As you have seen in the media over the past six months, the level of foreign ownership in Australian real property, and in particular agricultural land has been a hot topic of debate. In response to this the government announced in February and May 2015 various measures which would be implemented to tighten the rules on foreign purchases of agricultural land and implement mechanisms to monitor the level of foreign investment.
To assist in monitoring the level of foreign investment in agricultural land the government will establish a register of foreign ownership in agricultural land (the register) which will be administered by the commissioner of taxation. The Register of Foreign Ownership of Agricultural Land Bill 2015 and exposure draft were released for public comment on 6 July 2015.
Once enacted all existing holdings by foreign persons of an interest in Australian agricultural land must be reported to the Australian Taxation Office (ATO) by 30 December 2015 and any new interests must be reported within 30 days. The provisions are expected to take effect from 1 December 2015 however, there is a mechanism whereby early reporting can be undertaken in anticipation of the provisions becoming Law. Once enacted all interests in agricultural land must be reported regardless of the value of the land.
For these purposes the term 'foreign person' includes:
- 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
- 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
A person is ordinarily resident if:
- their continued presence in Australia is not subject to any limitation as to time imposed by law (that is, they are permitted to stay in Australia indefinitely, such as Australian permanent residents and New Zealand citizens)
- the person has actually been in Australia for 200 or more days in the previous 12 months
Substantial interest in an Australian corporation arises when a single foreign person (and associates) has 15% or more, or several foreign persons (and associates) have 40% or more, of the issued shares of a corporation.
A substantial interest in a trust will occur when a single foreign person (and associates) has 15% or more, or several foreign persons (and associates) have 40% or more, beneficial interest in the income and capital of the trust estate. Interestingly if the trust is a discretionary trust each beneficiary is taken to hold a beneficial interest in the maximum percentage of income or capital that could be distributed to them. This suggests that if a foreign person is a named beneficiary of an Australian trust estate, that foreign person will have a “substantial interest” in the trust as the maximum percentage of income or capital which can be distributed is 100%. Any agricultural land the trust has an interest in, would need to be reported regardless of whether an actual distribution is made to the foreign person.
Who is to report?
The entity which has the direct legal interest in the agricultural land is the entity required to undertake the reporting to the ATO. In cases where the foreign person has indirect ownership of the agricultural land it is the legal owner as shown on the Certificate of Title which reports the interest.
What happens if you choose not to report?
As the commissioner has general administration of the act it will be a taxation law for the purposes of the Tax Administration Act. The effect of this is that administrative penalties for failing to lodge documents on time under Division 286 will apply.
Where to now?
If you believe the reporting requirements will affect you, contact your local RSM office for assistance.