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  • Foreign Investment Reforms working group minutes 24 February 2017

    Meeting details

    Venue: Teleconference

    Date: 24 February 2017

    Start: 11:00 Finish: 12:00

    Chair: Ann Middleby

    Secretariat: Heidi Clarke

    Contact phone: (02) 6216 1527

    Attendees

    Australian Financial Market Association

    Dr Stephen Kirchner

    Chartered Accountants Australia & NZ

    Susan Franks

    CPA Australia

    Gavan Ord

    Deloitte Lawyers Pty Ltd

    James Fabijancic
    Luke Imbriano

    Institute of Conveyancers

    Rosemary Cotton

    KPMG

    Scott Farrell

    Law Council of Australia

    Malcolm Brennan

    Holding Redlich

    Elly Ashley
    Vanya Lozzi

    Property Council of Australia

    Belinda Ngo
    Katharina Surikow

    PwC

    Natalie Kurdian

    Real Estate Institute of Australia

    Jock Kreitals

    Tax Institute

    Jenny Wong

    Treasury

    Anna Schneider-Rumble

    Australian Taxation Office

    Malcolm Allen
    Ann Middleby
    Deborah Robinson
    Heidi Clarke
    Laurence Scarborough
    Sam Nixon
    Kelly Canavan
    Abbey Wright
    Phil Dalton
    Libby Haydon

    Apologies

    Ashurst

    Vivian Chang

    Australian Bankers Association

    Tony Pearson

    Australian Financial Markets Association

    Robert Coquhoun

    BDO

    Lance Cunningham

    Chartered Accountants Australia & NZ

    Michael Croker

    Greenwoods & Herbert Smith Freehills

    Manuel Makas

    Deloitte Lawyers Pty Ltd

    Craig Saunders

    Agenda item 1: Welcome and introductions

    Ann welcomed members and noted for newcomers that the working group was made up of representatives from professional groups, Treasury and the ATO. The working group started off as a monthly face to face meeting but has now moved to a quarterly phone hook-up.

    Agenda item 2: Update from Treasury

    Water Register

    The Water Register received Royal Assent in December 2016. The legislation passed on 1 December 2016. The Water Register was included in the Agricultural Register as a sunset clause.

    There is currently a consultation process underway in relation to the Water Register rules.

    There is an effort to minimise the regulatory burden.

    The Water register will operate similarly to the Agricultural Register, with the exception that foreign persons will need to register an interest annually – within 30 days after the end of the financial year.

    Agricultural registrants are required to register an interest within 30 days of settlement.

    Questions/Comments

    Question: Malcolm Brennan: Is the definition of a foreign person the same in relation to water rights held by a custodian? Custodians get an exception in relation to the Agricultural Register – will this be the same for water?

    Answer: The custodian holds the legal interest in the water entitlement, for this reason they would be required to register if they (the custodian) were a foreign person. For the purposes of the Agricultural land register, the custodian would also have to register if a foreign person.

    Agenda item 3: Project overviews

    Commercial and Agricultural Screening – Phil Dalton

    Every commercial and agricultural application is referred to the ATO for consultation through the FIRB Tax Consult team (Phil Dalton’s team).

    The ATO provides tax advice to Treasury and will recommend Tax Conditions be imposed by the decision-maker where appropriate.

    Guidance Note 47External Link provides guidance and context in relation to tax risks and conditions.

    Questions/Comments

    Question: James Fabijancic commented that there had been heavy involvement from the Infrastructure Team.

    Answer: Phil confirmed that around one third of cases go out to experts such as the Infrastructure Team.

    Question: Ben O’Donnell: How is advice from Tax applied?

    Answer: Phil Dalton: The ATO doesn’t directly advise if a proposal is in the national interest. We advise if we have any concerns about the holding structure, how tax will be applied to the investment and to the future disposal, and the impact on revenue. Treasury do come back with questions, and in all cases, including those that are assessed as high risk, Treasury make the decision about whether the proposal is in the national interest.

    Residential applications to the FIRB – Ann Middleby

    The ATO screens all residential applications to the FIRB. We are screening approximately 500 applications per week. October to December 2016 was slightly lower at approximately 350. March, April and May 2016 we received a higher than usual number of applications. We’ll be monitoring the same period this year to see if it’s consistent with last year.

    The demographics of residential applications since 1 December 2015:

    • 60% are for new dwellings
    • 20% relate to established dwellings
    • 20% are for vacant land.

    We are now looking to track how much time it takes from application to settlement and the differences in the pre-fee and post-fee environment.

    As at 30 June 2016, we had collected $78 million in fees from the screening process. Fees collected to date since 1 December 2015 total $140 million. The ATO collects approximately $10 million per month. These figures will be included in the FIRB Annual report each year as well as the ATO annual report.

    Residential land register – the ATO is building this using improved land titles data and including registration as a condition of approval. Once we have 12 months of data a report will be prepared for the Treasurer. Only aggregated data will be released publicly.

    Questions/Comments

    Question: Jock Kreitals: Has there been any changes to the geographic spread?

    Answer: Ann Middleby: There is no change to the demographics. 40% of applications are for properties in Victoria, 30% for properties in NSW and 20% for properties in Queensland.

    Question: Do you collect post codes?

    Answer: We do collect them, but we don’t release the information. The FIRB Annual report will be released in March/April. We’re contributing to the information in that report.

    Question: Any information about affordability – eg foreign investors driving up prices?

    Answer: Treasury released a paper about this. It’s on the FIRB websiteExternal Link. It shows that foreign investment doesn’t inflate prices overall but can in area pockets.

    Question: The requirement is to register after settlement?

    Answer: Yes, not at screening or approval but a settlement of the property

    Question: Vanya: Can the condition to register after settlement be circulated?

    Answer: Ann: We’ll include the letter of approval in the minutes.

    [Redacted]

    Question: Was your area involved with the recent issue with Development Exemption – off the plan?

    Answer: Yes, regulations have now been changed. Please refer to the Treasurer’s media releaseExternal Link.

    Q. Vanya Lozzi: In regards to tracking from application to settlement pre and post-fee environment, are you expecting to see material differences?

    Answer: Ann Middleby: No, but we are expecting that there will be a greater number of applicants who didn’t actually purchase the property they applied for in the pre fee environment, than post. We want to put some rigour around it for reporting purposes.

    Compliance – Ann Middleby

    The Treasurer announced 61 forced divestments on 6 February 2017 involving $107 million worth of property. This consists of both formal divestments (publicly gazetted) and concessional divestments (12 months to sell and if they don’t it becomes a formal divestment). There have been 38 self-divestments. These usually occur while we are investigating, they self-remedy.

    We have identified over 600 breaches. Many of the breaches involve failure to apply. Where we find they would have been approved we give retrospective approval to bring them into the system.

    Penalties since December 2015, $2.4 million issued via 400 infringement notices.

    The new penalty regime was discussed, information on ‘failure to lodge’ versus ‘breach of conditions’ provided.

    Agricultural Land Register – Ann Middleby

    The Agricultural Land Register Report was released last year. Another report is to be tabled after 30 June 2017. It was noted that settlements past 30 June 2016 are not included in the last report.

    Registration is not required until 30 days after settlement.

    Foreign Resident Capital Gains Withholding (FRCGW) – Malcolm Allen

    Our focus over the first six months has been to raise awareness and ensure the settlement process is working correctly. We are now seeing an improvement in foreign residents meeting their CGT obligations.

    ATO System issues in December 2016 and February 2017 disrupted online access to the FRCGW application forms. Workarounds were implemented to ensure clearance certificate applications and payments could continue. We have received no advice of a consequential missed property settlement. While some payments to the ATO were delayed during the system outage, no one was penalised.

    As at 31 January:

    • Approximately 20,300 learance certificates have issued
    • 331 variations have been processed from the standard 10% withholding for foreign residents (60% were reduced to 0%).
    • Variation application instructions have been updated with information on the Main residence exemption – further guidance is planned to issue on how the ATO will apply the main residence exemption in relation to FRCGW.
      • “Applications by foreign resident taxpayers who have requested variations of the withholding amount to ‘Nil’ on the basis that they are disposing of their main residence are being closely reviewed. These applications will be subject to increased scrutiny, particularly where the applicant has never been an Australian resident for tax purposes.”
       

    Reports of an error message appearing after submitting a Clearance certificate have been received – this may be due to the browser version being used. We recommend that the latest version be used. You can liaise with our call centre on 13 28 66 Fast Key Code 4 2) for assistance.

    If a Purchaser Payment Notification is lodged before the clearance certificate is obtained and it subsequently needs cancelling the purchaser can liaise with our call centre to be directed to the relevant area.

    Transactions are being brought to our attention whereby the vendor failed to provide a clearance certificate by settlement, yet the purchaser did not withhold. The advisors/representatives are requesting that the Commissioner exercise discretion to retrospectively grant a clearance certificate – to prevent the purchaser potentially being subject to penalty. The legislation does not allow the Commissioner to issue a clearance certificate retrospectively. We are considering what the Commissioner’s position can be where although the purchaser has not complied with their obligation, there is no withholding revenue at risk with respect to the Australian vendor.

    A Chinese translation of the FRCGW webpage is now on the ATO website: Foreign Resident Capital Gains Withholding – Simplified Chinese. Our Public Relations are liaising with external stakeholders to promote the link on Chinese websites.

    The Tax Practitioners Board provided an article for the Real Estate Institute. Real estate agents who assist with the FRCGW forms need to make it clear to their clients that they are the transmitter of data to the ATO and not the provider of a tax agent service.

    The use of paper for property transfers is likely to diminish by the end of 2019. The ATO is working with PEXA on an electronic channel to report Purchaser Payment Notification directly to the ATO.

    Planned communications for FRCGW:

    • Rebadge ato.gov.au/FRCGW to “Capital gains withholding: Impacts on foreign and Australian residents”
    • Article on Indirect interests for the Tax Professionals Newsletter
    • Presentations to those in the Tax profession that deal with Mergers

    Agenda item 4: Update on communications

    Work has started on a small project to review and re position the foreign investment web pages.

    Abbey Wright has joined our team and will be taking on the role of Secretariat for this working group, so the next invite will come from Abbey.

    Agenda item 5: General Q&A

    Ann Middleby confirmed the Commissioner's message regarding the IT problems the ATO experienced in December 2016 and January 2017. Due to the recent ATO IT issues we are reviewing our system deployment dates and will provide more details on our schedule as soon as possible. Other changes for Tax Time 2017, Income tax return labels and Letter updates (Clearance certificates to apply from date of contract) are on track.

    Agenda item 6: Close

    The next meeting is to be held in May 2017, the Thursday or Friday after the budget.

      Last modified: 06 Sep 2017QC 53234