The register of foreign ownership of Australian assets – When to notify

On 1 July 2023, the Register of Foreign Ownership of Australian Assets (Register) was introduced under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA), replacing various other foreign ownership registers including the previous Register of Foreign Ownership of Agricultural Land and Register of Foreign Ownership of Residential Land. The new Register is administered by the Australian Taxation Office (ATO).

The introduction of the Register under the FATA has resulted in an increase in the types of events that require notification, including the following:

• acquisition of any Australian land by a foreign person, including commercial land (ie not just residential or agricultural land);
• acquisition of securities in a business or entity that owns Australian land by a foreign person; and
• acquisition of mining, production or exploration tenements by a foreign person.

The introduction of the new Register is intended to increase the government’s visibility of foreign investment in a broader range of areas, provide a broad data set to inform and aid future foreign investment policy considerations and increase the amount of information available to the decision makers who form the Foreign Investment Review Board (FIRB).

The introduction of the new Register and the new rules on when to notify should be carefully considered by foreign investors, including those entities who are deemed to be foreign persons (including certain discretionary trusts), and their advisers.

There have been no changes to the definition of foreign person under the FATA since 1 July 2023. A foreign person for the purposes of the FATA and the new Register includes any of the following:

• an individual not ordinarily resident in Australia;
• a foreign government;
• a corporation in which an individual not ordinarily resident in Australia or a foreign company or foreign entity holds a substantial interest; and
• the trustee of a trust in which an individual not ordinarily resident in Australia, a foreign company or a foreign entity holds substantial interest. (Note: special rules apply for discretionary trusts – see below).

An interest that is 20% or greater will be a substantial interest for the purposes of the FATA. In respect of a corporation, a substantial interest may include:

• holding securities or shares;
• control of voting power or potential voting power; and
• interests under options and conditional agreements.

Where a trust is discretionary, a beneficiary is deemed to hold the maximum percentage of income that may be distributed to them. For example, where a beneficiary of a discretionary trust is a foreign person and the trustee has discretion to distribute the entirety of the trust to the foreign person, the trust will also be a foreign person for notification purposes, regardless of the foreign person status of any other beneficiaries. One foreign beneficiary may therefore be enough to render a discretionary trust foreign under the FATA.

Whilst advisers to clients with discretionary trusts might be familiar with considering foreign person status in connection with acquisitions of residential property (due to the various state and territory foreign ownership surcharge regimes), the new Register notification requirements will extend to acquisitions of an interest in any Australian land by a foreign person (as well as certain other Australian assets). It is therefore important that advisers to clients with discretionary trusts are aware of the changes and the associated reporting requirements.

Prior to 1 July 2023 a foreign person was required to report the acquisition of residential land or agricultural land within 30 days from the date of acquisition. Each acquisition would be recorded on the relevant residential land or agricultural land register.

Following 1 July 2023 and the introduction of the new Register, a foreign person is required to give notice to the Registrar where that foreign person acquires an interest in Australian land, other than an equitable interest (irrespective of whether FIRB approval was required for the acquisition). A requirement to give notice also arises where a foreign person acquires a legal interest as lessee in a lease that is reasonably likely (at the time the interest is acquired) to exceed 5 years, where the lease gives rights to occupy Australian land. (Special rules apply for the acquisition of an equitable interest as lessee in a lease of Australian agricultural land.)

The expansion to include notification of commercial land acquisitions significantly increases the burden on foreign investors acquiring Australian land. It is important that practitioners advise any foreign clients that this notification requirement has expanded and is no longer limited to agricultural and residential acquisitions.

There is also a requirement to report where there is a change in the nature of the land in which the foreign person holds an interest, where the foreign person becomes aware of the change in nature of the land, or reasonably ought to have become aware of the change. For example, where land changes from residential land to commercial land, notification is required.

Following 1 July 2023 a foreign person who acquires an interest in a mining or production tenement or exploration tenement (irrespective of whether FIRB approval was required for the acquisition) must notify the new Register. An increase in the amount of an existing interest of the foreign person will also amount to an acquisition. There is also a requirement to notify where the tenement changes from an exploration to a production tenement.

Prior to 1 July 2023, foreign acquisitions of either registerable water entitlements or contractual water rights that exceed 5 years were reported to the ATO to be recorded on the Register of Foreign Ownership of Water Entitlements. These acquisitions must still be reported following 1 July 2023, but the information is now stored on the new Register. The registerable event day for registerable water interests is the last day of the financial year. Therefore if a person is not a foreign person at the end of the financial year, or is a foreign person but does not hold the registerable water interest at the end of the financial year, there is no requirement to notify the Register.

A notifiable event in respect of a water interest is not limited to acquisitions. Where a foreign person has a registered their acquisition of a registrable water interest, and during the course of a financial year the volume of water or share of a water resource referred to in the interest changes, and the person still holds the interest at the end of the financial year, the person must give notice to the Register about the change. The registrable event day for the change is the last day of the financial year.

There is also a requirement for a foreign person to give notice where that foreign person takes certain action that constitutes a ‘significant action’, a ‘notifiable action, a ‘notifiable national security action’ or a ‘reviewable national security action’ in relation to an Australian entity or business under the FATA.

Broadly, if a foreign person is required to apply for or voluntarily seeks FIRB approval in order to take certain action in relation to an Australian entity or business, then these types of actions will be required to be notified to the Register.

In addition, where the interest held by a foreign person changes by 5% of more, notification is required within 30 days from the day the foreign person became aware, or ought to have reasonably been aware of the change.

This is a significant compliance burden that has been imposed on foreign investors. It is important that foreign investors are aware of restructures that may result in a percentage change of their shareholding. Examples include the amendment of a company constitution, allocation of additional shares and other capital restructure activities.

Where a person who is not a foreign person becomes a foreign person, whether a natural person, a company or other entity, that person is required to make a notification. The most common example is a change in ownership, whether direct or indirect of a non-foreign person entity, to become a foreign person entity.

Conversely, where a foreign person is registered on the Register as holding an interest in a relevant Australian asset and ceases to be a foreign person, notification is also required.

The Foreign Acquisitions and Takeovers Regulation 2015 (Cth) (Regulations) provide for exemptions to the notification requirements arising under the FATA. It is important for foreign investors and their advisers to consider whether any of the exemptions are applicable, either as a result of the nature of the acquisition or the nature of the foreign person or entity. Certain actions might be exempt from FIRB approval requirements but will still require notification to the new Register.

The following types of acquisitions might be exempt from the requiring notification under the Regulations:

• acquisition of an interest by money lenders, including foreign government investors;
• acquisition of an interest in respect of revenue streams derived from mining or production tenements;
• acquisition of an exploration tenement by a non-government foreign investor;
• acquisition of interests by foreign custodian corporations;
• acquisition from Australian government entities;
• acquisition of interest in securities as a result of a compulsory acquisition or compulsory buy-out;
• acquisition by a charity operating in Australia primarily for the benefit of persons ordinarily resident in Australia; and
• acquisition of Australian land by a person with a close connection to Australia. For example, acquisition by an Australian citizen who is not ordinarily resident in Australia will be exempt under the Regulations.

All settlements which occur after 1 July 2023 are bound by the new reporting requirements, notwithstanding that an agreement may have been entered into or signed prior to 1 July 2023. Failure to make the appropriate notification is a breach of the FATA and a foreign person who fails to make the relevant notification may incur a civil penalty.

All reports must be made via the ATO’s website, which requires the use of a MyGovID.

Each foreign person will be required to register and obtain a MyGovID.

The foreign person must create and register the account, and this cannot be done by an authorised representative.

After the ID is obtained, the foreign person can authorise a representative to access online services on their behalf. This will also require that the authorised representative has a MyGovID which is set up using an individual email address.

More information is available on the ATO website regarding how a foreign person can register for a MyGovID and how a foreign investor can authorise a representative to act on their behalf.

A report to the new Register must include the following information:

• the reason for providing the register notice;
• the date of acquisition or change of circumstances;
• the consideration paid;
• the percentage of interest that is held or owned; and
• the specific details about the interest (land information, business information)

This article provides general comments only. It does not purport to be legal advice. Before acting on the basis of any material contained in this article, we recommend that you seek professional advice.

Co-Author

Name: Narisse Fechner

Position: Lawyer

Practice: Transactions

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