Australia has a long history of international investment in agribusiness projects. International investors are a crucial part of the growth and success of Australian agribusiness projects and industry. Moulis Legal is very happy to provide this international investor guide to the Australian agribusiness industry. This guide is designed to provide international investors with an introduction to Australia’s agribusiness industry, to assist investors with investigating and preparing for their investment. Moulis Legal has a proud history of working with industry and investors in Australia and across Asia. Moulis Legal has the knowledge and experience to provide you with the necessary legal guidance to work towards making your investment into Australia a success. We invite you to contact us with your questions and we wish you all the best with your new investment.
Australia’s legal system
Three levels of Government to consider
Australia has a central national government, as well as individual governments responsible for governing and law making in Australia’s six states and three territories, and local governments responsible for managing cities and regions.
National (Commonwealth) Government
Australia’s national government is called the Commonwealth Government, or the Federal Government, and is located in Canberra, Australian Capital Territory. Under the Constitution of Australia, the Commonwealth Government is empowered to make laws in relation to a limited list of subject areas (generally, subject areas with national or international significance). There are a number of Commonwealth Government laws and regulations that impact on agribusiness in Australia, including international investment approval, company regulations, taxation laws and environmental oversight.
Australia has six states: New South Wales, Victoria, Queensland, South Australia, Western Australia and Tasmania. Each state has its own government, which under the Constitution of Australia is responsible for making laws in all areas not covered by the Commonwealth Government. If there is any conflict between a Commonwealth and state law, then the Commonwealth law will prevail. State laws have the most significant impact on agribusiness projects because the states own the land on which an agribusiness can be operated. Each state has its own regime for land tenure, land acquisition, stamp duty, and other associated issues.
Australia has three territories: Australian Capital Territory, Northern Territory and Norfolk Island. Each territory has its own government system.
Territory laws are subject to oversight by the Commonwealth Government. Territory laws can also have a significant impact on agribusiness projects because the territories own most of the land on which an agribusiness can be operated. Each territory has its own regime for land tenure, land acquisition, stamp duty, and other associated issues.
Across Australia local governments have responsibilities for the management of each city and region, with the oversight of the government of the State in which they are located. LOCAL governments are relevant to agribusiness projects in a number of areas, including the approval of certain property developments and the commercial use of certain local roads, facilities and services.
Council of Australian Governments (COAG)
The Council of Australian Governments (COAG) is an intergovernmental organisation in Australia which consists of:
- the Federal Government, represented by the Prime Minister;
- the State and Territory Governments, represented by the respective Premiers and Chief Ministers; and
- the Australian Local Government Association, represented by its President.
The role of COAG is to initiate and develop reforms of national significance, and reforms which require the cooperation of the federal, state, territory and local governments. COAG can impact on agribusiness projects as it works directly with various governments and communities to find suitable outcomes for a sustainable agribusiness sector, including the development of new industries, and the maintenance and improvement of existing industries. COAG’s Standing Council on Primary Industries seeks to strength coordination between States and Territories across the range of agribusiness industry sectors.
Regulatory systems in the agribusiness industry
Regulation of agribusiness in each state and territory is different, as land tenure and acquisition laws vary between jurisdictions. Furthermore, some states have special registration and reporting requirements which foreign investors must abide by.
Regulation of Australian agribusiness is complex and requires careful consideration of a wide range of factors. Investors need to understand the regulatory provisions relating to a number of factors including:
- financial controls and reporting
- securities on real estate and personal property
- insolvency and debt restructuring
- property ownership, land titles and the environment
- intellectual property protection (including registration, licensing, assignment, sale of rights, infringement, and enforcement)
- commercial contracts
- dispute resolution
This is a system whereby farmers can purchase supplies by providing a lien on the crops to the merchants who sell the crops (ie a right to keep the crops until the merchant or seller is paid). Crop liens are particularly important in an agribusiness context because they allow farmers to obtain certain products (such as fertiliser) on a “credit” that is paid for when the crops “come to fruition”.
Intergenerational farm transfers
Families who own farming businesses have certain stamp duty concessions available to them. These concessions may apply in the event that the farm is transferred to a family member of a younger generation. These concessions (and potentially exemptions) are intended to encourage younger members of farming communities to stay in the farming business. For an investor, these are particularly important in terms of overall budgeting and allocating finances.
Pastoral leases are a type of leasehold that allows Crown (Government owned) land to be used for commercial grazing of stock. A rent must be paid to the Government, and the lessee of the land must comply with the conditions of the lease. Pastoral leases can be revoked if the lease conditions are not met. State and Territory Governments are responsible for managing pastoral leases. Commonwealth legislation relating to native title, mining and native vegetation can also influence pastoral lease arrangements. Pastoral leases are affected by extensive and quite prescriptive legislation and regulation, and it is important to be thoroughly aware of the restrictions prior to making an investment decision.
Contracting out farm operations
This is a production system used in agribusiness which is operated in line with an agreement between a buyer and farmers. The agreement sets out the conditions for producing, selling and marketing farm products. In this system, the farmer agrees to provide the product in an agreed quantity, and in turn the buyer must be supplied with the product at the time demanded and to the requested standard of quality. The buyer agrees to purchase the products at an agreed price, and may also agree to support the production system in some way through either land preparation, or the provision of technical advice.
Choosing the best way to invest and setting it up correctly
Typically most agribusiness projects in Australia have been conducted using an Australian subsidiary. This involves compliance with relevant company and tax reporting laws. There are other, less widely used, investment vehicles such as partnerships, joint ventures, and trusts.
The table below describes some of the advantages and disadvantages of the different investment structures.
|A new Australian subsidiary is created, as a distinct legal entity from its foreign parent.There must be a minimum number of directors (one or two of whom are Australian residents), depending on whether the subsidiary is a proprietary or public company. The subsidiary must also have a registered office in Australia, and must be permanently situated in a nominated Australian state or territory.
|The subsidiary may be eligible for certain Australian company taxation concessions.Investors maintain full control and management of the project.
|Australian company and reporting laws (often onerous) must be complied with. If the business is listed on the ASX, the investor will need to satisfy the ASX Listing Rules and the takeover lawsof the Corporations Act 2001 (for example, market disclosure and shareholder approval requirements).Taxation, including CGT, stamp duty, payroll tax, and local taxes, can apply to the subsidiary.
|Agribusiness partnerships can take many forms. Typically, they involve an experienced investor with access to markets, finance and technology (ie fertilisers, cultivation systems, and improved plant varieties) working with members of farming communities who have access to appropriate land.
|A partnership allows each party (both
the investor and the community member) to easily share in the inputs and outputs of the project.
|Agribusiness partnership means that each party is obliged to provide their agreed input, with each party dependant on the other. This dependence is based on both parties being able to trust the other to uphold their responsibilities and obligations.A partnership is a separate legal entity for tax purposes and has the potential to create certain complications.The decision of one partner will bind the other, and each partner will be severally liable for the liabilities of the other partners.
|Incorporated joint venture
|This can be a versatile arrangement whereby two or more parties jointly run the agribusiness project as a business venture. Each party contributes to the business, either in capital, technology, know-how, and/or land/natural resource rights.Parties will establish a jointly owned, incorporated company which is co-owned by the parties. Each party holds shares in the company.The company has a constitution that sets out the operation of the company.
|This model largely insulates parties from personal liability (i.e. shareholders will not be exposed to the company’s creditors). The company can own property, enter into contracts, sue and be sued.
|The requirement for competitive parties to cooperate can sometimes create differences of opinion.Parties may be exposed to director’s liability actions. This is an implication of all directorships however different perspectives of the participants in the joint venture group require greater vigilance.
|Unincorporated joint venture
|Many agribusiness joint ventures are not incorporated. The joint venture is not a separate legal entity for taxation purposes, and the parties take interest and losses directly from the joint venture. This type of arrangement may only be used for a fixed period of time.The joint venture is a contractual arrangement.The joint venture contract defines the rights, interests and obligations of each party.
|This is a flexible model, and allows parties a higher level of control of their participation and interest.Each party receives and controls its share of the output from the project.
|The legal documentation can be complicated, and needs to be accurately completed, adhering to legal requirements to ensure that it qualifies as a joint venture (not a partnership).The flexibility in this model requires the consideration and negotiation of a large number of matters. This includes who has decision making power in the joint venture, how the joint venture is to operate, and the processes that would be involved in withdrawing from the joint venture.
|Managed Investment Scheme (MIS)
|An arrangement where numerous investors pool their funds for the common purpose of financing an agribusiness project. These arrangements are usually fixed for a specified time periodInvestors contribute money or money’s worth as consideration to acquire rights (interests) to benefits produced in the scheme.Agribusiness MIS generally falls into two categories: forestry and non-forestry. Forestry MIS encompasses plantation forestry projects which may be ready to
harvest in 8-25 years, thereby necessitating a long period between investment and return. Non-forestry MIS generally encompasses a range of horticultural activities, and typically the wait for a return on investment is less than that of forestry MIS.
|Many investors are deterred from investing in agribusiness because they don’t have the necessary knowledge, expertise or experience to
run a property. This investment vehicle relieves this burden.
|For non-forestry MIS, investors pay an upfront (typically large) fee for initial services, and also for ongoing services, rent and management of the project in later years.Investors must carefully consider a MIS that offers tax benefits, and carefully assess the commercial viability of the project as there is guarantee of commercial success.Members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or give directions).
Foreign investment approval
Navigating the notification and approval process
Foreign investment into Australia is overseen by the Foreign Investment Review Board (FIRB). The role of the FIRB is to examine proposals by foreign persons to undertake direct investment in Australia and to make recommendations to the Commonwealth Government on whether those proposals are suitable for approval under the Government’s policy. Certain types of investments require approval from the Treasurer.
Under the Foreign Acquisitions and Takeovers Act 1975, investment by foreign persons must be notified to the FIRB if the investment meets certain criteria. A foreign person includes a company owned by foreign individuals, a foreign state owned enterprise, as well as an Australian subsidiary of a foreign company.
Notification must occur prior to the investment taking place or the commencement of the new business.
FIRB notification and approval is required for foreign investments meeting the following criteria:
- All investments by foreign government investors. Government investors include businesses with single government ownership of 15% or more, businesses with combined government ownership of 40% or more or businesses otherwise controlled by a foreign government.
- Investments constituting a substantial interest in a business valued at over $248 million.
- Investments in urban land of $54 million or more,
- Investments in heritage property of $5million or more.
Investors should review each investment to assess whether a notification to the FIRB needs to be made. This review should include a review of all of the assets and rights that will be acquired as part of the investment.
Notifications to the FIRB are considered by the Treasurer. The Treasurer is required to make a decision within 30 days of receiving a notification, unless an interim order is made giving a 90 day extension.
The Treasurer may attach conditions to certain investments, which may be subject to negotiation. The Treasurer can prohibit an investment if it is believed to be contrary to the national interests of Australia.
Queensland foreign ownership of land register
Additional notification requirements apply to foreign investors acquiring land in Queensland. Investors that have an interest in land in Queensland must notify the Registrar of Titles not later than 90 days after the date of acquisition.
The following interests in land must be notified:
- an interest in land and any improvements on the land
- an interest in a licence or permit granted, or in a miner’s homestead, under the Land Act 1994
- an interest in a lease or licence granted under the Harbours Act 1955, unless the lease or licence is less than 1,000 square metres of the bed, shore or banks of the sea or of any harbour
Notification is not required for acquisitions of a security interest in land, an easement over land, minerals, crude oil, natural gas, petroleum or petroleum deposits. However, disposals of land must be notified to the Registrar. The Commonwealth Government is proposing a “National Foreign Ownership Register for Agricultural Land”, though the details of this registry have not yet been established. The Commonwealth Government is also considering lower thresholds for FIRB notifications (in the context of domestic national interest concerns) and higher thresholds for FIRB notifications (in the context of trade-related national interest concerns).
Duties and taxes
Three levels of taxes to consider
Taxes and duties will be applicable to agribusiness projects and investments. Taxes and duties are imposed by each of the three levels of government.
Primary industry also enjoys certain tax breaks and benefits.
Detailed consideration and calculation of the specific taxes and duties applicable to an agribusiness investment should be included in your investment analysis.
THE Commonwealth Government can impose customs and import duties, fuel tax, withholding tax, income taxes and goods and services tax.
State and territory governments
State and territory governments can impose stamp duty, land tax and payroll tax.
Stamp duty is imposed by each state and territory, and is calculated in accordance with each state and territory’s own laws and regulations.
Local governments collect rates in respect of land, which may be payable on certain agribusiness projects.
Health, safety and environment
A central part of each agribusiness project
Investments into agribusiness in Australia is impacted by Commonwealth, state and territory laws in relation to health, safety and environment.
Health and safety
Health and safety of employees working on agribusiness projects is strictly managed in Australia. Health and safety is governed by a national employment system and industry specific regulations.
Owners, managers, supervisors and employees involved in agribusiness projects must comply with strict health and safety rules relating to:
- risk identification
- reporting risks and incidents
- qualifications and safety training
- security and prohibited substances
- insurance and compensation
- compliance with safety audits and inspections
- compliance with various industry standards and/or codes of practice
Food regulation in Australia is overseen by the Department of Agriculture, Fisheries and Forestry (DAFF). DAFF works with other government agencies to ensure Australia’s food regulations protect public health and safety. In addition, Food Standards Australia New Zealand (FSANZ) is responsible for developing domestic food standards.
THE Australia New Zealand Food Standards Code (Code) is a collection of individual food standards. It is a criminal offence in Australia to supply food that does not comply with the Code. The Code deals with issues such as food hygiene and primary production of food. In relation to primary production of food, there are specific food safety requirements for the primary production and processing of poultry, and important safety measures must be implemented to prevent breach of the food safety hazards. Under this standard, for example, businesses must not only comply with the standard itself, but also demonstrate compliance. It is extremely important to be aware of the regulations surrounding the production of food prior to investing in an agribusiness.
Environmental assessment, approvals and compliance are critical to all agribusiness projects in Australia and must be carefully considered by investors.
Environmental assessment and approval is generally governed by state and territory laws and regulations. Depending on the size, significance and impact of each proposed agribusiness project, the state or territory regulator may require an environmental assessment to be undertaken in respect of:
- impact on wildlife and habitats
- impact on flora, vegetation and land
- air and noise pollution
- managing the use and protection of water resources
Assessments are prepared by project proponents, often in conjunction and consultation with the relevant regulatory body. On completion, the assessment is often subject to public consultation and members of the public may be able to lodge objections to certain aspects of the project or environmental assessment.
A determination regarding environmental approval of an agribusiness project is usually the responsibility of the relevant state or territory government minister. In some states and territories an appeals process is available in certain circumstances.
Water is a particular concern in certain Australian states and territories and is carefully managed. Water can be a critical element in an agribusiness project, and so water availability, use, management and protection regulations need to be carefully considered.
In addition to state and territory environmental regulation, the Commonwealth Government’s Department of Sustainability, Environment, Water, Population and Communities is concerned with environmental matters of national significance.
Certain agribusiness projects will require an environmental impact assessment and approval by the Commonwealth Government pursuant to the Environment Protection and Biodiversity Conservation Act 1999.
Access to land and infrastructure
Special rules can apply and should be investigated
Access to land and infrastructure is different across Australia, and investors should investigate how applicable regulations may impact on their agribusiness investment.
Access to land in Australia to undertake agribusiness activities are controlled by state and territory governments. Each state and territory is different.
Access to private land must be negotiated with the landowner, and may require the payment of compensation for:
- access to the land
- damages and improvements to the surface land – loss of use of the land
- loss of earning and enjoyment of the land
Access to land owned by the Commonwealth Government or a state or territory government is different depending on the nature of the land and where it is located. Special permission may be required for access to this land, and restrictions may be imposed for conservation, agricultural and cultural reasons.
Agribusiness projects require access to a range of physical infrastructure and natural resources such as land, water and farming equipment.
Australia has Commonwealth, state and territory regimes that impact on access to private and public infrastructure, such as ports, railways, and transport infrastructure.
The National Competition Council of Australia (NCC) is a research and advisory body established by agreement of COAG. Its main function is to make recommendations on the regulation of third party access to services provided by monopoly infrastructure. The NCC has the power to ‘declare’ certain public and private infrastructure facilities. If an infrastructure facility is ‘declared’ then third parties have the right to negotiate with the facility owner to gain access to the infrastructure facility.
Investors should investigate key infrastructure facilities that may be applicable or required for an agribusiness project and how the access regime may impact on the business.
Native title and cultural heritage
Investigations must be undertaken
Native title is the common law recognition of rights and interests of people of Aboriginal or Torres Strait Islander descent, arising pursuant to their traditional law and customs.
Australia has a national system for the recognition and protection of the traditional connection of Aboriginal people and Torres Strait Islanders to the land, and to areas and objects of cultural significance.
Most states and territories have regimes that complement the national system.
Entities involved in Australian agribusiness in a native title or cultural heritage area must obtain approval prior to undertaking certain activities. Approval usually requires direct engagement with the traditional owners of the land.
The rules surrounding native title and cultural heritage in Australia have changed in recent years and investors must ensure that an agribusiness project has complied with all relevant obligations.
Investors should undertake detailed investigations to identify whether native title and cultural heritage obligations exist in respect of an agribusiness project, and whether obligations have been satisfied.
Trade and customs
Restrictions on agricultural trade and customs considerations
Agriculture is an important part of the Australian economy. It is important to be aware of the trade implications involved with an agribusiness investment. Import tariffs are payable upon the importation into Australia of most products, depending on the classification of the product and the country from which the product is imported. Certain free trade agreements and tariff concession orders (TCO) may reduce liability. Some products may be subject to anti-dumping duties, countervailing duties, and duties arising from safeguard measures.
Australian Customs imposes certain restrictions on what can be imported into and exported from Australia. The Commonwealth Government, through Customs, controls the import of certain goods into Australia, either through an absolute prohibition, or a restriction.
Restrictions are placed on the export of goods, and certain laws and Australian Government policies prohibit the export of certain goods either absolutely or conditionally. Total prohibition applies to the export of protected wildlife, and some heritage items.
Quarantine restrictions may also affect the importation of certain products into Australia. DAFF undertakes biosecurity inspection and quarantine for animals, plants, animal or plant products arriving in Australia, and various other agricultural related products. It also inspects and certifies a range of agricultural products exported from Australia. It is important to be aware of the rules relating to quarantine and how they can impact on your agribusiness investment.
This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.
© Moulis Legal 2013