2016 THE PARLIAMENT OF THE COMMONWEALTH OF …

2016

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

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)

Table of contents

Glossary ................................................................................................. 1

General outline and financial impact....................................................... 3

Chapter 1 Increasing the transparency of foreign ownership of water entitlements ................................... 5

Chapter 2 Regulation impact statement ........................................35

Index ......................................................................................................57

1

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

3

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.

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

4

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.

5

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).


6

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.


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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.


8

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)]


9

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


10

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]


11

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]


12

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.


13

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;


14

• 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.


15

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;


16

• 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.


17

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:


18

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:



(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]


19

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:



(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:







[Schedule 1, item 9, section 4; Schedule 1, item 27, section 30P]


20

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:







[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)]


21

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.


22

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]


23

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.


24

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


25

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)]


26

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)]


27

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011


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.


28

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

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

[3]-[4].


29

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


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


under a contract whose term (including any extension or

renewal) after the registration trigger time2 is reasonably

likely to exceed five years (sections 30K and 30N);

• a person ceases to be a foreign person while holding a


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);

2 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.


30

• 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.


31

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.


32

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

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

4 Ibid at [1].

5 Ibid at [13].


33

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.

35

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.


36

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

Regulation impact statement

37

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.

6 Sydney Morning Herald, ‘Foreign ownership register a ‘whitewashed travesty’: Alan Jones

puts Scott Morrison on notice.’ 7 September 2016. 7 The Agricultural Land Register Report can be found at:

http://firb.gov.au/files/2016/08/Register_of_foreign_ownership_of_agricultural_land.pdf.

http://firb.gov.au/files/2016/08/Register_of_foreign_ownership_of_agricultural_land.pdf


38

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

8 Community concerns have been expressed through correspondence to Members of Parliament

and Senators.


39

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 200410

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

9 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. 10

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_Au

s_FINAL_v2.pdf. 11

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. 12

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. 13

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. 14

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.

http://www.wsj.com/articles/australia-to-register-its-concern-about-foreigners-buying-its-water-1458275941

http://www.wsj.com/articles/australia-to-register-its-concern-about-foreigners-buying-its-water-1458275941

http://archive.nwc.gov.au/__data/assets/pdf_file/0004/7843/Factsheet_Water_trading_in_Aus_FINAL_v2.pdf

http://archive.nwc.gov.au/__data/assets/pdf_file/0004/7843/Factsheet_Water_trading_in_Aus_FINAL_v2.pdf


40

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.

15 Port Jackson Partners, ‘Greener pastures: The global soft commodity opportunity for

Australia and New Zealand’, 2012, report to ANZ, Sydney.


41

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

water17

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

16 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. 17

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.


42

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.

18 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.

http://www.nff.org.au/read/5395/nff-welcomes-foreign-land-register-calls.html

http://www.nff.org.au/read/5395/nff-welcomes-foreign-land-register-calls.html


43

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.


44

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.


45

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

19 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.


46

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.


47

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 Australia20

, seeking the

foreign person status of their customer base of 13,60021

(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.

20 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.’ 21

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


48

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


49

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.


50

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


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.



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.


Change in costs

($ million)



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.


51

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


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.



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.


Change in costs

($ million)




52

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.


53

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.


54

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.


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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.

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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 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 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


58

Item 27, subsection 30K(1) 1.54



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

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