FIRB register update: Agricultural land and water rights – Foreign ownership continues to grow

The Foreign Investment Review Board (FIRB), in conjunction with the Australian Taxation Office (ATO), recently released the annual reports on the ‘Register of foreign ownership of agricultural land’ (Agricultural Register) and ‘Register of foreign ownership of water entitlements’ (Water Register) as at 30 June 2021. 

The reports publish aggregate statistics of foreign ownership on the Agricultural land register and Water register, respectively, and includes registrations made by foreign persons since the establishment of the relevant register to the end of the most recent financial year. 

The registers were established pursuant to the Register of Foreign Ownership of Water or Agricultural Land Act 2015 (Cth) (Register Act).  In accordance with the Register Act, the ATO is responsible for administering the registers.  The purpose of the registers is to provide greater transparency about the level of foreign ownership of Australia’s land interests. 

Given the interconnected nature of the registers,¹ it is appropriate to consider the reports together. 

Different treatment for the Agricultural sector

The rules that apply to holders of agricultural interests are similar to the treatment of Australian assets in sensitive areas, which is significantly different compared to other types of Australian land.  This reflects the political significance placed on the agricultural sector. 

Foreign persons proposing to acquire interests in agricultural assets will be subject to, among other things, lower monetary thresholds, tighter restrictions and more onerous approval and reporting conditions.  Further, agricultural land is given quite an expansive definition.² This is designed to ensure that the FIRB rules facilitate foreign investment in a manner which protects Australia's national interest.

The registers

Since the registers were established,³it has been mandatory for foreign persons to notify the ATO of the following:⁴

1. its freehold interests in agricultural land and/or a leasehold interest or a right to occupy agricultural land under a lease or licence whose term, including any extension or renewal, that is likely to exceed five (5) years.  A foreign person must notify the ATO within 30 calendar days after the acquisition or disposal of those holdings or the person becomes a foreign person;
2. its holdings of registrable water entitlements and contractual water rights (both of which, are defined terms in the Act).  A foreign person must notify the ATO within 30 days after the foreign person started to hold that entitlement or right; and
3. any acquisitions or disposals of registrable water entitlements and contractual water rights where the remaining term of the contractual water right (including any extension or renewal) is reasonably likely to exceed five (5) years.  This includes any changes to the volume of water the subject of the registrable water entitlement or contractual water right.  A foreign person may notify the ATO at any time during the financial year in which such event(s) occurred, but by no later than 30 days after the end of that financial year.  

Notifications require a significant volume of information and so priority should be given to timely reporting.  The Register Act does not provide the ATO (or any other body) the power to grant exemptions from the notification requirements or to extend the 30 day notification periods.

Failure to adhere to the reporting requirements set out in the FIRB approval conditions are treated as breaches of law, and non-compliant foreign persons risk incurring significant penalties, including infringement notices, civil and criminal penalties, unwinding of the transaction and/or divestment of the interest acquired.

Key findings of the reports

Agricultural Register

The report advises:

• The estimated proportion of agricultural land with a level of foreign ownership at 30 June 2021 is 14.1%, which represents an increase of 0.3% compared to the prior year.  However, the total area of Australian agricultural land with a level of foreign ownership has decreased by 0.1% to 52.985 million hectares as at 30 June 2021.  This is explained by a decrease in the level of land used for agricultural purposes compared to the prior year.⁵
• The Northern Territory (3.0%), South Australia (0.5%) and Queensland (0.5%) each experienced decreases in the amount of foreign held agricultural land as compared to the previous year.  The other states and territory increased the net amount of foreign held agricultural land.  The most significant increase was seen in agricultural land used for crops.
• When the total foreign held freehold and leasehold interests are aggregated, Chinese nationals continue to have the largest holding of total Australian agricultural land, being 2.3%.

Water Register

The report advises:

• As at 30 June 2021, the level of foreign held water entitlements has increased by 0.1% to 11.0% as compared to the previous year.
• The increase in the total volume of water entitlements on issue reflects an increase in the number of water plans resulting in more water use progressively being brought under water management regimes.  It does not mean more water is being made available for use each year.
• Except for Queensland (with decrease of 4.3%), there was an increase in the amount of foreign held water entitlement in each Australian state as at 30 June 2021 when compared to the previous year. 

Lavan comment

Foreign capital plays an important role in the growth of all Australian sectors.  The reports show that, in the midst of an uncertain global economy, foreign investors maintain an appetite for Australian assets, in particular, agricultural interests. 

Given the sensitive nature of the agricultural sector, foreign persons that have or wish to acquire agricultural interests should be alive to the FIRB approval and reporting requirements.

We regularly advise clients on FIRB compliance issues in a range of asset classes.  If you require any assistance on these matters, please do not hesitate to contact us.

Acknowledgement

James Hoey, one of the law graduates in the Property and Leasing team, provided valuable input in the preparation of this article.