation from his local irrigation infrastructure operator. Michael's water allocation is not an Australian water access entitlement because it is not perpetual or ongoing.

1.24 The second definition is the definition of a water resource. A water resource is generally a naturally existing body of water. A state or territory government can issue rights to water from these water resources. The body of water can be surface or ground water or watercourses, lakes, wetlands, or aquifers. [Schedule 1, item 11, section 4]

1.25 The terms surface water, ground water, watercourses, lakes and wetlands are defined in section 4 of the Water Act 2007.

Example 1.6

The NSW government issues water entitlements for the Darling River. The Darling River is a naturally occurring body of water and is therefore a water resource.

Example 1.7

Spade Co Ltd, a mining company, obtains a licence to extract ground water as a by-product of its operations. The licence is issued as part of the environmental approval by the environmental authority. The ground water is a water resource even though the water resource is not named.

1.26 The third definition is the definition of a water allocation which has already been explained at paragraph 1.19.

Meaning of contractual water right

1.27 A contractual water right is a contractual right that a person holds, alone or jointly to all or part of another person's registrable water entitlement or water allocation. [Schedule 1, item 6, section 4]

1.28 A rule making provision is also inserted by the Water Register Bill to provide that the Minister may make rules which specify that a certain water right is a contractual water right. Such rules must be made via a legislative instrument and would be subject to Parliamentary disallowance. [Schedule 1, item 6, section 4]

1.29 A person will only need to register a contractual water right where the term of the contract is likely to exceed 5 years, including any extensions or renewal, generally at the time that the notifiable event occurs. However, depending on the circumstance, the 5 year period might also be determined from when the person became a foreign person, the start of 1 December 2017 or the time the person started to hold the water entitlement or right. [Schedule 1, item 27, sections 30H, 30L, 30M, 30N, 30P, and 30Q.]

1.30 While an irrigation right may be considered to be a type of contract, the requirement to register an irrigation right is captured through the definition of registrable water entitlements.

1.31 However, if a holder of an irrigation right, subsequently entered into a contract with another person so that the other person has a right over the first person's irrigation right (in full or part), the contract would be a contractual water right.

Example 1.8

Quartz Quarry Pty Ltd is a company that holds a state government issued water access right that provides access to a maximum of 150 megalitres of water from an aquifer in a given period. Quartz Quarry leases part of its entitlement to Gemstone Exploration Ltd. Gemstone Exploration holds a contractual water right.

Example 1.9

Antonia owns a vineyard in the vicinity of Shepparton, Victoria. Due to the dry conditions in recent years and the forecast that such conditions may extend over several more years, Antonia has taken a lease of 100 megalitres over her neighbour, Luigi's water share. Luigi has water shares in excess of his needs.

Luigi is leasing a small stone fruit orchard and associated water entitlement from Pesche Pty Ltd. The water right arising from the contract between Antonia and Luigi meets the definition of contractual water right. It is irrelevant that the water right is subject to a sublease. The water right arising from the contract between Luigi and Pesche Pty Ltd also meets the definition of contractual water right.

1.32 The definition of contractual water right also relies on the new definition being inserted into the Act, water allocation.

1.33 As noted, a water allocation is a specific volume of water allocated to an Australian water access entitlement in a given period. Although a water allocation will not be required to be notified because it is not a registrable water entitlement, contracts to another person's water allocation will be required to be notified if the term of the contract is likely to exceed 5 years (including any extensions or renewal) at the time the notifiable event occurs or at the 'registration trigger time'.

Example 1.10

Ruth owns a turf farm in South Australia and holds an Australian water access entitlement for 200 megalitres issued by a state government. Due to low rainfall conditions and other factors, the state government has assigned 150 megalitres to Ruth's entitlement this year. Ruth's water allocation for the given period is therefore 150 megalitres.

Example 1.11

Purplish Fish Ltd holds an Australian water access entitlement issued by the ACT government for 10 megalitres, which is used for Murray cod aquaculture. In one year, 5 megalitres of water was allocated to Purplish Fish's entitlement by the territory government. The 5 megalitres meets the definition of water allocation.

Meaning of foreign persons

1.34 The definition of 'foreign person' is already included in section 4 of the Act. It has the same meaning as section 4 of the Foreign Acquisitions and Takeovers Act 1975 (FATA).

1.35 Section 4 of the FATA defines a foreign person as:

•

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, or any other person that meets the conditions, prescribed by the regulations to the FATA.

1.36 Where the Water Register Bill uses the term 'person' it is intended that 'person' be read in light of the definition of 'foreign person'. 'Person' would therefore include an individual, a corporation, the trustee of a trust, a foreign government and any other person, or any other person that meets the conditions, prescribed by the regulations.

1.37 Section 5 of the FATA defines when an individual who is not an Australian citizen is ordinarily resident in Australia. Under section 4 of the FATA, a person holds a substantial interest in an entity (which is defined in section 4 of the FATA as a corporation or a unit trust) or trust if the person holds:

•

for an entity - holds an interest of at least 20 per cent in the entity, alone or together with one or more associates of the person; or

•

for a trust (including a unit trust) - holds a beneficial interest, together with any one or more associates, in at least 20 per cent of the income or property of the trust.

1.38 Aggregate substantial interest requires that two or more persons hold an aggregate interest of at least 40 per cent in the entity or beneficial interests in at least 40 per cent of the income or property of the trust. Section 17 of the FATA provides the meaning of interest and aggregate interest to include actual or potential voting power, issued securities or issued securities that a person would hold assuming any future rights to securities were exercised. This provision also provides that interests of associates of the person are taken into account when calculating the person's interest. Section 18 sets out rules relating to determining interests in such entities. Section 19 sets out further rules for determining interests in relevant entities which includes taking into account indirect interests.

Example 1.12

Ms Smith is an Australian citizen. She resides in the United Kingdom which has been her permanent home for the last 15 years. As Ms Smith is not ordinarily resident in Australia, she meets the definition of foreign person.

Example 1.13

The Cattle Company Pty Ltd is incorporated in Australia. It owns farmland in Australia and runs cattle. A foreign company owns 24 per cent of the shares in the Cattle Company Pty Ltd. The Cattle Company Pty Ltd meets the definition of foreign person.

Example 1.14

Sunny Valley is an irrigation infrastructure operator which distributes water in the Sunny Valley region. Sunny Valley's member irrigators are also company shareholders. Four foreign companies each hold 10 per cent in Sunny Valley which makes Sunny Valley a foreign person.

Example 1.15

Green Valley Irrigation is an irrigation infrastructure operator where the 10 members hold shares as well as voting rights.

The Agriculture Company is the only foreign person that is a member of Green Valley Irrigation. The Agriculture Company holds 10 per cent of the shares available in Green Valley and 20 per cent of the voting rights.

Green Valley Irrigation is a foreign person because Agriculture Company holds a substantial interest of at least 20 per cent of the voting power in Green Valley.

When holdings of registrable water entitlements and contractual water rights must be notified

1.39 The Water Register Bill amends the Act to create two distinct additional reporting obligations in the Act.

•

The first obligation requires foreign persons who hold registrable water entitlements at the end of 30 November 2017 or who hold contractual water rights which, at the end of 30 November 2017 are likely to exceed 5 years from that date, to notify the Commissioner;

•

The second obligation requires foreign persons to notify the Commissioner of certain events involving registrable water entitlements or contractual water rights which occur on or after the start of 1 December 2017.

1.40 A person starts to hold a registrable water entitlement or a contractual water right even if they:

•

start to hold it with one or more persons, or

•

they already hold or have previously held other registrable water entitlements or contractual water rights.

[Schedule 1, item 13, subsection 6A(1)]

1.41 A person ceases to hold a registrable water entitlement or contractual water right even if they continue to hold another such entitlement or right. [Schedule 1, item 13, section 6A(2)]

1.42 It should be noted that, while the Water Register Bill provides these clarifications about instances of where entitlements or rights are starting or ceasing to be held, these instances are not limiting. Therefore there can be other circumstances in which a person may start or cease to hold an entitlement or right. [Schedule 1, item 13, subsection 6A(3)]

Notifying holdings at the end of 30 November 2017

1.43 Foreign persons who will hold, or who hold registrable water entitlements at the end of 30 November 2017 or contractual water rights, under a contract whose term at the end of 30 November 2017 is reasonably likely to exceed 5 years, must notify the Commissioner of those entitlements and rights. [Schedule 1, item 27, sections 30G and 30H]

1.44 The notice must be given in the approved form during the period 1 July 2017 and ending no later than 30 November 2017. However, a person who begins to hold a water entitlement or right shortly before the start of 1 December 2017, has the latter of 30 November 2017 or 30 days after the person started to hold that right or entitlement to notify the Commissioner. [Schedule 1, item 27, section 30H]

Example 1.16

Following on from Example 1.1, Amy has held her Australian water access entitlement since 4 September 2011 and will continue to hold it on 1 December 2017. Amy must notify the Commissioner of her registrable water entitlement before the start of 1 December 2017.

1.45 A person who gives a notice of a registrable water entitlement or contractual water right by the end of 30 November 2017 may need to give a subsequent notice to the Commissioner if a certain prescribed event occurs. The events are that the person ceases to hold the entitlement or right, or ceases to be a foreign person or there is a change to the volume of water or the share of the water resource. [Schedule 1, item 27, section 30J]

1.46 The notice must be given in the approved form before 1 December 2017. However, where the event occurs shortly before the start of 1 December 2017, the person has the latter of 30 November 2017 or 30 days after the event to notify the Commissioner. [Schedule 1, item 27, section 30J]

Example 1.17

Following on from Example 1.14, Sunny Valley, an irrigation infrastructure operator, is a foreign person. In addition to the Australian water access entitlements it holds which are subject to irrigation rights, Sunny Valley also holds two Australian water access entitlements which it trades and uses for its own purposes.

On 1 July 2017, Sunny Valley holds these two Australian water access entitlements and notifies the Commissioner. However, on 26 September 2017, one of the four foreign companies which is a member shareholder ceases to be a shareholder and Sunny Valley no longer meets the definition of foreign person.

Sunny Valley must notify the Commissioner that it is no longer a foreign person before 1 December 2017.

1.47 The Commissioner can determine the content of an approved form and the manner in which it is given to the Commissioner, including by electronic means (see section 388-50 of Schedule 1 to the TAA 1953). [Schedule 1, item 27 sections 30H and 30K]

What events must be notified from 1 December 2017?

1.48 The events that must be notified if they occur on or after the start of 1 December 2017 are listed in the following paragraphs. These events are:

1.49 A foreign person starts to hold:

•

A registrable water entitlement, or

•

A contractual water right under a contract whose term (including any extension or renewal) after the person starts to hold the right is reasonably likely to exceed 5 years.

[Schedule 1, item 27, section 30L]

Example 1.18

On 20 September 2018 Jerry, a foreign person, enters into a contract with Zita which gives Jerry a right over Zita's Australian water access entitlement for four years. The contract includes an option to extend the contract for 4 more years. Jerry will use the water to grow hydroponic tomatoes. As the lease arrangement is reasonably likely to exceed five years at the time the lease was entered into, Jerry must notify the Commissioner of the contractual water right.

Example 1.19

Soo-Yeon, a foreign person, requires water for a short-term two year business opportunity. Soo-Yeon has an arrangement with Ivan to access the water allocated to his irrigation right under a two year contract. This will give Soo-Yeon access to the water allocated to Ivan's irrigation right for two years. There is no option for the contract to be extended beyond two years. Soo-Yeon will not have to notify the Commissioner of her contractual water right as it is not reasonably likely to exceed five years when she entered into the contract.

1.50 A foreign person ceases to hold:

•

A registrable water entitlement, or

•

A contractual water right under a contract whose term (including extensions and renewals) was reasonably likely to exceed five years after the latest of when the person started to hold the right, when the person became a foreign person, and the start of 1 December 2017.

[Schedule 1, item 9, sections 4; Schedule 1, item 27, sections 30M]

Example 1.20

Following on from Example 1.18, six years into his contract with Zita, Jerry decides to sell his hydroponic tomato farm and end his contract with Zita over Zita's Australian water access entitlement. Jerry must notify the Commissioner that he has ceased to hold a contractual water right.

1.51 A person becomes a foreign person while holding a:

•

A registrable water entitlement, or

•

A contractual water right under a contract whose term (including extensions and renewals) is reasonably likely to exceed five years after the person became a foreign person.

[Schedule 1, item 27, section 30N]

Example 1.21

The KOH Company Pty Ltd is incorporated in Australia. It owns farmland in Australia and runs cattle. It also holds four registrable water entitlements.

A foreign company buys 24 per cent of the shares in KOH Company Pty Ltd. The KOH Company Pty Ltd must notify the Commissioner of its registrable water entitlements.

1.52 A person ceases to be a foreign person while holding a:

•

A registrable water entitlement, or

•

A contractual water right under a contract whose term (including extensions and renewals) was reasonably likely to exceed five years after the latest of when the person started to hold the right, when the person became a foreign person, and the start of 1 December 2017.

[Schedule 1, item 9, section 4; Schedule 1, item 27, section 30P]

Example 1.22

Following on from Example 1.21, the KOH Company Pty Ltd has notified the Commissioner of the four registrable water entitlements it holds. After three years, the foreign company reduces the percentage of shares it holds in the KOH Company Pty Ltd to 15 per cent. The KOH Company Pty Ltd no longer meets the definition of foreign person and must notify the Commissioner of the change.

1.53 A change to the volume of water or to the share of a water resource referred to in either of the following held by a foreign person:

•

A registrable water entitlement, or

•

A contractual water right under a contract whose term (including extensions and renewals) was reasonably likely to exceed five years after the latest of when the person started to hold the right, when the person became a foreign person, and the start of 1 December 2017.

[Schedule 1, item 9 and section 4; Schedule 1, item 27 and section 30Q]

Example 1.23

Lars Van der Berg, a foreign person purchases a water share in a catchment in Victoria. Lars already holds another water share with the same characteristics in that catchment and amalgamates the new entitlement into the existing one for ease of administration. As a result of the amalgamation the volume against Lars' water share changed and he must notify the Commissioner of this event.

Timeframe in which to notify

1.54 A person is required to notify the Commissioner of their registrable water entitlement or contractual water right, or notify of a change to their holdings which occur on or after 1 December 2017. The person has 30 days after the end of the financial year in which the notifiable event occurred, to notify the Commissioner and must notify in the approved form. [Schedule 1, item 27, subsection 30K(1)]

1.55 However, the Bill provides that the 2017-18 financial year, starts on 1 December 2017 and ends on 30 June 2018. All other financial years apply as they normally would. [Schedule 1, item 27, subsection 30K(2)]

Example 1.24

Gus Staffordshire acquires agricultural property in northern NSW on 16 April 2018. He plans to grow avocados. Gus is a foreign person and must notify the Commissioner of the 3 water access licences, which meet the definition of registrable water entitlement he has also acquired. He has until 31 July 2018 to notify the Commissioner.

1.56 The Water Register Bill provides for two exemptions from the need to notify. [Schedule 1, item 27, subsection 30K(3)]

1.57 The first exemption is where a person became a foreign person during a financial year but also ceased to be a foreign person during the same financial year. [Schedule 1, item 27, paragraph 30K(3)(a)]

Example 1.25

UJBB is a management trust which holds agricultural land and rights to water which meet the definition of registrable water entitlement. There are four shareholders in UJBB each with a 25 per cent shareholding.

During the 2020-21 financial year one of UJBB's shareholders sells his shares to a foreign person, making UJBB a foreign person.

However, before the end of the financial year, the foreign person divests her shareholding which is bought by an Australian investor. As UJBB no longer meets the definition of foreign person at the end of the financial year, it does not need to notify the Commissioner of its registrable water entitlements.

Example 1.26

Claude Gatto is a foreign person and has been in Australia for 257 days in the past 12 month period. Claude is in Australia, working as a visiting professor at an Australian university, participating in an Australian research project. Claude's temporary visa only allows him to stay in Australia for the 18 month duration of the research project. He is therefore a foreign person under the FATA.

On 18 September 2019 he buys agricultural land and enters into a contract for 10 years with his neighbour to access his neighbour's water allocation. This water holding meets the definition of contractual water right.

On 26 January 2020 Claude becomes a permanent resident which allows him to live in Australia indefinitely. He no longer meets the definition of foreign person.

The exemptions at subsection 30K(3) of the amended Act will not apply to Claude. Claude will need to notify the Commissioner that he holds a contractual water right and that he no longer meets the definition of foreign person.

1.58 The second exemption applies where a person acquires an entitlement or right during a financial year, but does not hold that same entitlement or right at the end of the financial year. [Schedule 1, item 27, paragraph 30K(3)(b)]

Example 1.27

Da Pra Produce sells its registrable water entitlement to Giovana Flowers Pty Ltd, on 5 July 2018. Giovani Flowers Pty Ltd is a foreign person. Giovani Flowers Pty Ltd then sells their registrable water entitlement to Bluey Farmers on 9 October 2018. Giovana Flowers Pty Ltd would not need to notify the Commissioner that it held a registrable water entitlement as it disposed of the entitlement before the end of the financial year.

1.59 Section 388-50 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) provides that the Commissioner can determine the content of an approved form and the manner in which it is given to the Commissioner, including by electronic means.

1.60 Subdivision 388-B in Schedule 1 to the TAA 1953 contains rules about giving notices in the approved form. Subdivision 286-C in that Schedule provides for an administrative penalty for failure to give notice in the approved form on time. [Schedule 1, item 27 sections 30H and 30K]

Who must notify and who may notify?

1.61 The person with the direct legal holding is required to notify the ATO of their holding in a registrable water entitlement or a contractual water right. Where there are multiple foreign persons who hold a registrable water entitlement or a contractual water right, each foreign person has an obligation to report their holding. However, an agent may give notice on their behalf. [Schedule 1, item 27, section 30H, section 30K, section 30T]

1.62 If a natural person is required to give notice but dies before doing so, the executor or administrator of their estate must give the notice on their behalf, even if the person dies before 1 December 2017 or before the person was otherwise required to notify the Commissioner. [Schedule 1, item 27, sections 30G and 30R]

1.63 If a corporation is required to give notice but is wound up before it gives notice, then the liquidator of the corporation must give the notice, even if the corporation is wound up before 1 December 2017 or before the corporation was otherwise required to give notice. In the case where a corporation is under administration, but still in existence, the corporation continues to have a reporting obligation. This could be discharged by the administrator (or another person) as an agent. [Schedule 1, item 27, sections 30G, 30S and 30T]

1.64 Rules made by the Minister may provide that all persons, or some persons, are not required to give the Commissioner information about foreign holdings of registrable water entitlements or contractual water rights. These rules may not impose additional reporting obligations. They must be made via legislative instrument and would be subject to Parliamentary disallowance. These rules could reduce the regulatory burden by exempting certain persons from notifying of changes to a foreign person's holding of a registrable water entitlement or a contractual water right. [Schedule 1, item 27, sections 30G and 30U; Schedule 1, item 28, section 31]

Other provisions

Simplified outline of the Act

1.65 The simplified outline of the Act, including as amended by the Water Register Bill, provides an overview of the Act and reflects that the Commissioner must now maintain two registers, the Water Register and the Agricultural Land Register. [Schedule 1, item 3, section 3]

1.66 The Water Register Bill amends the Act to include a simplified outline to Part 3B which recognises that the Commissioner must maintain a Water Register and also explain when a foreign person must notify their holding in certain water entitlements or rights. [Schedule 1, item 27, sections 30A and 30G]

1.67 While simplified outlines are included to assist readers to understand the substantive provisions, they are not intended to be comprehensive. It is intended that readers should rely on the substantive provisions.

Amended title

1.68 The Water Register Bill amends the long title of the Act so that it reads: 'An to provide for the collection of information, and publication of statistics, about foreign interests in certain water or land, and for related purposes'. [Schedule 1, item 1, Title]

1.69 The Water Register Bill also amends the short title of the Act so that it becomes, Register of Foreign Ownership of Water or Agricultural Land Act 2015. [Schedule 1, item 2, section 1]

Other amendments

Amendments to the Foreign Acquisitions and Takeovers Act 1975

1.70 Although the Commissioner does not have general administration of the FATA, the Government announced that the ATO will administer the FATA in relation to residential real estate from 1 December 2015.

1.71 To support the administration of the residential real estate requirements, amendments to the FATA ensure that the Commissioner can seek civil penalty orders from a court, withdraw infringement notices and approve extensions of time to pay the notice amount in respect of breaches of the FATA regarding residential real estate. [Schedule 1, items 36, subsection 99(2) of the FATA and item 37, subsection 100(4) of the FATA]

1.72 The Regulatory Powers (Standard Provisions) Act 2014 (Regulatory Powers Act) creates a framework for the enforcement of civil penalty provisions in an Act.

1.73 Section 80 of the Regulatory Powers Act provides that an authorised applicant can apply to a court for a civil penalty where a civil penalty provision has been contravened. The relevant Act must specify who the authorised applicant is for the purpose of the civil penalty provisions in that Act. The amendments to the FATA provide that the Commissioner is also an authorised applicant and can seek the application of civil penalties in relation to the residential real estate requirements.

1.74 In addition, the amendments provide the Treasurer and the Commissioner with a power to delegate their powers and functions under Part 4 of the Regulatory Powers Act as an authorised applicant in relation to the civil penalty provisions of the FATA. [Schedule 1, item 36, subsections 99(2A), (2B) and (2C) of the FATA]

1.75 The Regulatory Powers Act similarly creates a framework for the use of infringement notices. The ATO is able to issue infringement notices as an ATO officer can be appointed as an infringement officer. To ensure that the Commissioner is able to withdraw an infringement notice and approve extensions of time to pay the notice the amendments to subsection 100(4) of the FATA provide that the Commissioner is also a relevant chief executive for the purposes of Part 5 of the Regulatory Powers Act. The amendments also provide the Secretary and the Commissioner with the power to delegate their powers and functions under Part 5 of the Regulatory Powers Act as the relevant chief executive. [Schedule 1, item 37, subsections 100(4A), (4B) and (4C) of the FATA]

Amendments to the Taxation Administration Act 1953

1.76 The Bill amends the disclosure provisions in the Taxation Administration Act 1953 (TAA 1953) to allow for similar disclosure exceptions to those that exist in relation to the information in the Agricultural Land Register to accommodate the Water Register. [Schedule 1, items 39, 40, 41, and 42, subsections 355-55(1) and 355-65(8)]

1.77 The Bill provides that the Commissioner is able to disclose protected information that was obtained by the Commissioner prior to the amendments to the Act. [Schedule 1, item 43, Application of amendments]

Constitutional provisions

1.78 The Act (including as amended by the Water Register Bill) is enacted on the basis that it is supported by the Commonwealth's statistics power in paragraph 51(xi) of the Constitution. Nevertheless, section 11 of the Act (including as amended by the Water Register Bill) provides for the continued operation of the Act or provisions of the Act in the event of a successful constitutional challenge. It sets out the various constitutional heads of power upon which the Act can draw if its operation is expressly confined to persons under those constitutional powers. This gives the Act (including as amended by the Water Register Bill) the widest possible operation consistent with Commonwealth constitutional legislative power. [Schedule 1, section 11]

1.79 In relation to the territories power, the Water Register Bill also has the effect it would have if each reference to a water resource were expressly confined to a water resource within a Territory. [Schedule 1, item 14, subsection 11(7)]

Application and transitional provisions

1.80 The Water Register Bill commences on Royal Assent, but the first notifications to the Commissioner are not required until 1 July 2017.

1.81 The Water Register Bill includes a transitional provision should the amendments not receive Royal Assent before 1 December 2016. [Schedule 1, item 34, section 34]

1.82 Section 34A of the Act provides that the Act ceases to have effect at the end of 1 December 2016 if an Act providing for a register of foreign ownership of water entitlements has not received Royal Assent by that time. The Water Register Bill repeals section 34A. [Schedule 1, item 33, section 34A]

1.83 The Water Register Bill provides that if the amendments to the Act included by the Water Register Bill commence after 1 December 2016, the Agricultural Land Register, notifiable events in relation to agricultural land and the timeframes to notify the Commissioner of notifiable events in relation to agricultural land, continue to have effect between 1 December 2016 and the time when the amendments commence. [Schedule 1, item 34, section 34]

1.84 The Water Register Bill provides that the Treasurer must announce by notifiable instrument that the Act has been amended to provide for a Water Register if the Treasurer has not made such an announcement under subsection 34A(2) of the Act before these amendments commence. [Schedule 1, item 34, subsection 34(4)]

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Register of Foreign Ownership of Agricultural Land Amendment (Water) Bill 2016

1.85 The Water Register Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

1.86 The Water Register Bill establishes a Water Register to be administered by the Commissioner. The Water Register will include information about the interests held by foreign persons in certain water entitlements and water rights, thereby allowing increased scrutiny of foreign investment in certain water entitlements and water rights and increased transparency of the levels of foreign ownership of water entitlements.

1.87 'Registrable water entitlement' is defined by section 5A to refer to a water right a person holds that includes an irrigation right (within the meaning in the Water Act 2007) or a right conferred by a state or territory to either hold water from a water resource or take water from a water resource.

1.88 'Contractual water right' means a contractual right that a person holds to a person's registrable water entitlement or water allocation.

1.89 Section 30C provides that the Register will have two parts - a basic part, which comprises the full record, and the statistical part. The statistical part must not identify, or be reasonably capable of being used to identify, a person.

1.90 The Commissioner is required by section 30F to publish the statistical part of the Register on the internet.

1.91 Under section 34, the Commissioner is required, on an at least annual basis, to give the Minister a report for presentation to the Parliament, on the operation of this Act which includes statistics from the basic part of the Water Register and the Agricultural Land Register.

1.92 The Commissioner has the general administration of the Act. This means the Act will be a taxation law for the purposes of the TAA 1953. The effect of the Act being a taxation law is that existing provisions in the TAA 1953 will apply for the purposes of the Act. Most relevantly, this includes the provisions which regulate the confidentiality of taxpayer information in Division 355 of Schedule 1 to the TAA 1953.

Human rights implications

1.93 The Water Register Bill engages the following human rights and freedoms:

•

the right to protection from unlawful or arbitrary interferences with an individual's privacy;

•

the right to freedom of expression; and

•

the right to be free from discrimination.

Right to privacy

1.94 Article 17 of the International Covenant on Civil and Political Rights (ICCPR) prohibits unlawful or arbitrary interferences with a person's privacy, family, home or correspondence. It also provides that everyone has the right to the protection of the law against such interference or attacks. The Human Rights Committee has interpreted the term 'unlawful' to mean that no interference can take place except in cases envisaged by law, which itself must comply with the provisions, aims and objectives of the ICCPR. The Human Rights Committee has also indicated that an interference will not be considered to be 'arbitrary' if it is provided for by law and is in accordance with the provisions, aims and objectives of the ICCPR and is reasonable in the particular circumstances. ^[1]

1.95 Privacy is a concept which is broad in scope and includes a right to information privacy. The Water Register Bill directly engages the right to privacy under Article 17 of the ICCPR because it requires the provision of information by and authorises the use and disclosure of certain information about individuals for inclusion in the Water Register. Specifically, the Water Register Bill provides that the following persons must give notice in the approved form to the Commissioner if:

•

on 30 November 2017 a foreign person who holds a registrable water entitlement or a contractual water right whose remaining term (including any extension or renewal) is (at the start of 1 December 2017) reasonably likely to exceed five years (section 30H);

•

on or after 1 December 2017 a foreign person starts to hold a registrable water entitlement or a contractual water right under a contract whose remaining term (including any extension or renewal) is reasonably likely to exceed five years (including any extension or renewal) after the person starts to hold the right (sections 30K and 30L);

•

a foreign person ceases to hold a registrable water entitlement or contractual water right under a contract whose term (including extensions and renewals) was reasonably likely to exceed five years after the latest of when the person started to hold the right, when the person became a foreign person, and the start of 1 December 2017 (sections 30K and 30M);

•

a person becomes a foreign person while holding a registrable water entitlement or a contractual water right under a contract whose term (including any extension or renewal) after the registration trigger time ^[2] is reasonably likely to exceed five years (sections 30K and 30N);

•

a person ceases to be a foreign person while holding a registrable water entitlement or a contractual water right under a contract whose term (including any extension or renewal) after the registration trigger time was reasonably likely to exceed five years(sections 30K and 30P);

•

water right or entitlement becomes a registrable water right or contractual water right under a contract whose remaining term (including any extension or renewal) is (at that time) reasonably likely to exceed five years (sections 30K and 30Q);

•

water right or entitlement ceases to be a registrable water right or contractual water right under a contract whose term (including any extension or renewal) after the registration trigger time was (at that time) reasonably likely to exceed five years (sections 30K and 30R); and

•

there is a change to the volume of water or to the share of a water resource held by a foreign person as a registrable water entitlement or a contractual water right under a contract whose term (including extensions and renewals) at the registration trigger time was (at that time) reasonably likely to exceed five years (sections 30K and 30S).

1.96 It is anticipated that the approved form will require an individual who is or was a foreign person to provide the Commissioner with their name, contact details, details of the entitlement or right (including volume, type of entitlement and location) and the sector the water is being used in. If a person who is required to give notice to the Commissioner dies before giving the notice, section 30T requires the executor of the person's estate to instead give the required notice.

1.97 The Commissioner may also collect information about an individual by serving an offshore information notice on an individual. Section 33 of the Agricultural Land Register Act already gives the Commissioner the power to give an offshore notice to a person if the Commissioner has reason to believe that information or documents that may be relevant to determining whether a person has or had an obligation to notify the Commissioner of an interest (or change in interest) in agricultural land. The Water Register Bill expands this provision to allow the Commissioner to give an offshore notice to a person in relation to a holding in a certain water entitlement or water right.

1.98 If a person fails to comply with obligations under the Act the person may be liable to an administrative penalty under subsection 286-75(1) of Schedule 1 to the TAA 1953. The amount of that penalty would be worked out in accordance with subsection 286-80, but would not be more than five penalty units in any circumstance.

1.99 The information collected under this statute may only be used or disclosed for the purposes authorised by this Act, including as amended by the Water Register Bill or under a taxation law. Taxation officers must comply with Division 355 of Schedule 1 to the TAA 1953. In general terms, Division 355 makes it an offence for information about the tax affairs of a particular entity to be disclosed except in circumstances specified in detail by that Division. The maximum penalty for this offence is imprisonment for two years. In addition, information about individuals must also be handled in accordance with the obligations imposed by the Privacy Act 1988. This minimises the risk of information about identified or identifiable individuals being used or disclosed for an unauthorised purpose.

1.100 The circumstances in which information may be collected and used are clearly defined by the Water Register Bill, and the Act as amended by the Water Register Bill and are therefore a lawful interference with the right to privacy. Moreover, as it would not be possible to achieve the objectives of the statute without collecting some information about identifiable individuals, these limitations on the right to privacy are reasonable in the circumstances and do not interfere with the right to privacy of those individuals more than is necessary to achieve the legitimate objective of increasing transparency over the levels of foreign ownership of water entitlements in Australia.

Right to freedom of expression

1.101 Paragraph 2 of Article 19 of the ICCPR requires States parties to guarantee the right of everyone to freedom of expression, including the 'freedom to seek, receive and impart information and ideas of all kinds'. The right to freedom of expression includes the right not to impart information.

1.102 Divisions 2 and 3 of Part 3B of the Water Register Bill engage paragraph 2 of Article 19 of the ICCPR because these Divisions require individuals to provide information in the approved form. There is no less restrictive means of achieving the legitimate purpose the limitation seeks to achieve. Moreover, to the extent the Water Register Bill interferes with the right to freedom of expression the interference is relatively minor and has a clear legal basis. These limitations are therefore reasonable, necessary and proportionate.

Right to be free from discrimination

1.103 The Water Register Bill generally engages Article 26 of the ICCPR, which recognises that all persons are equal before the law and are entitled without discrimination to the equal protection of the law. While the ICCPR does not define the term 'discrimination' nor indicate what constitutes discrimination, the Human Rights Committee believes that in the context of the ICCPR it:

should be understood to imply any distinction, exclusion, restriction, or preferences which is based on race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status, and which has the purpose or effect of nullifying or impairing the recognition, enjoyment or exercise by all persons, on an equal footing, of all rights and freedoms. ^[3]

1.104 The Human Rights Committee has observed that '[n]on-discrimination, together with equality before the law and equal promotion of the law without any discrimination, constitute a basic and general principle relating to the protection of human rights'. ^[4] However, the Human Rights Committee has also recognised that 'not every differentiation of treatment will constitute discrimination, if the criteria for such differentiation are reasonable and objective and if the aim is to achieve a purpose which is legitimate under the Covenant'. ^[5]

1.105 The Water Register Bill also generally engages the rights protected by the International Convention on the Elimination of All Forms of Racial Discrimination. Paragraph 1 of Article 1 of the International Convention on the Elimination of All Forms of Racial Discrimination defines the term 'racial discrimination' to mean 'any distinction, exclusion, restriction or preference based on race, colour descent, or national or ethnic origin which has the purpose or effect of nullifying or impairing the recognition, enjoyment or exercise, on an equal footing, of human rights and fundamental freedoms in the political, economic, social, cultural, or any other field of public life'. Under Article 2(1)(a) of the International Convention on the Elimination of All Forms of Racial Discrimination, '[E]ach State Party undertakes to engage in no act or practice of racial discrimination against persons, groups of persons or institutions and to ensure that all public authorities and public institutions, national and local shall act in conformity with this obligation'. Under Article 5 of the International Convention on the Elimination of All Forms of Racial Discrimination States Parties 'undertake to prohibit and eliminate racial discrimination in all its forms and to guarantee the right of everyone, without distinction as to ...national ...origin, to equality before the law' in the enjoyment of civil, political, economic, social and cultural rights.

1.106 The Water Register Bill limits Article 26 of the ICCPR and Articles 2 and 5 of the International Convention on the Elimination of All Forms of Racial Discrimination because the core obligations imposed by the Water Register Bill only apply to a 'foreign person'. Under the Foreign Acquisitions and Takeovers Act 1975 (FATA) a 'foreign person' will include an individual not ordinarily resident in Australia. While an Australian citizen who is not ordinarily resident in Australia may be a 'foreign person' for the purposes of the Act, including as amended by the Water Register Bill, it is anticipated that the majority of individuals who are directly affected will not be Australian citizens.

1.107 While the Water Register Bill, if enacted, will primarily affect individuals who are citizens of countries other than Australia, there is no less restrictive way of achieving the objectives of the Water Register Bill. Given that the Water Register Bill only requires individuals who are foreign persons to provide certain information, and the Water Register Bill does not interfere with the rights of citizens from countries other than Australia more than to the extent possible to achieve the objective of the Water Register Bill, these limitations are considered reasonable and proportionate.

Conclusion

1.108 The Water Register Bill is compatible with human rights because to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate.