Australian tax update: a new register of foreign ownership and a AUD105 million tax fraud case
ATO Register of Foreign Ownership
The Australian Tax Office (ATO) has announced that a new Register of Foreign Ownership of Australian Assets (the Register) will be introduced to expand on the existing registers for water interests and agricultural or residential land. Commencing 1 July 2023, the Register will record foreign interests in a broader range of Australian land, entities, businesses and assets, with significant penalties for non-compliance.
The legislation governing the new register is Australia’s Foreign Acquisitions and Takeovers Act. This legislation has been in place since 2021 but the commencement date of 1 July 2023 for the Register was only recently announced. Draft regulations clarifying the scope of the Register were released for consultation on March 2 2023.
The new obligations are only expected to apply to events after the commencement date, so interests acquired before the Register commences will not need to be registered (unless the ATO makes additional regulations). However, existing obligations to register foreign interests in Australian water, agricultural or residential land and certain other assets still apply.
Broadly, from 1 July 2023, events that must be registered with the ATO may include:
- Acquisition of a freehold, long lease, mining or agricultural interest;
- Disposal of the relevant interest;
Ceasing to be a foreign person; or
- A decrease or increase of at least 5% of a foreign person's interest in the relevant entity or business.
“Foreign persons” includes individuals not resident in Australia, foreign government investors, corporations and other entities with substantial foreign ownership, including an Australian entity if it has sufficient direct or indirect foreign ownership.
The regime provides for exemptions for security interests taken by financiers, acquisitions from the government, acquisitions by foreign custodian corporations, compulsory acquisitions and passive investments of less than 10% in a land-rich entity.
There may be significant penalties for non-compliance. The penalty for failing to give a register notice on time in the correct form is currently set at AUD68,750 (approximately USD46,000), though this is expected to increase almost immediately after commencement.
Current ATO registers
The ATO already administers several registers, namely:
- The agricultural land and water registers - under which a foreign person who has a registrable interest in water or in agricultural land is required to register that interest; and
- The register of foreign-owned residential land - where registration requirements are imposed as part of the Foreign Investment Review Board approval conditions.
It is expected that the Register will amalgamate and expand these registers when it commences, with ongoing registration obligations.
Review of the managed investment scheme framework by Treasury
The government has announced that Treasury will be tasked with reviewing the managed investment schemes (MIS) regulatory framework. The MIS regime is a common investment vehicle frequently used in Australia by a wide range of investors.
The review will examine whether the existing regulatory framework is fit for purpose, identify potential gaps, and consider what enhancements can be made to reduce undue financial risk for investors. It will consider reform options, focusing on:
- Whether the thresholds that determine whether an investor is a retail or wholesale client remain appropriate;
- Whether certain MIS investments should be able to be marketed and sold to retail investors;
- The various roles and obligations of responsible entities and whether the governance, compliance and risk management frameworks for MIS are appropriate; and
- Interactions between Commonwealth and State laws when regulating real estate investments by MIS (including issues arising in relation to the failure of the Sterling Income Trust).
Other issues which will be subject to review include:
- Whether ‘investor rights’ for people who invest in MIS are appropriate;
- Liquidity requirements for MIS; and
- Whether an insolvency regime is required for MIS.
Although the scope of the review will not have a tax focus, and is not intended to cover the tax treatment of MIS and investors, certain aspects of the managed investment trust and attribution managed investment trust regimes rely on the Corporations Act definition of a managed investment scheme.
It is anticipated that Treasury will issue a consultation paper by mid-2023.
A 105 million tax fraud case
Four people have been found guilty by the Supreme Court of New South Wales in March 2023 for their roles in a syndicate alleged to have conducted a AUD105 million tax fraud over a three-year period.
The conspiracy involved the establishment of numerous sham payroll service entities to divert monies payable to the ATO as pay-as-you-go withholding tax and goods and services tax.
The court found Lauren and Adam Cranston, Dev Menon and Jason Onley guilty of conspiring to defraud the Commonwealth and conspiring to deal with the proceeds of crime valued at AUD1 million or more. The maximum penalty they face after being convicted of conspiring to deal in proceeds of crime valued at AUD1 million or more is 25 years’ imprisonment.
The article was previously published here.