WHO SHOULD READ THIS
- Foreign investors who hold water entitlements or contractual water rights in Australia.
THINGS YOU NEED TO KNOW
- Foreign persons with holdings in registrable water entitlements or contractual water rights are required to notify the ATO about any changes in these interests on an annual basis and within 30 days of the end of each financial year.
WHAT YOU NEED TO DO
- Conduct a review of your water entitlements and contractual water rights and if required, notify the ATO before 30 July 2018.
All foreign persons who hold or have held registrable water entitlements or contractual water rights are required to register that interest with the Australia Taxation Office (ATO). Foreign persons are required to notify the ATO by 30 July each year of any changes to these water interests that occurred in the previous financial year.
What you need to notify about?
From 1 July 2017, foreign persons are required to notify the ATO of the following events:
- a foreign person starts to or ceases to hold a registrable water entitlement or contractual water right
- a person becomes or ceases to be a foreign person while holding a water entitlement or contractual water right, or
- there is a change in characteristic of the water entitlement or contractual water right (e.g. a change to the volume of water, or to the share of the water resource).
(collectively a Registrable Event).
The definition of what is a registrable water entitlement is very broad and relies on state based legislation. As such, most transactions which involve agricultural land or a mining project have a registrable water entitlement in one way or another. For example, certain mining leases may include 'deemed' registrable water entitlements, so it is important to seek advice if you are not certain of the scope of this definition.
The registration process itself is fairly straight forward if you have the necessary particulars of the relevant water entitlement, however this is a federal registration system which tries to interact with the various state water licencing regimes, so there is often a disconnect in relation to terminology. At this stage, the ATO appears to be taking a collaborative approach to ensuring registration occurs in accordance with the rules, so any administrative difficulties in the registration process can usually be addressed through discussions with the relevant ATO department.
When a Registrable Event occurs, a party must notify the ATO (via its online platform) within 30 days after the end of the Australian financial year (being 1 July to 30 June). This registration process is an annual requirement.
What happens if I fail 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 a registrable water entitlement (this penalty regime is the same as that which applies to the registration of foreign interests in agricultural land).
Further, the Foreign Investment Review Board (FIRB) and the ATO consider whether the applicant and its associates have acted in compliance with the law when deciding on an application for investment approval. Failure to notify the ATO about the status of a water interest by the relevant deadline could impact future unrelated investment approvals.
The federal and state governments have increased their information sharing capabilities in recent years and we expect to continue to see the ATO undertake audit activities that will identify non-compliance.
Foreign persons should be aware that they have until 30 July 2018 to notify the ATO of any changes to water interests that occurred in the 2017-2018 financial year. It's important that this is completed to avoid penalties and further complications with future foreign investment applications.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.