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  • Foreign Investment Reforms working group minutes 8 August 2016

    Meeting details

    Venue: Teleconference

    Date: 8 August 2016

    Start: 2.30 pm Finish: 3.30pm

    Chair: Ann Middleby

    Secretariat: Heidi Clarke

    Contact Phone: (02) 6216 1527

    Attendees

    Australian Bankers Association

    Tony Pearson

    Australian Financial Market Association

    Dr Stephen Kirchner

    Chartered Accountants Australia & NZ

    Michael Croker

    Deloitte Lawyers Pty Ltd

    Luke Imbriano

    Holding Redlich

    Elly Ashley

    Vanya Lozzi

    Institute of Conveyancers

    Rosemary Cotton

    KPMG

    Scott Farrell

    Property Council of Australia

    Belinda Ngo

    Katharina Surikow

    Real Estate Institute of Australia

    Jock Kreitals

    The Tax Institute

    Jenny Wong (KPMG for The Tax Institute)

    Treasury

    James Benson

    ATO

    Malcolm Allen

    Kelly Canava

    Monina Castro

    Ann Middleby

    Deborah Robinson

    Laurance Scarborough

    Heidi Clarke

    Apologies

    Australian Financial Markets Association

    Robert Coquhoun

    BDO

    Lance Cunningham

    CPA Australia

    Gavan Ord

    Deloitte Lawyers Pty Ltd

    James Fabijancic

    Greenwoods & Herbert Smith Freehills

    Manuel Makas

    Law Council of Australia

    Malcolm Brennan

    PwC

    Natalie Kurdian

    Agenda item 1: Welcome and introductions

    Ann Middleby welcomed members.

    Agenda item 2: Update from Treasury

    James Benson presented the following updates

    Tax conditions

    New tax conditions were released in May 2016.

    Treasury have been waiting for the caretaker period to end prior to issuing a Guidance Note. They will now be finalising the draft and sending it to the Treasurer.

    Water register

    In the 2016-17 Budget a register of foreign ownership of water entitlements was announced. This will be similar to the Agricultural Land Register where owners need to notify the ATO. This is to start at 1 July 2017. The Department of Agriculture and Water Resources, Treasury and the ATO are all working together on the draft legislation for water. There is a sunset clause to the Register of Foreign Ownership of Agricultural Land Act 2015 if the legislation for the water register is not passed by December 2016.

    There will be a short consultation period – if anyone wants to take part in the consultation, please send your details to the ATO.

    Questions/Comments

    Question: Michael Croker – There are many players in water, how do they find out about the consultation process?

    Response: Ann Middleby – An email and invitation has been sent to a targeted group including those who made submissions during earlier consultation sessions. It is anticipated that 75% of foreign water entitlement holders will also have an interest in Agricultural Land.

    Comment: Rosemary Cotton would like a copy of the email.

    Foreign Investment Reforms – Ann Middleby

    The Agricultural Land Register stocktake ran from July 2015 to Feb 2016. Information from that period and up to 30 June 2016 has been compiled in a report. It is to be tabled in Parliament sometime during September 2016. The caretaker period delayed delivery to the Treasurer.

    Compliance work

    The ATO has started issuing penalty notices. 150 notices worth $700,000 have been issued for not applying for approval before entering into an unconditional contract and breaches of conditions.

    Tier One – applied to self-reporters (there have been 91 of these)

    Tier Two – applied when identified through our compliance activities.

    Question: Malcolm Brennan – Are they all residential properties?

    Response: Ann Middleby -–Yes

    Question: Michael Croker – These ones are fairly straight forward, are there circumstances where ATO will remit the penalty? Michael would like further guidelines on when the ATO might remit a penalty.

    Response: nn Middleby – These penalties cannot be remitted. This type of penalty is different from a tax penalty – there is nothing in the legislation that allows the ATO to remit.

    30 properties worth $78 million are required to be sold. 13 of these have sold already. Any properties not sold within the concessional period given will move to formal divestment procedures. There are 15 examples of self-divestments during investigations.

    400 open cases/investigations

    There were 302 self-reporters who came forward during the amnesty period. These cases are almost all completed.

    Information from community members makes up over half of the items received for investigation and although investigations arising from community information seldom result in a breach, it is a valuable source of intelligence for the ATO. In most cases, the owners of the properties reported by community members are Australian citizens or permanent residents.

    Questions/Comments

    Question: Tony Pearson – low level of breaches given community angst about foreign ownership.

    Response: Ann Middleby – Amnesty period cases have been actioned first and foremost. Now they are finished the ATO can start more data matching cases. Breaches seem to be quite small compared to application numbers during 2014-2015. Applications don’t always convert to a purchase though.

    The introduction of fees means that people generally won’t apply for FIRB approval unless they intend to purchase a specific property. This explains why application numbers have dropped post December 2015. The fees have brought about a change in behaviour but not necessarily affecting actual purchases.

    We are also looking to see if there are behavioural changes since some states introduced additional stamp duty for foreign investors. Contemporary data indicates that people are still applying. This is purely in relation to residential property.

    We are receiving approximately 500 applications per week.

    Water Register

    Meeting with the National Farmers Federation held on 8 August 2016.

    Exposure draft will be finalised in mid-August 2016

    Legislation is expected to be introduced into Parliament in mid-September 2016 and needs to be passed by December 2016.

    Third Party Data Project – Sue Vardy

    Each of the jurisdictions are working on their systems.

    NSW is further progressed than the others and ready to report in October.

    Testing is progressing well at the moment.

    Questions/Comments

    Comment: Vanya Lozzi – NSW OSR is tasked with collecting data

    Question: Michael Croker – will data be feeding through to prefill?

    Response: Sue Vardy – It will be available in MyTax and in Tax Agent Portal for 2017 Tax Time.

    Details include: sale price, purchase price, sale data. The client must get stamp duty details themselves. The ATO could look at this later.

    Question: Michael Croker – QLD, NSW, VIC have moved on their own version of foreign taxes – stamp duty. It’s difficult to get a hold on who pays what.

    Response: Sue Vardy – noted and could possibly look at this in the future.

    Comment: Belinda Ngo commented about residency status and the difference for FIRB residency

    Response: Sue Vardy – looking at tax residency and also foreign resident for tax purposes. Can be used for Foreign Resident Capital Gains Withholding.

    Federal and state residency has differing definition for residency.

    Comment: Ann Middleby noted that 3rd party data will come in a consistent form. The ATO will match with the information we have. From 100 records, 99 state and territory records will match. One out of 100 will not match and that’s the one that will become the focus of investigation.

    Data the ATO will receive from the states and territories includes:

    • ABN
    • ACN
    • overseas identifier country of incorporation
    • nationality/citizenship
    • passport no.
    • visa no.
      • subclass
      • expiry
       
    • FIRB application number.

    Foreign Resident Withholding Tax

    Malcolm Allen provided the following update.

    Foreign Resident Capital Gains Withholding (FRCGW) has been in operation since 1 July 2016

    On 27 June 2016, the online versions of the forms went live. Everyone should now be using the online versions.

    The ATO has focused on the processing of Clearance Certificates and moving towards fully automating that. Most of the Clearance Certificates have been issued to individuals rather than other entities, although specific figures are not yet available.

    Three law companion guides have issued - relating to variations, options and the amount payable to the Commissioner. 

    More content will be put on the FRCGW web pages around those things which have been causing issues, for example name changes, Trust and Superannuation Fund clearance certificates, Consolidated groups – a clearance certificate can be issued for the group but subsidiaries can also apply in their own right.

    In regards to education and presentations, all requests were met.

    A Guide for Conveyancers was sent out to all AIC members.

    There was a legislative instrument released on 30 June 2016 to deal with multiple vendors where not all vendors are foreign.  There are four other legislative instruments in progress to reduce the administrative burden. Over the next few weeks:

    • trustees of deceased estates
    • relationship breakdown
    • deductible gifts
    • Australian government bodies – more consultation is required in relation to this one and the ATO will be asking for guidance from industry.

    Compliance work will be undertaken in the near future focusing on data matching and other intelligence. 

    There will also be some system changes for Tax Time 17, for example the ability to claim credits and automating some processes.

    The ATO would like to acknowledge the time and effort that has been given to make the implementation as smooth as possible – this included articles in publications, website suggestions and comments on the Law Companion guides.

    Questions/Comments

    Question: Jock Kreitals – What is the number of certificates and average time?

    Response: Malcolm Allen–  Over 3000.  The time varies. Priority is given to those with impending settlement. 

    Agenda item 4: Update on communications

    Heidi Clarke provided the following update.

    An article was published in the Business Bulletin last week to promote the Land Register.

    See: New Land Register for foreign investors from 1 July 2016 

    There was some recent promotional activity with key information about the Land Register provided to a number of professional groups and foreign associations (the information contained in this promotion was taken from our web page)

    The ATO has a new web page which has been published in readiness for the Agricultural Land Register Report. When the report is released, it will be able to be accessed through this page: Agricultural Land Register Reporting

    Agenda item 5: – General Q&A

    It was noted that the Foreign Investment Working Group had continued meeting for a further six months from what was originally planned as the group has wanted it. This meeting was to be the last. Participants indicated that they were still interested in the continuation of this working group. It was agreed to continue to meet, but on a quarterly basis.

    Malcolm Brennan queried about those that fall between the cracks when applying for FIRB approval. Another box on the application portal is required.

    Ann Middleby advised that there is an update planned for the online form July next year. In the meantime she will provide the addresses for our mailboxes.

    Mailboxes are as follows:

    FIRBvariations@ato.gov.au – for queries regarding variations to an already approved residential applicationFIRBresidential@ato.gov.au – for general enquiries regarding residential real estate including checking on the progress of applications

    Landregister@ato.gov.au – for any enquiries concerning the residential or agricultural land registers

    Agenda item 6: – Close

    The next meeting is to be held 24 November 2016.

      Last modified: 20 Sep 2016QC 50163