Foreign Investment Reforms working group minutes 27 July 2017

Meeting details

Venue: Teleconference

Date: 27 July 2017

Start: 15:00 Finish: 16:00

Chair: Ann Middleby

Secretariat: Abbey Wright

Contact phone: (03) 8632 4882

Attendees

Apologies

Agenda item 1: Welcome and introductions - Ann Middleby

Ann welcomed members.

Agenda item 2: Update from Treasury – Amanda Ward

Vacancy charge

• Continuing to progress with drafting instructions
• Working with the ATO on finishing touches before draft is sent to OPC in coming weeks
• Still scheduled for Spring
• The earliest the charge can apply based on the current draft instructions is 12 months after the announcement (9 May 2018) providing it receives Royal Assent by then. ATO is working on system changes to enable the implementation.

Agenda item 3: Capital Gains Withholding – Malcolm Allen and Deborah Robinson

Changes to Capital Gains Withholding

• Royal Assent was granted on 22 June 2017 to the Treasury Laws Amendment (Foreign Resident Capital Gains Withholding Payments) Act 2017 which gave effect to the Budget changes. For contracts entered into on or after 1 July 2017 this increased the rate from 10% to 12.5% and reduced the threshold from $2 million to $750 000. The original rate and threshold continues to apply to earlier contracts, even if settled after 30 June 2017.
• Current numbers in the first year of operation from 1 July 2016 to 30 June 2017 – approximately 39,500 certificates have issued clearing people of responsibilities under the measure.
• In the current month to 25 July we have issued approximately 10,500 clearance certificates – the majority of which issue automatically. ATO systems/processes are handling the workload within timeframes.
• Communications:
  • We are now referring to it as “capital gains withholding” to avoid confusion for Australians; however there is no change to our webpage link www.ato.gov.au/FRCGW
  • Engagement with key stakeholders identified the need to provide:
    • presentations to every State/Territory Law Society and Conveyancing members – providing attendees with the opportunity to ask questions
    • Real estate fact sheet updated – this will be used by purchasers/vendors when looking to buy/sell
    • Sent messages through the State/Territory regulators of Real Estate Agents and Conveyancers – to reach those who were not AIC or REIA members
    • Every State/Territory Standard contract for the sale of property has been under review to accommodate the changes required
    • ATO website changes to the Capital Gains Withholding page were all completed between Royal Assent (on 22 June) and Go live (on 1 July) – including Chinese version, PDF form changes, and web banner
    • Two webinars have been made available on the website – 1. Overview (20 minutes) and 2. Indirect Interests (35 minutes)
     
   
• Commissioner’s remedial power (CRP) – The ATO is looking to lodge its first legislative instrument (LI) made under the CRP to enable tabling in Parliament on or after 3 August 2017. This instrument is favourable for taxpayers and resolves a foreign resident capital gains withholding (FRCGW) crediting misalignment issue where a property settlement straddles more than one income year. This will allow vendors to claim a FRCGW credit in the same year in which they have to declare the capital gain.
• Compliance
  • We are currently analysing the breaches for the first three quarters. Quarter 4 data is anticipated in the ATO in mid-August.
  • A letter has been sent to a selected number of potential breaches (where information indicates they should have withheld on a purchase and there is no record of a FRCGW payment being made by them, nor a clearance certificate or variation being issued to the vendor). If the purchaser is unable to provide the relevant documentation, eg. clearance certificate, variation, etc. then penalties will follow.
  • What are the penalties, there are two parts –
    • failure to pay the Commissioner the withholding amount [subsection 16-25(2)] equivalent to ten penalty units ($1,800 in 2016 and $2,100 in 2017) and
    • the value equivalent to the withholding tax related to the transaction (10% in 2016 and 12.5% in 2017) under [16-25(4)]. 
     
  • Additional compliance work will be undertaken on vendor declarations for indirect interests.
   
• Enhancements anticipated in future deployments:

September release – amend the system to ensure the Clearance certificate applies from the earlier of the expected contract date notified on the application or the date of issue of the clearance certificate (where no contract date is available). Two of the questions on the Purchaser payment notification are to be changed to ensure they are compliant with the Tax Agents Services Act.

December release – we are working with PEXA to integrate the ATO system with electronic conveyancing options.

• The Tax Practitioners Board is making a determination (with AGS advice) on what conveyancers can do within the limits of the Tax Agents Services Act following industry feedback noting some state conveyancing legislation allows Conveyancers to provide some ‘legal services’. Determination will impact on conveyancers ability to directly complete FRCGW forms, currently not permitted within requirements of that Act.
• To help limit possible delays for the clearance certificate we appreciate you reiterating these messages to your members for their clients:
  • Lodge early
  • Have your tax return lodgements up to date
  • Provide your TFN/ABN as it assists us to match the right client
  • Use the online form (ie. don’t fax a paper form unless you have no internet access) as this will be processed much faster and provides a better client experience.
   

Questions/Comments

Question – Where are cases of non-compliance from?

Answer – In terms of the cases we’ve found, there’s no particular cluster or trend of area. It’s been across all of the States and across a range of vendors and purchasers.

Question – Improving the instructions on the settlement date used on the form.

Answer – The settlement date is not compulsory but we can make this clearer on the form.

Question – In Victoria a client authorisation form can now be signed not just for electronic lodgement but paper settlements as well. The client and the practitioner signs the form and that gives the practitioner the right to sign on behalf of their client on anything considered necessary for that transaction, Is it worth pursuing that angle to allow AIC members to sign and lodge the clearance certificate online?

Answer – The ATO would like AIC to send this material through to them.

Agenda item 4: Foreign Investment Reforms – Ann Middleby

Residential applications

• This relates to the work that was transferred to the ATO in 2015
• Applications to the FIRB for the 2016–17 year (for residential properties) are lower compared to the 2015–16 figures.
• In June 2017, applications were double the normal volume. There were a number of factors that caused this spike including increased FIRB fees from 1 July and increased stamp duties for foreigners in some states. Approvals are generally issued within a couple of days but in the last couple of weeks some have been a little later.

Commercial screening

• ATO has responsibility for assessing non-sensitive commercial applications to the FIRB since 1st of April
• 100 have been determined to date with operations flowing smoothly.

Questions/Comments

Question – Malcolm Brennan: Agrees the transfer is going smoothly. The case officers are helping with the process. While it’s early days it seems to be going well

Answer – Ann: Thanks to Libby Haydon for heading up the team and thanks Malcolm for the comments

Question – Michael Croker: On the restrictions on foreign ownership in new developments to no more than 50% – is there something we can point clients to on that to make sure things are done properly there?

Answer – Ann –Guidance note 8 on firb.gov.au has some information. The ATO has processes in place to manage the six monthly review for developers reporting to the ATO about who they’ve sold to. The ATO will use the existing processes to determine whether developers are exceeding the 50% cap

Question – Michael Croker – there’s no forms or lodgements or typical ATO infrastructure yet?

Answer – Ann: There are no additional details required outside of the template the developers need to complete as part of the existing 6 monthly review which is a condition of their FIRB approval.

Compliance

• Investigations into breaches of the rules are ongoing
• The Treasurer appeared on A Current Affair in July. The ATO’s most recent compliance results were mentioned there including that $3.4 million in penalty notices have been issued.

Foreign land register and water register

• The first report on foreign ownership of agricultural land was tabled in September last year. The report to the period 30 June 2017 is currently being prepared.
• The Water register of foreign ownership follows a similar process as the agricultural land register. It involves a stocktake and those who meet the requirements need to register. After the stocktake period, any new entitlements need to be registered within 30 days of the end of the financial year.
• Residential land register of foreign ownership is being prepared. This covers settlements by foreign persons for the period 1 July 2016 to 30 June 2017.

Questions/Comments

Question – Malcom Brennan: With the change in the 1 July regulations to agricultural land in regards to the renewable energy sector, has anyone got a view on the impact on agricultural land?

Answer – Ann: We’ve been looking at that and we’ve had not many enquiries. We’re aware of it. It’s a self-assessment system – it’s up to those foreign persons to remove themselves.

Agenda item 5: Update on communications – Abbey Wright

Since our last meeting, our communication has focused on the implementation of the Water Register. Promotion of the Water Register has included:

• Webpage review including new information on the Water Register, Information Notes and definitions
• Updates in State water authority newsletters and websites. Information has been published in ACT and NSW and are nearing publication in VIC, WA and NT
• Two webinars have been held, with three more to come during the stocktake period
• A joint media release has been issued with the Department of Agriculture and Water Resources
• Email prompts have been issued to Irrigation Infrastructure Operators and those on our Agriculture Land Register who may also have a Water Access entitlement.
• Social media posts about the Water Register are planned for early in August

Agenda item 6: General Q&A

No further questions were asked.

Agenda item 7: Close

The next meeting will be held in three months after members agreed they were still finding the Working Group beneficial.