A policy win three years in the making

At minutes to midnight, the Property Council finalised three years of discussions with the Federal Government on the implementation of the US Government’s Foreign Account Tax Compliant Act (FATCA).

Belinda Ngo, the Property Council’s new executive director for International and Capital Markets was sweating an email from the Treasury about how the Australian Government would recognise the activities of Australian listed property trusts (AREITS) as part of FATCA.

“We have been negotiating on FATCA for three years. It was vitally important we got it fixed and the deadline set by law was 1 July.  The signed advice from Treasury made it on 30 June, just as the deadline was about to expire. This was a must-have announcement for the industry and we were sweating it. In the end, this was a win for common sense and a win dealing with an incredibly complex issue which had potentially massive implications for the AREITS”, said Ngo.

At the heart of the complexity was that the FATCA regime was fundamentally unworkable in terms of Australia’s regulatory structure. The FATCA regime requires Australian financial institutions to identify and report US investors to ensure they are meeting their US tax obligations.

A narrow interpretation of the FATCA rules would have required AREITs to identify all US investors via a pre-trade requirement – that is, before an investor acquires units. This is simply not possible under Australia’s share trading framework, given the role of brokers.  At worse, this would have forced AREITs to close existing investor accounts or refuse to on-board new equity investors.

“We had to work through not one, but two regulatory regimes. I pay tribute to the Treasury and the ATO who had to reconcile our international obligations with the day-to-day experiences of the Australian market place”, says Ngo. 

“This is a significant win. It’s not going to make life easier, but it certainty will ensure life doesn’t get significantly worse for the AREITs. The 1 July deadline also coincided with the start date of Common Reporting Standard regime (CRS), which gives rise to similar implementation issues for AREITs. The good news is that both the Treasury and ATO support FATCA and CRS reporting on a pre-trade or post-trade best endeavours approach.”

Ngo says the Property Council’s International and Capital Markets Division has been in contact with its members providing them with details about how the Treasury decision will impact them and what they must do to comply with FATCA as well as CRS.