FIRB changes to note from 1 July 2023

A New Register and obligations on foreign persons 15 min read

On 1 July 2023, a new Register of Foreign Ownership of Australian Assets (the New Register) will come into effect under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA), together with corresponding obligations on foreign persons to report ownership of Australian assets.

In this Insight, we outline and comment on the New Register and corresponding reporting obligations.

The New Register and reporting obligations will replace and expand on the existing reporting framework which comprises a number of registers, information recipients and sources of reporting obligations.
There will be a substantial increase in the compliance burden on foreign persons as a result of the New Register. Certain events, not limited to actions in respect of which a FIRB approval has been obtained, will need to be notified if the action occurs on or after 1 July 2023.
Foreign persons needing to report under the New Register regime must do so via the ATO's 'Online services for foreign investors' functions on the ATO website.
Failure to notify within 30 days may incur fines.

Pre-1 July 2023 position

General FATA reporting requirements applying to actions that occur before 1 July 2023

Under section 98C of the FATA, a foreign person who is issued a FIRB approval (whether in the form of a no objection notification or exemption certificate) for the acquisition of an interest in an Australian entity, land or business, or to start an Australian or national security business, must notify FIRB (via an online form or, from 1 July 2023, via email) within 30 days after the action has occurred, where such action occurs before 1 July 2023. Under section 98E of the FATA, the same foreign person must notify FIRB (via an online form or, from 1 July 2023, via email) within 30 days after the occurrence of certain changes in circumstances dependent on the type of action that was covered by the FIRB approval (eg the person's interest in a target entity is reduced to below its pre-acquisition percentage, or the person ceases to hold all or part of an interest in the target Australian land) even if the change occurs on or after 1 July 2023.

The foregoing requirements apply to the acquisition of interests in agricultural land before 1 July 2023 even though there are separate reporting requirements for such land (see below), but do not apply to acquisitions of interests in residential land or commercial land before 1 July 2023. However, prior to 1 July 2023, FIRB approvals for the acquisition of interests in residential land have routinely included a condition that the Australian Taxation Office (ATO) is notified of the acquisition within 30 days—such information is recorded by the ATO on a Register of Foreign Ownership of Residential Land (the Residential Land Register). That has not always been the case for FIRB approvals relating to commercial land—so under the pre-1 July 2023 FIRB reporting regime, not all FIRB-approved acquisitions of interests in commercial land are subject to a notification requirement.

Special reporting requirements for agricultural land acquired before 1 July 2023

Under the pre-1 July 2023 Register of Foreign Ownership of Water or Agricultural Land Act 2015 (Cth), each foreign person must notify the ATO (via an online Land and Water Registration Form) if they own agricultural land or have a right to occupy agricultural land under a lease or licence the remaining term of which (including any extension or renewal) is reasonably likely to exceed five years. The information is recorded by the ATO on a Register of Foreign Ownership of Agricultural Land (the Agricultural Land Register). Subsequent changes also need to be notified. Notifications must be made within 30 days after a notifiable event occurs, and must be made irrespective of whether the acquisition of the land interest needed FIRB approval.

Special reporting requirements for water entitlements acquired before 1 July 2023

Under the pre-1 July 2023 Register of Foreign Ownership of Water or Agricultural Land Act 2015 (Cth), each foreign person must notify the ATO (via an online Land and Water Registration Form) of their interests in registrable water entitlements and contractual water rights. The information is recorded by the ATO on a Register of Foreign Ownership of Water Entitlements (the Water Register). Subsequent changes also need to be notified. Notifications must be made within 30 days after a notifiable event occurs, and must be made irrespective of whether the acquisition of the water entitlements/rights needed FIRB approval as part of a broader transaction. Note that the FATA currently does not regulate the standalone acquisition of water entitlements/rights.

Post-1 July 2023 position

When the FATA was substantially revised with effect from 1 January 2021, a new Part 7A titled 'The Register of Foreign Ownership of Australian Assets' was introduced into the FATA. It was contemplated that such Part 7A, namely the New Register and corresponding reporting obligations, would come into effect at a later time. That later time is 1 July 2023. Also coming into effect on 1 July 2023 are New Register-specific amendments to the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) (FATR). These amendments are set out in the Foreign Acquisitions and Takeovers Amendment (Register of Foreign Ownership and Other Matters) Regulations 2023 (Cth).

Combined register

The New Register will be administered by the ATO (the Registrar) and will replace the existing Residential Land Register, Agricultural Land Register and Water Register administered by the ATO. Like the existing registers, the New Register will not be publicly available. The New Register will not replace the Register of Critical Infrastructure Assets maintained by the Cyber and Infrastructure Security Centre, nor the Register of Foreign Owners of Media Assets maintained by the Australian Communications and Media Authority—those registers and corresponding reporting obligations will continue to operate.

New reporting requirements

The reporting obligations commence on July 2023 and all required reporting must occur via the ATO's online notification system (see 'How and what to report under the New Register regime' below), and within 30 days of each relevant notification trigger (each such trigger known as the 'registrable event day').

Australian land and entities which have interests in Australian land

Each foreign person must notify the Registrar if, at any time on or after 1 July 2023, the foreign person acquires any of the following (irrespective of whether FIRB approval is required):

a freehold interest (other than an equitable interest) in any Australian land
an interest as lessee in a lease giving rights to occupy Australian agricultural land if the term of the lease (including any extension or renewal) is reasonably likely, at the time the interest is acquired, to exceed five years
a legal interest as lessee in a lease giving rights to occupy Australian commercial land or Australian residential land if the term of the lease (including any extension or renewal) is reasonably likely, at the time the interest is acquired, to exceed five years
an interest (other than an equitable interest) in a mining or production tenement, such as a mining lease
an interest (other than an equitable interest) in a security in an entity that owns Australian land, being a security that entitles the holder to a right to occupy a dwelling of a kind known as a flat or home unit situated on the land
an interest (other than an equitable interest) in a share in an Australian land corporation or unit in an Australian land trust (being a corporation or unit trust where more than 50% of its assets by value comprise interests in Australian land), unless an exemption applies;
an interest (other than an equitable interest) in a share or unit of an agricultural land corporation or agricultural land trust (being a corporation or unit trust where more than 50% of its assets by value comprise interests in Australian agricultural land), unless an exemption applies
if the trustee of an Australian land trust is a corporation—an interest (other than an equitable interest) in a share in that corporation, unless an exemption applies
if the trustee of an agricultural land trust is a corporation—an interest (other than an equitable interest) in a share in that corporation, unless an exemption applies.

Note that entry into licences to occupy Australian land (where FIRB approval is not required) should not need to be notified to the Registrar.

Notification obligations also arise where a person who has any of the foregoing interests becomes a foreign person (except if one of the exemptions to reporting (see 'Exemptions' below) would have applied), or there is a change in the nature of the relevant land in which the foreign person has an interest (but only where the foreign person becomes aware or ought reasonably to have become aware of the change), or where the foreign person ceases to have the interest which triggered a notification requirement (but only where the foreign person becomes aware or ought reasonably to have become aware of the change), or where the foreign person ceases to be a foreign person.

Exploration tenements

Each foreign person must notify the Registrar if, any time on or after 1 July 2023, the foreign person acquires an interest (other than an equitable interest) in an exploration tenement such as an exploration licence (irrespective of whether FIRB approval is required, noting that generally only foreign government investors need FIRB approval to acquire interests in exploration tenements). Notification obligations also arise where a person who has any of the foregoing interests becomes a foreign person, or there is a change in the nature of the relevant tenement in which the foreign person has an interest (but only where the foreign person becomes aware or ought reasonably to have become aware of the change), or where the foreign person ceases to have the interest which triggered a notification requirement (but only where the foreign person becomes aware or ought reasonably to have become aware of the change), or where the foreign person ceases to be a foreign person.

Registrable water interests

Each foreign person must notify the Registrar if, during any financial year which includes a date that is 1 July 2023 or later, the foreign person acquires a registrable water interest (being a registrable water entitlement as defined in the FATA or a contractual water right exceeding five years) during the financial year and continues to hold the interest at the end of the financial year (notwithstanding that the standalone acquisition of water entitlements does not trigger any FIRB approval requirements). Notification obligations also arise where a person who has any such interest becomes a foreign person, or if there are changes to the volume of water or share of a water resource, or where the foreign person ceases to have the interest which triggered a notification requirement (but only where the foreign person becomes aware or ought reasonably to have become aware of the change), or where the foreign person ceases to be a foreign person.

Businesses and entities

There are numerous Registrar notification triggers relating to the acquisitions of interests in an Australian business or Australian entity. These include the following which occur on or after 1 July 2023:

a foreign person acquires an interest in an Australian entity or Australian business, or starts an Australian business, which constitutes a significant action, notifiable action or reviewable national security action in respect of which FIRB approval was obtained, or in respect of which the Treasurer exercised his or her call-in power
a foreign person acquires an interest in a national security business or an entity carrying on a national security business, or starts a national security business
each of the above-mentioned foreign persons ceases to hold an interest (other than an equitable interest) in the relevant entity or business, or the relevant entity ceases to be an Australian entity or one that carries on national security business (as applicable), or the relevant business ceases to be an Australian business or national security business (as applicable), or the relevant entity ceases to exist or the relevant business ceases to be carried on—but in each case the notification trigger arises only if the foreign person is aware or ought reasonably to have become aware of the relevant cessation event
the percentage interest that each of the above-mentioned foreign persons have in an entity or business changes by five percentage points or more (but only where the foreign person is aware, or ought reasonably to have become aware, of the difference)
a person becomes a foreign person while holding an interest in an entity or business that would have triggered a mandatory FIRB approval requirement if the person had acquired that interest on the day they became a foreign person
any of the above-mentioned foreign persons ceases to be a foreign person.

Exemptions

Acquisitions which are wholly exempt from the FATA are not subject to the reporting requirements under the New Register. These cover acquisitions that fall within the following exemption categories:

acquisitions by moneylenders
revenue streams from mining or production tenements
exploration tenements acquired by non-government foreign investors.

In addition, acquisitions which are exempt from the entirety of the FATA, apart from the reviewable national security action regime, are also not subject to the reporting requirements under the New Register unless a FIRB approval was issued or the call-in power has been exercised in respect of such acquisitions. These include acquisitions that fall within the following exemption categories:

devolution by operation of law
acquisitions from Australian government bodies
passive acquisitions of less than 10% in an Australian land entity
acquisitions of land by Australian citizens who are not ordinarily resident in Australia
acquisitions pursuant to the easement exemption.

However, there are certain exemptions in the FATA which operate only as exemptions from the notifiable action and notifiable national security action regime, such as the pro rata rights issue exemption. Acquisitions made without FIRB approval, pursuant to such exemptions, can still trigger reporting requirements under the New Register regime, eg acquisitions of additional securities in an Australian land entity pursuant to a pro rata rights issue where the passive less than 10% exemption above does not apply.

How and what to report under the New Register regime

Foreign persons needing to report under the New Register regime must do so via the ATO's 'Online services for foreign investors' functions on the ATO website.

To access the online services, a foreign person must set up a myGovID and complete a one-off registration. Only once a foreign person has established access to the online services can they authorise a representative to make New Register reports on their behalf. Given that access to the online services is given to foreign persons on an individual basis, it appears that entities within a corporate group cannot use a single common login and that each reporting entity must establish their own access.

The ATO has published an instrument—Foreign Acquisitions and Takeovers (Register Notices) Data Standard 2023—setting out what must be provided in a New Register report. The information requirements include:

the reason for providing the register notice
the date the registrable interest was acquired, or the registered circumstance came or ceased to exist
the consideration paid for the registrable interest
the percentage of the registrable interest held or owned
for a registrable interest that is an interest in Australian land: (i) the land title details; (ii) the title holding type; (iii) the nature or type of the land (including whether it is commercial, residential or agricultural land); (iv) the current and intended use of the land; (v) the location of the land; (vi) the size of the land; and (vii) information about any relevant lease
for a registrable interest that is an interest in an Australian business or entity, or in the assets of an Australian business or entity: (i) the business or entity name; (ii) the business or entity identifier (such as the Australian Business Number or Australian Company Number); (iii) the relevant ANZSIC code; (iv) the main location of the business or entity; (v) the business structure and the industry sector of the business or entity; and (vi) the circumstances in which a significant agreement was entered into or terminated, or a constituent document was altered.

The Explanatory Statement to the Data Standard states that the Data Standard requires a person who has given a New Register notice to inform the Registrar of any required 'updates' to information held in the New Register. This suggests that changes in relevant information after a report has been made (eg changes to land title details, or a change to a company name) need to be reported. However, this is not supported by the wording of the Data Standard, which provides only that a person must inform the Registrar if they believe there are errors in, or corrections are required to, information held in the New Register. In other words, only if any information given to the Registrar was incorrect as at the time it was given.

Other things to consider

Multiple sources of reporting obligations

Whilst the objective of the New Register is to consolidate into a single database the interests that foreign persons hold in Australian land, water, entities, business and other assets in Australia, foreign persons should be careful to check all possible sources of reporting obligations and not be under the misapprehension that Part 7A of the FATA covers the field.

Whilst it is expected that FIRB approvals granted on or after 1 July 2023 will cease to have the same types of reporting conditions that are commonly included, reporting obligations in existing FIRB approvals and those granted before 1 July 2023 will still need to be complied with. In particular, an exemption certificate which contains a reporting condition in respect of acquisitions made in reliance on the certificate will still need to be complied with. Where such acquisitions occur on or after 1 July 2023, reports also need to be made under the New Register regime. It is unfortunate that the FATR was not amended to remove this duplication in reporting (on the other hand, reporting obligations under sections 98C, 98D and 98E cease to apply to acquisitions which are subject to the New Register regime).

Separately, a reporting obligation can still arise under section 98C, 98D or 98E of the FATA in respect of acquisitions that occur on or after 1 July 2023, eg in relation to certain acquisitions of equitable interests.

Increased compliance burden

The key differences between the New Register and the existing reporting framework include that:

the New Register will cover all acquisitions of freehold interests, and leasehold interests exceeding five years, in commercial land, and all acquisitions of interests in Australian land entities (unless the less than 10% exemption applies), irrespective of whether FIRB approval is required—whereas the current regime only captures such acquisitions if they are subject to a FIRB approval requirement, and even then, only if the relevant FIRB approval contains a reporting condition
the New Register covers not only acquisitions and disposals of relevant assets, but also changes in between, including changes in the nature of the relevant land in which a foreign person has an and changes of five percentage points or more of a foreign person's interest in a relevant entity or business
various non-foreign persons who own Australian assets will now be required to report their ownership of certain assets if and when they become a foreign person (which often arises due to changes in the direct or indirect ownership of a non-foreign person entity).

The above is expected to significantly increase the already onerous compliance burden on foreign investors.

Changes in foreign person status

Whilst many of the proposed notification triggers arise only where a person becomes aware, or ought reasonably to have become aware, of the relevant trigger, that will not be the case if the trigger arises where a person becomes or ceases to be a foreign person. This is problematic, as a person will not always know if and when they become or cease to be a foreign person, given the operation of the FATA tracing rules on changes in upstream ownership. This could be easily fixed in the FATR so that the notification trigger arises only where a person becomes aware, or ought reasonably to have become aware, of their change in foreign person status.

Civil penalties

Where a person fails to provide the requisite notification within the relevant 30-day period, the person could be subject to a civil penalty in the form of a fine. So long as the action occurs after 1 July 2023, it does not matter that it was undertaken under an agreement entered into before that date. Given the significance of the changes, it is hoped that during the first 12 months of the New Register's operation, the Government does not adopt a heavy-handed approach to compliance and enforcement, but only imposes any penalties in cases of egregious and wilful non-compliance—which was the approach taken by the Government in respect of significant changes to the Security of Critical Infrastructure Act 2018 (Cth).

If you wish to discuss how these changes may affect you, please contact us below.