Overseas Investment Amendment Bill

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1 Overseas Investment Amendment Bill Updates and answers to additional questions from the Finance and Expenditure Committee 11 June 2018 Prepared by the Treasury

2 Additional information on the Ministerial review of forestry changes During discussion of the Department Report (the Report) on Supplementary Order Paper No 19 (the SOP), the Committee asked for additional information on recommendation 37, which recommends changing the SOP to include provisions requiring the Minister to begin a review of the effect of the forestry changes within two years after the changes come into effect. The provision has now been drafted see new Schedule 1AA, clause 8 (page 48 of PCO 20769/14.0). This recommendation was prompted by an awareness that the proposed forestry changes, in particular the proposed introduction of the special benefits test and standing consents, represent significant innovations in the current design and operation of the Overseas Investment Act 2005 (OIA) screening regime. Therefore the purpose of the proposed provision is to ensure that the new arrangements are reviewed relatively quickly, while also providing sufficient time for insights to be gained from the operation of the new screening regime. The provision provides that the responsible Minister must initiate the review within 2 years of the commencement of the Bill. The requirement is framed broadly, so the final form and terms of reference of the review can be determined by the responsible Minister at the time. As is common with legislative review provisions, the draft provision includes a requirement that the Minister must present the report to the House of Representatives as soon as practicable after it has been completed.

3 Flow diagram of the forestry standing consent process Standing consents are available for use with the special benefits test see new Schedule 4, clause 3. This is summarised below:

4 Retirement villages and the standing consent process Committee members sought additional information on how retirement village operators or developers could take advantage of the standing consent provisions. Under the Bill, overseas persons will be able to obtain a standing consent from the relevant Ministers (or the Overseas Investment Office (OIO), under delegation) to develop a new, or expand an existing, retirement village on residential (but not otherwise sensitive) land under the increased housing pathway as long as: the investor test is met; and the applicant can be expected to meet the consent pathway s requirements (that is, to either create a new or expand an existing long-term accommodation facility) and the conditions of consent under that pathway, having regard to (for example): o the applicant s financial strength; o the applicant s (or their associates or individuals with control s) previous activity regarding the use of residential land (for example, their track record in developing/operating retirement villages); and o the applicant s (or their associates or individuals with control s) record of compliance with consent conditions. In addition to conditions that may be imposed as a requirement of obtaining consent under the increased housing pathway (for example, the non-occupation outcome), a number of conditions may be imposed on the standing consent itself. These include, for example: conditions on the land to be acquired under the standing consent (these could be based on area, location, or geographic type); conditions relating to development outcomes (for example, timeframes for completion); limits on the number of transactions that can be completed under the standing consent; and a use-by date for the standing consent itself. Finally, when completing a transaction using a standing consent, the developer must notify the OIO. A failure to comply with the conditions of consent or the criteria under which the consent was granted (for example, no longer having adequate financial strength) can result in a standing consent being modified or revoked, so that it cannot be used in future. Before this can occur, the consent holder will have the opportunity to make their case as to why modification/revocation should not occur. For existing retirement villages, where the overseas investor does not propose any expansion of the number of dwellings in the village, the overseas investors would need consent under the existing benefit test to acquire the land and could not use a standing consent. Finally, depending on the nature of the interest being acquired, overseas persons may need consent to acquire a dwelling in a retirement village to reside in. The commitment to reside in New Zealand pathway is available to these overseas persons to acquire one dwelling to reside in, and could be used with a standing consent. The standing consent would expire when a dwelling is acquired.

5 Update on non-occupation outcome drafting Our previous note to the Committee (15 May 2018) discussed the non-occupation outcome and application to relatives and others. It noted we were working with Parliamentary Counsel Office to replace the associates test with a general anti-avoidance provision. This drafting work is now complete and primarily contained in the definition of nonoccupation outcome in clause 17(3)-(4) of new Schedule 2. The following changes to the non-occupation outcome have been made since the discussion with the Committee on 16 May 2018: Clause 17(3) has been changed from preventing who can occupy the land for residential purposes to preventing who can occupy the land. Clause 17(3)(b) has been changed from any person (B) who (either alone or together with its associates) has a 25% or more ownership or control interest in A to any overseas person (B) who has a 25% or more ownership or control interest in A. Clauses (3)(c) to (e) and (4) are new. Previous clause 17(3)(c), which referred to any of A s or B s associates, and the reference to associates in 17(3)(b) have been removed.

6 5 hectare accumulation test for non-forestry profits à prendre The Report on the SOP discussed the accumulation test in relation to non-forestry profits à prendre in the context that this accumulation test would operate differently to the accumulation test for forestry rights. The recommendation in the Report noted the need to clarify how the land area of different regulated profits à prendre (other than for forestry rights) would be measured and aggregated together in order to determine whether a group of overseas persons had reached the 5 hectare screening threshold. Officials have undertaken that clarification in the Bill. The 5 hectare threshold is now stated as an exemption in new Schedule 3, clause 9. The Report also noted the accumulation test could be clarified to prevent overseas persons from deliberately leaving corridors of empty land between small (i.e. less than 5 hectares) profits to argue that they are not adjoining and therefore do not require screening. The Report also noted, however, that officials consider that deliberately leaving such corridors of empty land to circumvent OIA screening regime would be an offence under section 43 of the Act. When drafting the revision-tracked Bill, officials considered that section 43 of the Act would be sufficient to allow the OIO to take any necessary steps against an overseas person that deliberately left corridors of empty land ; further amendments to the SOP beyond the clarifications described above were not required.