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House of Representatives

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

Explanatory Memorandum

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

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation Definition
Agricultural Land Register Register of Foreign Ownership of Agricultural Land
ATO Australian Taxation Office
Commissioner Commissioner of Taxation
FATA Foreign Acquisitions and Takeovers Act 1975
IIO Irrigation Infrastructure Operator
Regulatory Powers Act Regulatory Powers (Standard Provisions) Act 2014
TAA 1953 Taxation Administration Act 1953
the Act Register of Foreign Ownership of Agricultural Land Act 2015
Water Register Register of Foreign Ownership of Water Entitlements
Water Register Bill Register of Foreign Ownership of Agricultural Land Amendment (Water) Bill 2016

General outline and financial impact

Increasing the transparency of foreign ownership of water entitlements

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 provides for the collection of information and publication of statistics about foreign holdings of registrable water entitlements and long term contractual water rights. The Bill allows for increased transparency on the levels of foreign ownership in water entitlements.

Date of effect: The amendments apply from the date the Bill receives Royal Assent.

Proposal announced: The National Register of Foreign Ownership of Water Entitlements was announced in the 2016-17 Budget.

Financial impact: nil

Human rights implications: This Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 1, paragraphs 1.85 to 1.108.

Compliance cost impact: Low. The compliance cost impact is minimised by utilising the existing Agricultural Land Register framework.

Summary of regulation impact statement

Regulation impact on business

Impact: Small. The compliance cost has been minimised by utilising the existing Agricultural Land Register. Foreign persons who hold both agricultural land and certain water entitlements and rights will be able to notify the Commissioner through the same online portal. The regulatory burden has also been minimised by reducing the frequency of reporting.

Main points:

The measure has a small overall regulatory cost of $100,000 per annum.
A national Water Register that is considered comprehensive and reliable will help to inform debate about the level of foreign ownership of water entitlements.
Public consultation took place on the approach to implementing the Water Register and on an exposure draft of the legislation.
Overall, stakeholders were supportive of the register but sought to minimise the regulatory burden.

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

New law Current law
In addition to the Agricultural Land Register, the ATO is required to maintain the Water Register. The Water Register will contain two parts: the basic part and the statistical part. The Commissioner can add and correct information to the basic part. The ATO is only required to maintain the Agricultural Land Register. The Agricultural Land Register contains two parts: the basic part and the statistical part. The Commissioner adds and corrects information to the basic part.
The basic part of the Water Register will contain information the Commissioner obtains about foreign persons' holdings of certain water entitlements and contractual water rights. The basic part of the Agricultural Land Register contains information the Commissioner obtains about foreign persons' holdings of agricultural land.
The ATO is required to publish the statistical part of the Agricultural Land Register and the Water Register on a website and provide an annual report to the Minister, in this case the Treasurer. The ATO is required to publish the statistical part of the Agricultural Land Register on a website and provide an annual report to the Minister, in this case the Treasurer.
New law Current law
From 1 December 2017, foreign persons with holdings in registrable water entitlements or contractual water rights, or foreign persons whose foreign person status changes while they hold a registrable water entitlement or contractual water right will be required to notify the ATO once per year. Foreign persons with interests in agricultural land or changes to holdings of interests in agricultural land and agricultural landholders and leaseholders whose foreign person status changes, are required to report those interests or changes to the ATO, generally within 30 days.
Foreign persons who hold or will hold a registerable water entitlement or contractual water right before 1 December 2017 will need to register that holding before 1 December 2017 or within 30 days of acquiring the entitlement or right, whichever is later. No equivalent.

However, the Commissioner used his administrative powers to provide that foreign persons who had an interest in agricultural land at 1 July 2015 had until 29 February 2016 to register that interest with the ATO.

This reflected the commencement of the Act on 1 December 2015.

No Change. The Commissioner has the general administration of the Act. This makes it a taxation law within the meaning of the Taxation Administration Act 1953 (TAA 1953). This means various provisions of the TAA 1953 apply to the Act. This includes provisions about the uniform penalty regime, access and information gathering powers, confidentiality of taxpayer information and approved forms.

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.

Chapter 2 Regulation impact statement

Background

2.1 The Government welcomes foreign investment because it plays an important and beneficial role in the Australian economy. It has helped build Australia's economy and will continue to enhance the wellbeing of Australians by supporting economic growth and prosperity.

2.2 Foreign investment provides additional capital for economic growth, creates employment opportunities, improves consumer choice and promotes healthy competition, while increasing Australia's competitiveness in global markets. The Financial System Inquiry found that 'ongoing access to foreign funding has enabled Australia to sustain higher growth than it otherwise could'.

2.3 Foreign investment can also help deliver improved competitiveness and productivity by introducing new technology; providing much needed infrastructure; allowing access to global supply chains and markets; and enhancing Australia's skills base. Without the injection of additional capital, technology and skills that foreign investment provides, production, employment and income would all be lower.

2.4 Notwithstanding the benefits of foreign investment to the community, there is a need to ensure foreign investment is consistent with Australia's interests and the community retains confidence in the benefits of foreign investment.

2.5 The Government reviews foreign investment proposals against the national interest on a case by case basis. This flexible approach maximises investment flows, while protecting Australia's interests and providing assurance to the community.

2.6 The foreign investment review framework is set by the legislative framework and supported by Australia's Foreign Investment Policy (the Policy) and Guidance Notes on the specific application of the law.

2.7 The Foreign Investment Review Board (FIRB), a non-statutory advisory body, is responsible for examining proposals and advising on their national interest implications. The Treasurer retains responsibility for making decisions.

2.8 The Treasurer has the power to block foreign investment proposals or apply conditions to the way proposals are implemented to ensure they are not contrary to the national interest.

2.9 The national interest, and what would be contrary to it, is not defined in the Foreign Acquisitions and Takeovers Act 1975 (FATA). Instead, the FATA confers upon the Treasurer the power to decide in each case whether a particular investment would be contrary to the national interest.

2.10 The Policy outlines the Government's approach to administering the foreign investment framework, including national interest considerations. The Government typically considers the following factors when assessing foreign investment proposals against the national interest: national security, competition, other Australian Government policies (including tax), impact on the economy and the community and character of the investor.

2.11 In addition to these factors, when examining foreign investment proposals in the agricultural sector, the Government typically considers the effect of the proposal on: the quality and availability of Australia's agricultural resources (including water), land access and use, agricultural production and productivity, Australia's capacity to remain a reliable supplier of agricultural production, both to the Australian community and our trading partners, biodiversity, and employment and prosperity in Australia's local and regional communities.

2.12 The legislative framework includes the FATA and the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 and their associated regulations. The legislation defines the term 'foreign person'.

2.13 The FATA defines a foreign person as:

an individual that is not ordinarily resident in Australia; or
a foreign government or foreign government investor; or
a corporation, trustee of a trust or general partner of a limited partnership where an individual not ordinarily resident in Australia, foreign corporation or foreign government holds a substantial interest of at least 20 per cent; or
a corporation, trustee of a trust or general partner of a limited partnership in which two or more foreign persons hold an aggregate substantial interest of at least 40 per cent.

2.14 The Government introduced the Register of Foreign Ownership of Agricultural Land Act 2015 (Agricultural Land Register Act) to increase transparency of foreign investment in agricultural land. The Agricultural Land Register was established on 1 July 2015 and is administered by the Australian Taxation Office (ATO).

2.15 The first Report on the Register of Foreign Ownership of Agricultural Land (Report) was released on 7 September 2016. The Report has been generally well received, although in the lead up to the release and shortly after, some commentators in the media were calling for greater detail on individual investors.

2.16 Radio host Alan Jones is quoted as saying:

"The register doesn't even begin to deliver what was promised and what was promised was we would be able to identify who owns what - it only provides an overview and a data trend about overall levels of foreign ownership."[6]

2.17 It was never the intention that information included in the Report could be used to identify individual investors. The legislation underpinning the Report prevents the release of information that could be used to identify an individual.

2.18 The Report found that foreign investors hold 13.6 per cent of Australian agricultural land, mostly via leases.[7] The United Kingdom is the biggest investor by land size holding more than 50 per cent of all foreign owned agricultural land. It is followed by the United States of America which holds just under 15 per cent.

2.19 While there is increasing interest from Chinese investors in Australia's agricultural land, only three per cent of foreign land holdings are held by Chinese investors. This represents less than one half of one per cent of all Australian agricultural land. The Report has enabled for the first time, the Government and community to have a comprehensive picture of foreign investment in Australia's agricultural land.

2.20 Transparency around the levels of foreign investment is an important element to providing the community with confidence in Australia's foreign investment screening regime. Community confidence in foreign investment is a key factor to ensuring Australia remains an attractive destination for investment.

2.21 The Government committed to introducing a Water Register during the passage of legislation which established the Agricultural Land Register. This legislation provides that the Agricultural Land Register will lapse if legislation giving effect to a water register has not passed Parliament by 1 December 2016.

2.22 Foreign investment in water entitlements is not directly screened under Australia's foreign investment framework, but may be part of screening other types of investments such as land acquisitions (where water is attached to land) or as assets of an Australian business. Foreign investment in water entitlements is not captured in the Agricultural Land Register.

2.23 A Regulation Impact Statement (RIS) was not prepared ahead of the Government making the decision to introduce a Water Register. As the Government had committed to a Water Register, consultation undertaken in February 2016 occurred on the implementation approach. Options were included in a publically released consultation paper in an attempt to identify an approach with the lowest regulatory cost.

2.24 Following consultation, an interim RIS was prepared as part of the 2016-17 Budget when the Government decided the approach it would take to implement the Water Register. This RIS has been prepared following consultation on the exposure draft Bill and ahead of its introduction into Parliament.

1. The problem

2.25 The problem is a lack of transparency about foreign ownership of water entitlements. While foreign investment makes an important contribution in supporting economic growth, jobs and prosperity and can assist in expanding Australia's production capacity, there is community concern about the level of foreign ownership of water entitlements including concerns that foreign investment in water entitlements is impacting water prices.[8]

2.26 The Wall Street Journal has highlighted that some farmers and irrigators in Australia are concerned that speculation in water entitlements by foreign investors is increasing water prices making it difficult for them to irrigate crops. These concerns are likely to be exacerbated by broader concerns about global food and water security which may lead to greater interest by foreign investors in Australia's water assets.[9]

2.27 These concerns have been growing in recent years and will likely continue to grow, partly due to greater trading of water entitlements since 2004[10] due to 'unbundling' (separation of water entitlements from land)[11], and the potential increase in the volume of water held by foreign investors.[12]

2.28 Without reliable information on the extent of foreign ownership of water entitlements, it is difficult to address or allay these concerns.

2.29 There is limited evidence to support claims that foreign investment in water entitlements is having a detrimental impact on water prices. It is more likely that factors affecting water prices are: the amount of water available due to climatic conditions (such as drought or rainfall levels), water demand due to crop types or the time of year, the amount of water acquired by governments for environmental purposes and other regulatory factors.[13] The community appears to be more concerned about foreign ownership of water during times of drought or where prices are higher, than when prices are low.[14]

2.30 Nonetheless, it is important that the community has confidence in Australia's foreign investment screening framework and that foreign investment is in Australia's national interest. However, without transparency on the levels of foreign ownership of water entitlements the Government is limited in its ability to address community concerns and for there to be an informed public debate on the issue. There is a risk that, if not addressed, this lack of transparency will continue to undermine community confidence in the benefits of foreign investment more broadly.

2.31 Australia needs to continue to attract high levels of foreign investment. The Financial System Inquiry found that 'Australia is, and is likely to continue to be, a substantial net importer of capital'. It also found that Australia has 'significant endowments of natural resources that cannot be fully utilised without foreign investment'.

2.32 Further, according to an ANZ report, approximately $1 trillion of investment in Australian agriculture is needed by 2050 to meet rising global demand, and to capitalise on Australia's well-recognised strengths as a producer and exporter of high quality food and agricultural products.[15]

2.33 While there are various data sources covering different aspects of water entitlements, data on the level of foreign ownership of water entitlements is limited. Water is not only used in the agricultural sector but is a key input in other sectors including the mining, manufacturing, electricity and waste services sectors. The various data sources and registers generally do not identify foreign ownership of water entitlements, or if they do, the scope of the data is limited to a particular sector.

2.34 The only data source on foreign investment in water resources is the Australian Bureau of Statistics (ABS) Agricultural Land and Water Ownership Survey (ALWOS). The survey found that as at 30 June 2013 14 per cent of total water entitlements (by volume) were held by foreign investors. This is an increase of 55 per cent (by volume) on the 2010 level of foreign ownership.

2.35 While the survey provides some insights into the level of foreign ownership of water entitlements, the picture is incomplete as it only captures foreign interests in water entitlements for agricultural purposes. Other industry sectors such as mining, manufacturing and energy sectors where it is likely foreign investors hold water entitlements are excluded. In addition, as the information is collected through a voluntary survey its comprehensiveness and reliability cannot be confirmed.

2.36 The states and territories, in their capacity as water resource managers, maintain a number of publically accessible registers for water entitlements, water trade and water use. This information is also compiled into annual reports which generally include the number and volume of water entitlements issued each year and statistics on entitlement and allocation trade.

2.37 The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), compiles annual water markets reports using information collected by the states and territories as well as information provided to the Bureau of Meteorology (BOM) and by the larger Irrigation Infrastructure Operators (IIOs).[16]

2.38 There are also national water reporting arrangements by the BOM (National Water Account), the ABS (Water Account, Australia) and the Australian Competition and Consumer Commission (Water Monitoring Report). All of these annual reporting arrangements summarise water entitlement information at aggregate levels. However, none of these collect data on foreign ownership.

2.39 Some irrigators within the area of operation of IIOs hold rights against the IIO to have water delivered through the IIO's infrastructure network. In these instances water entitlements are held by the IIO on behalf of the irrigators. The information collected by various government agencies does not include information about irrigation rights and temporary or permanent trade of irrigation rights within IIO networks.

2.40 This is potentially a large gap in information as irrigation operators, and therefore their customers, hold relatively large volumes of water[17] and yet information on the amounts held by their customers, and whether their customers are foreign persons is not collected.

2. Case for government action/Objective of reform

2.41 Lack of transparency about the level of foreign ownership of Australia's water entitlements is making it difficult for the Government to address community concerns regarding the issue and for there to be informed public debate. There is a risk that, if not addressed, these concerns will continue to undermine community confidence in the benefits of foreign investment.

2.42 Increasing transparency about the level of foreign ownership of water entitlements will assist in informing the Government and the community about emerging investment trends and enhance the information available to the Government for future policy development.

2.43 Capturing data around these issues is within government control and has been successfully demonstrated through the Agricultural Land Register. The release of the first Agricultural Land Register Report showed that it could contribute effectively to the public debate about levels of foreign investment and can provide an evidence base for Government policy in the future.

2.44 The National Farmers Federation (NFF) welcomed the release of the Agricultural Land Register Report and indicated that:

"...transparency was key to addressing community concerns around foreign investment in agriculture so as to fill the severe capital shortfall faced by the sector. The NFF has long called for a register of this nature to provide firm data around the foreign ownership debate and we most certainly welcome the release of this report."[18]

2.45 Increasing transparency about the levels of foreign ownership of water entitlements will complement the Agricultural Land Register to create a more comprehensive picture about the participation of foreign investors in Australia's natural resources.

3. Policy options

2.46 In this case, the Government already committed itself to one policy approach in a public and accountable way. There are two options considered by Government to increase the transparency of foreign ownership of water entitlements and establish a register. However, within the second option, there are potentially three approaches to implement a register.

2.47 A third option was not considered feasible given that the Australian Parliament made the decision that greater transparency about foreign ownership of water entitlements should be delivered via a register when it considered the Agricultural Land Register Act. Therefore, the RIS focuses on the alternative implementation options that are consistent with this policy approach.

Option 1. No change

2.48 This option would see no change in the available data on foreign ownership of water entitlements. This approach would not meet the policy objectives of increasing transparency of foreign ownership of water entitlements. Information gaps would continue as the ALWOS survey only represents foreign ownership within the agriculture sector, and is only conducted every three years.

2.49 Under this approach, the legislation underpinning the Agricultural Land Register would sunset. This would result in reduced transparency about foreign ownership in the agricultural sector and would potentially result in negative views from the community about the ability of the Government to address information asymmetry and improve the public debate about the levels of foreign investment in the agriculture sector and water entitlements.

Option 2. Register of foreign ownership of water entitlements

2.50 Option two is to develop a register of foreign ownership of water entitlements. It would require foreign persons to register their interests in water entitlements through a new or existing information technology interface. The information would then be compiled into a publically available report on the levels of foreign ownership of water entitlements at a point in time, similar to the approach taken for the Agricultural Land Register.

2.51 This option would effectively meet the policy objective of increasing transparency of foreign ownership of water entitlements. The register would be more comprehensive than currently available information as all industry sectors would be covered, all foreign investors would be required to register (rather than through a survey approach), and the statistics gained from the register could be released more frequently than the ABS survey data (which is released every three years).

2.52 This approach is also consistent with the Government's commitment to introduce legislation to establish a register of foreign ownership of water entitlements as part of the passage of the Agricultural Land Register Act.

2.53 There are a number of implementation options that were considered.

2.54 Option 2a is a national register utilising information from state based registers. This option includes altering existing data collection systems in the states and territories to enable collection of additional information on foreign ownership status. A national register would be compiled from the state registers. This option would require some level of harmonisation among systems that are not currently compatible and expansion of systems to include foreign person information and irrigation rights which are not currently captured on state and territory registers.

2.55 Option 2b is the establishment of a stand-alone Commonwealth administered register introduced by separate legislation. The registration form would be implemented through a new information technology build.

2.56 Option 2c is expanding the existing Agricultural Land Register to include water entitlements. This approach would result in amendments to the legislative framework for the Agricultural Land Register to include water entitlements and the registration form would be implemented through an expanded Agricultural Land Register form.

4. Cost benefit analysis of each option/Impact analysis

Option 1: No change

Benefits

2.57 The benefit of this option is that there is no additional regulatory impact on foreign investors. The current arrangements for data collection about foreign ownership details would not change.

Costs

2.58 Leaving the current arrangements as they are for data on foreign ownership of water entitlements is unlikely to address community concerns about foreign investment in water entitlements, provide transparency to improve public debate or provide an evidence base for future Government action.

2.59 This option may result in costs to the community and economy especially where a lack of information undermines community confidence in foreign investment. It would also result in the sunset of the Agricultural Land Register which has been successful in informing the community debate.

Option 2: Register of foreign ownership of water entitlements

2.60 This option would introduce a register of foreign ownership of water entitlements. There are three implementation options under this approach:

amend state and territory registers to include foreign ownership information,
create a stand-alone Commonwealth administered register, or
amend the existing Agricultural Land Register to include water entitlements.

Benefits

2.61 This option will ensure that a comprehensive picture of foreign investment in water entitlements is obtained. The community will benefit from receiving specific and comprehensive information about the level of foreign ownership of water entitlements through better quality public debate on the issue. Experience through the Agricultural Land Register has shown that when comprehensive and factual information on levels of foreign investment is available, misinformation about the level and source of foreign investment can be corrected.

Costs

Number of foreign persons

2.62 Regardless of the implementation option, the introduction of a register will impose a regulatory cost on entities or individuals who meet the definition of foreign person. It is estimated that 767 foreign persons will be affected by this option.[19] This number is based on the following assumptions:

2.63 The number of foreign persons are based on the number of foreign persons who operate in agriculture, mining, IIOs, energy, and manufacturing. The ABS Water Account defines the sectors which consume water in Australia. When sectors without water entitlements are removed from the ABS Water Account (namely households and water supply utilities), the above are the key sectors remaining.

Agriculture

2.64 It is expected that there will be overlap between persons who have agricultural land holdings and water entitlements. An informed estimate by the Department of Agriculture and Water Resources (DAWR) on the proportion of agricultural land that is subject to irrigation is 75 per cent.

2.65 On the basis of the ALWOS, the number of agricultural businesses with some level of foreign ownership at 30 June 2013 was 806. It is estimated that 604 foreign persons who hold agricultural land would also need to register water entitlements.

Mining

2.66 Based on ABS data (catalogue 8167.0), 22.5 per cent of mining businesses had more than 10 per cent foreign ownership. Based on the National Water Commission publication, Water issues in jurisdictional planning for mining: an overview of current practice, the mining industry typically requires access to water to meet processing, dust suppression and potable water requirements.

2.67 According to the Australian Atlas of Mineral Resources, Mines and Processing Centres produced by Geoscience Australia there were 421 operating mines as at February 2015 and 235 processing plants as at February 2014.

2.68 On the basis that the owners of 22.5 per cent of these would meet the definition of foreign person (which is overestimating the number as the definition requires 20 per cent interest to be held by a foreign person), 148 foreign persons in the mining sector would need to register their water entitlement.

Irrigation Infrastructure Operators

2.69 During consultation, IIOs indicated that they would face a cost in determining whether or not they met the definition of foreign person. Unlike other entities, IIOs are less likely to have considered whether they meet the definition of foreign person unless they also owned land.

2.70 There will be a one-off cost for the IIO to determine that it is a foreign person. While it will need to consider whether it meets the definition on an ongoing basis, this can be built into its processes for managing new customers.

2.71 The most likely way that an IIO would seek to determine whether it met the definition of 'foreign person' would be to write out to its members asking them to self-identify as a foreign person. The IIO would then compile the responses to determine if the IIO met the definition of a foreign person. This one off cost has been calculated at around $35,500.

2.72 This is based on the 22 IIOs operating in Australia[20], seeking the foreign person status of their customer base of 13,600[21] (including both individuals and businesses) at a cost of $1 per letter; three hours of administration costs estimated at $196.35 per IIO ((Office of Best Practice Regulation (OBPR) standard cost of $65.45 per hour)); and each IIO seeking two hours of legal advice at a cost of $800 per IIO.

Manufacturing

2.73 Based on ABS data (catalogue 8167.0), 5.9 per cent of manufacturing businesses had more than 10 per cent foreign ownership. Given the small proportion of foreign ownership in this sector, and low probability that water is being sourced through a water entitlement, it is estimated that no foreign persons operating in the manufacturing sector will need to register their water.

Energy, Electricity and waste services

2.74 Based on ABS data (catalogue 8167.0), seven per cent of energy, electricity and waste services businesses had more than 50 per cent foreign ownership. (There is no data published on business in these sectors with foreign ownership of more than 10 per cent).

2.75 The ABS does not have public information about the number of businesses in this sector. The Australian Energy Market Operator (AEMO) in its 2015 annual report listed a total of 75 industry members. Based on the data available, the number of business which might need to register water entitlements, if they do not get their water supply from water utilities, could be up to five. However, this figure may be an underestimate given the definition of foreign person refers to ownership of 20 per cent, not 50 as used in the calculation.

Registration costs

2.76 Based on advice from the DAWR, which was tested through consultation, the following assumptions have been made to determine the regulatory costs of Option 2.

a)
foreign persons hold on average five water entitlements, each entitlement will need to be registered during the stocktake period;
b)
on average, there would be two changes a year to a foreign person's water holdings which will need to be updated on the register;
c)
on average, each update or registration will take up to 30 minutes;
d)
foreign persons may need to download records from the relevant state or IIO register to enable them to register. A download fee of $15 has been assumed. Most state registers provide single copies of records for a fee in a range of $10-$20; and
e)
an hourly rate of $65.45/hr (OBPR standard costs) has been assumed in these estimates.

Option 2a: National register from state and territory based registers

2.77 Under this option, a national register would be created utilising information from state and territory registers.

Benefits

2.78 The benefit of Option 2a is that, leveraging off the existing registers maintained by the states and territories may reduce the potential for duplication at the state, territory and Commonwealth level and multiple interactions with government by the foreign person.

Costs

Public sector costs

2.79 The states and territories have indicated that they would seek compensation from the Commonwealth in order to introduce extra data fields and harmonise the data that they each collect. Modifying existing state and territory registers requires a level of harmonisation of systems that are not currently compatible including agreement on terminology and aligning different laws. A similar exercise was attempted between 2009 and 2014 through the National Water Management System. On the basis of the costs faced during the National Water Management System exercise, the DAWR estimates that the cost to harmonise and develop a national register based on state and territory registers would cost between $86 million and $106 million.

Community costs

2.80 It would not be possible to establish the register under this option to meet the 1 December 2016 timeframe. A process and the necessary information technology changes to facilitate the transfer of information from the states and territories would require a longer lead time than is available. As a result under this implementation option the Agricultural Land Register would lapse on 1 December 2016 with a cost to the community from a lack of information.

Regulatory costs

2.81 Foreign persons would face a regulatory cost during the first year under this option - the stocktake - to update the information held on state and territory registers and identify themselves on these registers as 'foreign persons'. State and territory registers do not currently collect information on the person's status as a foreign person. The one-off regulatory cost for foreign persons during the stocktake period is estimated at approximately $180,000.

2.82 IIOs would face a one-off regulatory cost under this option to identify themselves as foreign persons. As explained above, the estimated regulatory cost is $35,500.

2.83 Currently, the customers of IIOs do not need to register with states or territories the water they hold under irrigation rights. Therefore, in order for the register to be as comprehensive as is intended, a new obligation to register would need to be imposed on the customers of IIOs. There would be an ongoing cost to IIO customers where they meet the definition of foreign person. It is not possible to determine how many foreign persons in the agricultural sector are the customers of IIOs.

Average annual regulatory costs (from business as usual)
Change in costs ($ million) Business Total change in costs
Total, by sector $0.022 $0.022

Option 2b: Stand-alone Commonwealth administered register

2.84 This option would see the establishment of a stand-alone Commonwealth administered register for water entitlements, in the same way that a stand-alone register has been established for agricultural land. The registration form would be implemented through a new information technology build.

Benefits

2.85 The benefit of this approach is that a single registration system could be developed by the Commonwealth which would be less costly than amending the state based registers.

Costs

Public sector costs

2.86 The estimated cost of the information technology build is a minimum of $2 million, based on the cost to design and implement the Agricultural Land Register.

Regulatory costs

2.87 Foreign persons would face a regulatory cost during the first year under this option - the stocktake - to register their existing holdings of water entitlements. The one-off regulatory cost estimated for foreign persons during the stocktake period is approximately $180,000.

2.88 IIOs would face a one-off regulatory cost under this option to identify themselves as foreign persons. As explained above, the estimated regulatory cost is $35,500.

2.89 There would also be an ongoing cost to foreign persons to update the register to reflect changes such as the acquisition of a new entitlement. The estimated regulatory cost on average for foreign persons to update their water entitlements is approximately $73,000 per annum.

Average annual regulatory costs (from business as usual)
Change in costs ($ million) Business Total change in costs
Total, by sector $0.095 $0.095

Option 2c: Expanded Agricultural Land Register

2.90 This option is expanding the existing Agricultural Land Register to include water entitlements.

Benefits

2.91 The benefits of this option are that the register can be established more quickly and at less cost compared with other approaches. It is cost effective as most of the information technology architecture is already in place for the Agricultural Land Register.

2.92 Duplication can be minimised through this approach as the Agricultural Land Register Act already has timeframes for registration, penalties for non-compliance, reporting obligations and rules to exempt requirements to give notice already in place. An informed estimate by the DAWR is that 75 per cent of agricultural land is subject to irrigation so foreign persons who were already required to register their agricultural land holdings, could also register their water holdings through the same portal. One access point delivers greater awareness and less compliance cost for the majority of foreign persons who will need to register their water entitlements.

Costs

Public sector costs

2.93 The ATO has estimated that the cost to amend the existing Agricultural Land Register form to include water entitlements is $0.92 million.

Regulatory costs

2.94 Foreign persons would face a regulatory cost during the first year under this option - the stocktake to register their existing holdings of water entitlements. The one-off regulatory cost estimated for foreign persons during the stocktake period is approximately $180,000.

2.95 IIOs would face a one-off regulatory cost under this option to identify themselves as foreign persons. As explained above, the estimated regulatory cost on average is approximately $35,500.

2.96 There would also be an ongoing cost to foreign persons to update the register to reflect changes such as the acquisition of a new entitlement. The ongoing regulatory cost to update registrations for the majority of affected foreign persons under this option would be less than under a stand-alone register but it is not possible to differentiate the extent of the difference and so the estimated ongoing regulatory cost on average for foreign persons to update their water entitlements is approximately $73,000 per annum.

Average annual regulatory costs (from business as usual)
Change in costs ($ million) Business Total change in costs
Total, by sector $0.095 $0.095

5. Consultation plan

2.97 Treasury and the DAWR conducted a full public consultation on options to implement the Register of Foreign Ownership of Water Entitlements (Water Register). A consultation paper was released on 22 February 2016 for one month. There were 12 submissions received. In addition, Treasury and the DAWR held discussions with state and territory governments and the following peak industry bodies: the National Farmers' Federation, the NSW Irrigators' Council, the Minerals' Council of Australia and the National Irrigators' Council.

2.98 Stakeholders generally welcomed the prospect of further transparency about foreign ownership of water and generally agreed that implementing the Register by amending the Register of Foreign Ownership of Agricultural Land Act 2015 (the Act) to include registration requirements for water entitlements would be the most cost effective approach. It would also minimise the compliance burden on investors.

2.99 The consultation paper raised the issue of whether irrigation rights (contractual rights to water between IIOs and their customers) should be included in the Water Register. Stakeholders indicated that the Water Register would be incomplete without the requirement for foreign persons to register their irrigation rights, given these arrangements account for a large proportion of water available through entitlements.

2.100 There were some concerns regarding the regulatory burden which might fall on IIOs who hold water entitlements on behalf of irrigation rights' holders. Stakeholders indicated that the onus should be on the holder of the irrigation right to register foreign ownership, rather than an IIO whose primary role is to deliver water to its customers.

2.101 To respond to these stakeholder concerns, Treasury adjusted the approach so that an IIO will only be required to register where the IIO meets the definition of 'foreign person' and the IIO holds water entitlements that are not subject to irrigation rights. A person holding an irrigation right with an IIO would be required to register this interest if the person holding the irrigation right meets the definition of a foreign person. It is expected that further consultation will be conducted to ensure that these exemptions are reflected appropriately in subordinate legislation.

2.102 Treasury, the DAWR and the ATO conducted a full public consultation on an exposure draft of the amendments to give effect to the Water Register between 24 August 2016 and 8 September 2016. Meetings were held with the National Farmers' Federation, Minerals Council, NSW Law Society, Law Council and representatives from the irrigation industry. There were 11 written submissions received.

2.103 Stakeholders were generally supportive of the approach taken in the draft legislation but raised issues in relation to the regulatory burden of registration and the treatment of IIOs. IIOs were concerned about the administrative costs of determining whether they are a foreign person.

2.104 Consistent with the Agricultural Land Register, the exposure draft legislation proposed that foreign persons register their water entitlements within 30 days of acquiring an entitlement. However, the feedback has been that this could create too much red tape as water entitlements turnover more frequently than land, therefore requiring multiple registrations with no overall change in the level of foreign ownership of water entitlements. To address this concern and reduce the regulatory burden, the approach was adjusted so that foreign persons will only be required to update the register once per year to reflect their final water holdings at the end of that year.

2.105 Additional consultation will be conducted with stakeholders in relation to the build of the registration form to reduce administrative burden in the registration process. Further consultation will also take place with IIOs on options to reduce the regulatory impact of the register, and as necessary, provide for these arrangements through subordinate legislation.

6. Option selection/Conclusion

2.106 The consultation process has shown that there is community concern about the level of foreign investment in water entitlements and stakeholders are supportive of the need to improve transparency around the issue.

2.107 A national Water Register that is considered comprehensive and reliable will help improve information about the overall level of foreign ownership of water entitlements and provide for more informed debate.

2.108 The Water Register will unequivocally improve the information available to the community. Greater transparency, in whatever form, will improve the nature of the public debate allowing it to be based on facts rather than perceptions and misinformation.

2.109 The preferred option is to introduce a Water Register through amendments to the Agricultural Land Act as outlined in Option 2c. Stakeholders have indicated support for this approach and it effectively addresses the policy objectives and results in the highest net benefit compared with the other options.

2.110 Option 2c is consistent with the Government's commitment to introduce legislation providing for a Water Register, and seeks to minimise the regulatory burden on foreign persons while comprehensively addressing existing information gaps. Aligning the legislation and reporting requirements with the existing Agricultural Land Register reduces duplication and confusion for industry stakeholders, many of whom are already required to register their interests in agricultural land with the ATO.

2.111 Retaining the status-quo is not recommended as it is unlikely to address community concerns or provide the information Government needs to make evidence-based policy decisions on foreign investment in water.

7. Implementation and evaluation

2.112 The Register will be implemented by amending the Agricultural Land Register Act to include registration requirements for water entitlements. This approach will limit the regulatory burden for investors by providing one register for land and water utilising the same regulatory framework and reporting obligations of the Commissioner of Taxation (Commissioner). The Agricultural Land Register Act also allows for rules to be made to exempt requirements to give notice. This approach is cost effective as much of the information technology architecture is already in place.

2.113 Consistent with the Agricultural Land Register, the Commissioner will have general administration of the Register and the ATO will amend the Agricultural Land Register registration form to include fields for water entitlements.

2.114 Various approaches will continue to be undertaken to ensure the requirements of the Register are communicated effectively and broadly, including further stakeholder consultations on the subordinate legislation to reduce regulatory burden and the development of the data fields for water entitlements. Guidance material will continue to be issued so stakeholders are aware of their requirements under the new legislation. The DAWR will assist the ATO by providing guidance material and training on the types of water entitlements which need to be captured in the legislation and also assisting with stakeholder enquiries.

2.115 While estimated regulatory costs have been calculated, the final regulatory cost will be impacted by the level of detail required to be registered.

2.116 A risk affecting this proposal is the sunset provision in the Agricultural Land Register Act which means the Act will sunset at the end of 1 December 2016, if legislation providing for a register of foreign ownership of water entitlements does not commence before that time. This risk is being managed by ensuring that enabling legislation providing for the Register is introduced as early as possible in the 2016 Parliamentary Spring sittings.

Index

Schedule 1: Increasing the transparency of foreign ownership of water entitlements

Bill reference Paragraph number
Item 1, Title 1.68
Item 2, section 1 1.69
Item 3, section 3 1.65
Item 4, section 4 1.23
Item 6, section 4 1.27, 1.28
Items 8 and 12, sections 4 and 5A 1.16
Item 9, sections 4; Schedule 1, item 27, sections 30M 1.50
Item 9, section 4; Schedule 1, item 27, section 30P 1.52
Item 9 and section 4; Schedule 1, item 27 and section 30Q 1.53
Item 11, section 4 1.24
Item 11, section 4 1.19
Item 12, paragraphs 5A(2)(a), 5A(2)(b) and 5A(2)(c) 1.18
Item 12, paragraph 5A(1)(a) 1.17
Item 12, paragraph 5A(2)(d) 1.20
Item 13, subsection 6A(1) 1.40
Item 13, section 6A(2) 1.41
Item 13, subsection 6A(3) 1.42
Item 14, subsection 11(7) 1.79
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 1.14
Item 27, section 30J 1.45, 1.46
Item 27 sections 30H and 30K 1.47
Item 27, section 30L 1.49
Item 27, sections 30G, 30H and 30K 1.15
Item 27, section 30N 1.51
Item 27, sections 30H, 30L, 30M, 30N, 30P, and 30Q. 1.29
Item 27, subsection 30C(2), sections 30D and 30E 1.11
Item 27, subsection 30K(1) 1.54
Item 27, subsection 30K(2) 1.55
Item 27, subsection 30K(3) 1.56
Item 27, paragraph 30K(3)(a) 1.57
Item 27, paragraph 30K(3)(b) 1.58
Item 27 sections 30H and 30K 1.60
Item 27, section 30H, section 30K, section 30T 1.61
Item 27, sections 30G and 30R 1.62
Item 27, sections 30G, 30S and 30T 1.63
Item 27, sections 30G and 30U; Schedule 1, item 28, section 31 1.64
Item 27, subsections 30C(3), 30C(4) and section 30F 1.12
Item 27, sections 30A and 30G 1.66
Item 27, sections 30A, 30B and subsection 30C(1) 1.10
Item 27, sections 30G and 30H 1.43
Item 27, section 30H 1.44
Item 32, paragraph 34(1)(b) 1.13
Item 33, section 34A 1.82
Item 34, section 34 1.81, 1.83
Item 34, subsection 34(4) 1.84
Items 36, subsection 99(2) of the FATA and item 37, subsection 100(4) of the FATA 1.71
Item 36, subsections 99(2A), (2B) and (2C) of the FATA 1.74
Item 37, subsections 100(4A), (4B) and (4C) of the FATA 1.75
Items 39, 40, 41, and 42, subsections 355-55(1) and 355-65(8) 1.76
Item 43, Application of amendments 1.77
Section 11 1.78

General comment No. 16: Article 17 (Right to privacy), Thirty-second session (1988) at [3]-[4].

Section 4 of the Water Register Bill amends 'registration trigger time', in relation to a contractual water right held by a person means the latest of the following times: the time the person started to hold the right; the time the person became a foreign person; the start of 1 December 2017.

General Comment No. 18: Non-discrimination, Thirty-seventh session (1989) at [7].

Ibid at [1].

Ibid at [13].

Sydney Morning Herald, 'Foreign ownership register a 'whitewashed travesty': Alan Jones puts Scott Morrison on notice.' 7 September 2016.

The Agricultural Land Register Report can be found at: http://firb.gov.au/files/2016/08/Register_of_foreign_ownership_of_agricultural_land.pdf.

Community concerns have been expressed through correspondence to Members of Parliament and Senators.

Wall Street Journal, 'Australia to Register Its Concern About Foreigners Buying Its Water', March 18 2016. http://www.wsj.com/articles/australia-to-register-its-concern-about-foreigners-buying-its-water-1458275941.

National Water Commission, Factsheet, Water trading in Australia, February 2010. http://archive.nwc.gov.au/__data/assets/pdf_file/0004/7843/Factsheet_Water_trading_in_Aus_FINAL_v2.pdf.

The National Water Initiative, agreed between Australian federal, state and territory governments in 2004 provides for the 'unbundling' of water from land. Unbundling has been progressing but is not complete across Australia.

The Australian Bureau of Statistics Agricultural Land and Water Ownership Survey found that as at 30 June 2013 14 per cent of total water entitlements (by volume) were held by foreign investors. This is an increase of 55 per cent (by volume) on the 2010 level of foreign ownership.

Aither, 'Supply-side drivers of water allocation prices in the southern Murray-Darling Basin' 2016; Aither 'Trends and drivers of irrigation' 2016; National Water Commission, 'Australian water markets report 2012-13', 2016, Canberra.

The State of Victoria Department of Environment, Land, Water and Planning, Trends in Northern Victorian Water Trade 2001-2015, 24 February 2016. This report notes that concerns about water speculators peak during times of low rainfall resulting in short supply and strong demand of water.

Port Jackson Partners, 'Greener pastures: The global soft commodity opportunity for Australia and New Zealand', 2012, report to ANZ, Sydney.

Any person or entity who owns or operates water service infrastructure for the purpose of delivering water to another person for the primary purpose of being used for irrigation.

For example, the Australian Competition and Consumer Commission, ACCC Water Monitoring Report 2014-15, Canberra, 2016, reports that private IIOs in the Murray Darling Basin hold 18 per cent, by volume, of the water entitlements issued in that system.

National Farmers Federation, NFF welcomes foreign land register but calls for more detail, media release, Canberra 7 September 2016: http://www.nff.org.au/read/5395/nff-welcomes-foreign-land-register-calls.html.

For the purposes of determining the regulatory costs for the Water Register, the number of affected foreign persons was assumed to be stable across the costing period. While the ABS ALWOS survey indicated an increase in the volume of water that was foreign owned between 2010 and 2013, across the same period the survey indicated a decrease in the number of agricultural businesses that were foreign owned. It would therefore seem reasonable to assume that the number of foreign persons affected by the Water Register was stable.

Based on information provided by the DAWR through publically available information. State-owned IIOs have been excluded from the calculation as they cannot meet the definition of 'foreign person.'

Based on information provided by the DAWR through publically available information.


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