This statement sets out the Minister’s reasons for recommending the exemption regulations in the Overseas Investment Amendment Regulations 2018 and why the Minister considered each exemption to be necessary, appropriate, or desirable.

Under the Act the Minister may recommend exemption regulations only if the Minister considers—

• that there are circumstances that mean that it is necessary, appropriate, or desirable to provide an exemption for any of the matters referred to in section 61B(a) to (c) of the Act; and

• that the extent of the exemption is not broader than is reasonably necessary to address those circumstances.

When considering whether to recommend that an exemption regulation be made, the Minister must have regard to the purpose of the Act: that it is a privilege for overseas persons to own or control sensitive New Zealand assets and that it is therefore appropriate for overseas investments in those assets to be made only after meeting a number of consent criteria and subject to prescribed conditions.

The Minister may also have regard to all or any of the factors set out in section 61E(2)(b) of the Act, including any other factors that seem to the Minister to be relevant to the circumstances.

This exemption would allow companies and other entities that are overseas persons and own sensitive assets to transfer the sensitive assets to different entities in a corporate group without consent, as long as the ultimate ownership and control of the sensitive assets by overseas persons does not increase. For example, under this exemption the creation of a wholly-owned subsidiary company interposed between the initial consent holder and the relevant sensitive assets would not require consent.

This exemption is for the matters referred to in section 61B(a) and (b) of the Act. It is minor and technical in nature and provides an exemption where compliance with the Act would be inefficient and unduly burdensome, but where the purpose of the Act can still be substantially achieved through the terms and conditions of the exemption.

I consider this exemption is appropriate and desirable because requiring overseas persons to obtain consent in these circumstances would be inefficient and unduly burdensome for affected overseas persons. This is because there is no increase in the ultimate ownership and control of the sensitive assets by overseas persons (having regard to the Act’s purpose and general requirements, and the factors in section 61E(2)(b)(i) and (ii) of the Act).

I further consider that this exemption is not broader than reasonably necessary because it is limited to situations where there is no increase in the ultimate ownership and control of the sensitive assets by overseas persons. The exemption only operates where the ownership and control by overseas persons is either unchanged, or is diminished because of increased ownership and control by non-overseas persons (New Zealand citizens and persons ordinarily resident in New Zealand). This reflects the fact that non-overseas persons never require consent under the Act. In circumstances where there is an increase in ultimate ownership and control of the assets by overseas persons, overseas persons would still be required to obtain consent according to the usual rules in the Act.

For those reasons the terms and conditions of the exemption also substantially achieve the purpose of the Act.

This exemption is to allow overseas persons to increase their degree of ownership or control in another person (P), such as a company, by acquiring additional securities in P without obtaining consent, so long as—

• the overseas person already has consent to own securities in P; and

• the overseas person is acquiring securities of the same type that they have already received consent to own (for example, an overseas person that owns ordinary shares in a company will only be able to use this exemption to acquire additional ordinary shares); and

• the transaction involves the acquisition of no more than 10% of all securities in each relevant class (for example, if the overseas person already has consent to own 55% of the company’s ordinary shares, the overseas person would only be able to increase its shareholding to 65% of the company’s ordinary shares); and

• the transaction does not result in the overseas person’s overall control interest reaching key control thresholds of 25, 50, 75, or 90% (for example, if the overseas person has consent to own 45% of the company’s ordinary shares, the overseas person could only use the exemption to acquire less than 5% further ordinary shares—that is, their total shareholding of ordinary shares remains below 50%); and

• the transaction occurs within 5 years of the overseas person receiving consent for the initial acquisition of securities in P.

This exemption is for the matter referred to in section 61B(c)(iii) of the Act—minor increases in ultimate ownership and control by overseas persons if consent has already been granted for those overseas persons to own or control sensitive assets.

I consider that this exemption is appropriate and desirable because, having regard to the Act’s purpose, the overseas person has already obtained consent to acquire securities in P and requiring them to obtain a new consent in these scenarios where there is only limited change in the ultimate ownership and control of P would be inefficient and unduly expensive.

This is especially so in cases where the overseas person has no control over the increase in their ownership or control interest in P. For example, if an overseas person does not participate in a company share buy-back and other shareholders do, the overseas person’s relative shareholding in the company would increase, which, without an exemption, could trigger the need for the overseas person to obtain consent.

I consider that this exemption is not broader than is reasonably necessary because the exemption is limited in the following ways:

• The transaction must not result in the overseas person’s overall control interest reaching key control thresholds of 25, 50, 75, or 90%. Passing those thresholds could respectively give the overseas person: negative control (such as being able, unilaterally, to prevent special resolutions of a company); majority control; ability, unilaterally, to approve special resolutions of a company; and the option to more easily complete a full takeover of a company:

• The exemption limits the additional ownership interest an overseas person can acquire without consent to no more than 10% of the securities in the relevant class. This means that obtaining greater ownership interests would still require the overseas person to demonstrate that allowing the further increase in ownership or control would provide additional benefits to New Zealand (if consent were to be obtained under the benefit to New Zealand test):

• Accordingly, there is limited increase in the ultimate ownership and control of the sensitive assets by overseas persons who already have consent (having regard to the Act’s purpose and general requirements, and the factors in section 61E(2)(b)(i) and (ii) of the Act):

• The exemption could be used only within 5 years of the consent being granted. This means that the overseas person would have passed the investor test in the Act (if it applied to the consent being obtained) relatively recently. Whereas over time an overseas person may change its character or composition and fail the investor test (after previously passing the test), this is less likely to occur relatively closely to when consent was granted. This condition therefore balances the need to obtain consent against imposing undue burden on overseas persons in situations where ultimate ownership and control of the sensitive assets has not materially changed.

This exemption is for the matter referred to in section 61B(c)(iv) of the Act—security arrangements that are entered into in the ordinary course of business. The term “security arrangement” is defined in section 6 of the Act as “an arrangement that in substance secures payment or performance of an obligation (without regard to the form of the arrangement or the identity of the person who has title to the property that is subject to the arrangement)”.

This exemption is to allow an overseas person to acquire 2 or more “permitted security arrangements”, or to acquire securities in a person that owns 1 or more “permitted security arrangements”, relating to sensitive land or fishing quota without obtaining consent. This would replace existing regulation 33(1)(ja).

Regulation 33(1)(ja) previously provided an exemption for the transfer of portfolios or bundles of security arrangements if the total value of consideration provided was $100 million or less. This effectively meant that relevant transactions over $100 million required consent and that this exemption could therefore not be used in respect of the acquisition of significant business assets (because the threshold for the screening of those assets is $100 million). However, because of the way that transaction size was measured in the regulations compared to the more detailed provisions in the Act, this outcome was not as clear as it could have been.

Consequently, I consider that providing such an exemption for acquiring “permitted security arrangements”, or interests in “permitted security arrangements”, in respect of sensitive land or fishing quota is appropriate and desirable, having regard to the Act’s purpose, because an overseas person holding a permitted security arrangement (given how that term is defined) is not likely to change the effective ownership and control of the secured asset (having regard to the factor in section 61E(2)(b)(i)) and have little impact on the secured asset (having regard to the factor in section 61E(2)(b)(iv)).

This is particularly so given that security arrangements of the nature covered by the exemption are typically traded as debts (like mortgages over residential property), without a genuine intention to use the security arrangements to acquire a controlling interest in the secured asset (and it is a requirement of the exemption that the acquisition is made in good faith and in the ordinary course of business).

Further, given that facilitating the trading of mortgages and other security arrangements is important to support access to finance on reasonable terms, the exemption is also desirable to avoid limiting overseas persons’ willingness to lend money to people acquiring property in New Zealand.

I consider that this exemption is not broader than is reasonably necessary to address those circumstances, because of the following limitations within the exemption:

• The transaction must be entered into in good faith and in the ordinary course of business with no intention of using the security arrangement to acquire sensitive land or fishing quota without consent (instead, the interest is taken as security that secures the performance of the obligations associated with that security arrangement). This means that under the terms and conditions of the exemption, for example, an overseas person could not (without consent) intentionally acquire security arrangements securing debts with debtors that are struggling to meet their obligations and then enforce the security arrangements in order to acquire the secured assets:

• The exemption only removes the requirement for consent under section 10(1)(a) of the Act (for an overseas investment in sensitive land) and under section 57B of the Fisheries Act 1996 (for an overseas investment in fishing quota). The exemption applies regardless of the value of consideration (that is, the $100 million cap in the current regulations has been removed), but the exemption cannot be relied on to avoid consent for an overseas investment in significant business assets. Relying on the Act’s provisions regarding whether there is an overseas investment in significant business assets is more consistent with the policy of the Act (than the regulations containing a different measure of the size of a transaction):

• Where the exemption is being used to acquire securities in a person (A) that owns 1 or more “permitted security arrangements”, the exemption from consent only applies in relation to A’s permitted security arrangements, and not any other sensitive assets A may own.

This exemption is for the matter referred to in section 61B(c)(v) of the Act—relationship property as defined in section 8 of the Property (Relationships) Act 1976.

The exemption would allow a couple (married, civil partnerships, or de facto), where one partner is an overseas person and the other is not, to use a company to acquire property without consent, as long as—

• the property is being acquired by a company registered under the Companies Act 1993 (so is a New Zealand incorporated company); and

• the company making the acquisition is wholly owned and controlled by the couple as relationship property under the Property (Relationships) Act 1976.

This effectively extends an existing exemption that allows couples to acquire sensitive assets (either directly or through the acquisition of securities) as relationship property without the overseas person in the couple requiring consent. I have chosen to first provide reasons for the existing exemptions, then the reasons for the proposed extension.

First, I consider that the existing exemption, which allows couples to acquire sensitive assets as relationship property without the overseas person in the couple requiring consent, is appropriate and desirable for the following reasons:

• the non-overseas person (New Zealander) in the couple would not require consent to acquire sensitive assets by himself or herself; and

• relationship property is governed by the Property (Relationships) Act 1976 and is underpinned by the principle that both partners/spouses have an interest in relationship property; and

• not providing such an exemption would place New Zealanders that are in a relationship with an overseas person at a disadvantage when seeking to acquire sensitive assets relative to if they were not in a relationship or were in a relationship with a non-overseas person. Without an exemption, New Zealanders in relationships would face the burden of not being able to acquire some property in the usual way (that is, as relationship property) without their partner or spouse obtaining consent; and

• the overseas person partner/spouse is holding his or her interest in sensitive assets with a New Zealander and as relationship property affected by the Property (Relationships) Act 1976. Having regard to the factor in section 61E(2)(iv) (about the extent of time an overseas person is likely to have ownership or control of a right or an interest, for what purpose, and the likely impact on the sensitive asset of that overseas ownership or control), and the Act’s purpose, I consider it is not appropriate and desirable to require the overseas person partner/spouse to obtain consent in these circumstances.

I consider that this current exemption is not broader than necessary. This is because of its terms and conditions and because to access the exemption an overseas person would need to enter into a verifiable marriage, civil union, or de facto relationship with a New Zealander. If the overseas person entered into a marriage or civil union for the purposes of evading the Act, then it would be an offence under the anti-avoidance provision of the Act (section 43). The potential consequence of these types of offences include the court ordering the overseas person to dispose of the property. Furthermore, the cost and effort of entering a marriage or civil union, ending it, and dividing relationship property also provide a barrier to entering into a marriage or civil union for the purposes of evading the Act.

Second, I consider that this exemption should be expanded. While the existing exemption allows a couple to acquire, without consent, sensitive assets directly, or securities in a company (or other person) that already owns sensitive assets, it is not clear that a company owned by the same couple could acquire the same sensitive assets (where the shares in the company are relationship property) without consent. This is despite the fact that in both scenarios the ultimate ownership and control of the sensitive assets is the same.

Consequently, I consider it is appropriate and desirable, having regard to the Act’s purpose, to amend the exemption to ensure that when a company wholly owned by a couple acquires sensitive assets it does not require consent. It would be inefficient and unduly burdensome to require the company in such circumstances to obtain consent.

I further consider that the extension to the exemption is not broader than is reasonably necessary to address those circumstances. This is because the exemption could be used only by companies incorporated in New Zealand that are wholly owned by the couple as relationship property, rather than companies that are, for example, only partly owned by the relevant couple. In those circumstances, while it is the company acquiring the legal interest in the property, the couple, through the company, have ultimate control of, and the beneficial entitlement to, the property.

This exemption will allow existing forestry rights to be replaced with new forestry rights on the same key terms without obtaining consent, such as when a forestry right is sub-divided into 2 new, separate forestry rights (but the owner of both new forestry rights is the same as the owner of the original forestry rights, or is closely related). At the same time, the duration of the forestry rights could be extended by no more than 3 years from the original consented duration.

The exemption is for the matters referred to in section 61B(a) and (b) of the Act. It is minor and technical in nature, and provides an exemption where compliance with the Act would be inefficient and unduly burdensome, but where the Act’s purpose can still be substantially achieved through the terms and conditions of the exemption.

I consider that this exemption is appropriate and desirable for the following reasons:

• having regard to the Act’s purpose, the owner of the forestry rights would have already obtained consent to acquire the right (or been exempted or not required consent at the time) and taking replacement forestry rights does not change the level of overseas ownership or control of the interest in land (having regard to the factors specified in section 61E(2)(b)(i) and (ii) of the Act); and

• while the new forestry rights are a new interest in land that could technically re-trigger the Act’s requirement to obtain consent, it would be inefficient and unduly burdensome to require additional screening; and

• if any of the terms and conditions of the new forestry rights were changed in the ways allowed by this exemption (discussed below), such changes would not on their own require consent in cases where consent had already been obtained for the original forestry rights.

I also consider that this exemption is not broader than is reasonably necessary for the following reasons:

• the exemption only allows for forestry rights to be replaced on essentially the same terms as the original forestry rights, specifically—

  • the new owner of the forestry rights must be the same person or a closely related person, with a 95% relation rule (as a new overseas person acquiring a 5% interest in the forestry rights owner would only require consent if its acquisition resulted in the rights owner becoming 25% or more owned or controlled by overseas persons—but if that was the case then the rights owner would have previously not been an overseas person so would probably not have required consent for the original forestry rights); and

  • the duration must be the same, shorter, or extended by no more than 3 years from the original duration (as the Act only screens interests in land of 3 years or longer); and

  • the rights must be over the same geographic area of land or a sub-set within it:

• conditions of the consent for the original forestry right will be carried over as conditions of the new forestry rights, and there can be no changes to other terms and conditions of the forestry rights that would prevent compliance with those consent conditions:

• the new forestry rights cannot contain new terms and conditions that would have changed the exercise of discretion by the relevant Ministers (or the regulator under delegation) to waive certain requirements of obtaining consent under the special benefits test (that is, when consent was given in accordance with section 16A(4)).

For those reasons, the terms and conditions of the exemption also substantially achieve the purpose of the Act.

Similar to new regulation 54, this exemption will allow existing non-forestry profits à prendre to be replaced with new profits à prendre on the same key terms without obtaining consent.

The exemption is also for the matters referred to in section 61B(a) and (b) of the Act.

I consider this exemption to be appropriate and desirable because—

• having regard to the Act’s purpose, the owner of the profit à prendre would have already obtained consent to acquire the profit à prendre (or not required consent at the time) and taking a replacement profit à prendre does not change the level of overseas ownership or control of the interest in land (having regard to the factors specified in section 61E(2)(b)(i) and (ii) of the Act); and

• while the new profit à prendre is a new interest in land that could technically re-trigger the Act’s requirement to obtain consent, it would be inefficient and unduly burdensome to require additional screening; and

• if any of the terms and conditions of the new profit à prendre were changed in the ways allowed by this exemption (discussed below), such changes would not on their own require consent in cases where consent had already been obtained for the original profit à prendre.

I also consider that this exemption is not broader than is reasonably necessary for the following reasons:

• the exemption only allows for profits à prendre to be replaced on essentially the same terms as the original profits à prendre, as set out in the first bullet point of paragraph 33 above:

• in addition, the subject matter of the profit à prendre must be the same or substantially the same:

• conditions of the consent for the original profit à prendre will be carried over as conditions of the new profit à prendre, and there can be no changes to other terms and conditions of the profit à prendre that would prevent compliance with those consent conditions.

For those reasons, the terms and conditions of the exemption also substantially achieve the purpose of the Act.

Under this exemption, an overseas person that holds the freehold estate in land can also acquire any other interest in that land (for example, forestry rights) without consent.

The exemption is for the matters referred to in section 61B(a) and (b) of the Act. It is minor and technical in nature, and provides an exemption where compliance with the Act would be inefficient and unduly burdensome, but where the purpose of the Act can still be substantially achieved through the terms and conditions of the exemption.

I consider this exemption is appropriate and desirable because, having regard to the Act’s purpose, the overseas person would have already obtained consent (or been exempted or not required consent at the time) to acquire the freehold estate in the land. As such, requiring additional consent to be granted to take a lesser interest in the relevant land would be inefficient and unduly burdensome on the overseas person.

I consider this exemption is not broader than necessary given that this exemption will only apply where the overseas person who acquires the new interest is the single legal and equitable owner of the freehold estate. For that reason, the terms and conditions of the exemption also substantially achieve the purpose of the Act.

This exemption allows a foreign government to acquire residential (but not otherwise sensitive) land for the purposes of a mission or consular post, as a diplomatic or consular residence, or a combination of those things.

The exemption is for the matter referred to in section 61B(c)(i) of the Act—interests in land to be used for diplomatic or consular purposes.

I consider it appropriate and desirable, having regard to the the Act’s purpose, that such transactions be exempted from the requirement for consent to support foreign governments (who will always be overseas persons under the Act) to have a diplomatic or consular presence in New Zealand. Also, having regard to the factor in section 61E(2)(b)(iv), the use of residential land for diplomatic or consular purposes is unlikely to have a major physical impact on the land, because using land as embassies, high commissions, or diplomatic residences is similar to using land for residential purposes.

I consider this exemption is not broader than is reasonably necessary to address those circumstances because of the following limitations within the exemption:

• the exemption only removes the requirement for consent under section 10(1)(a) of the Act (for an overseas investment in sensitive land), and only applies to residential (but not otherwise sensitive) land; and

• a foreign government can only acquire land using the exemption if it has a diplomatic presence in New Zealand, using the land for the purposes of a mission or consular post, as a diplomatic or consular residence, or a combination of those things.

This exemption would allow certain charitable entities conducting activities within New Zealand to acquire residential (but not otherwise sensitive) land without consent. To qualify for the exemption, the charitable entity must be registered under the Charities Act 2005 and also have donee status under the Income Tax Act 2007 (but not through the Schedule 32 list). This means that the charity’s funds must be applied wholly or mainly within New Zealand, or that the charitable entity has assets and activities based in New Zealand.

The exemption is for the matter referred to in section 61B(c)(ii) of the Act—persons registered as a charitable entity under the Charities Act 2005.

I consider that this exemption is appropriate and desirable, having regard to the Act’s purpose, for the following reasons:

• There are special rules constraining the ownership and control interest that a charitable entity has over its assets. In particular, for a body to be a registered charitable entity, then either the body is not carried on for the private pecuniary profit of any individual (so that if the body is wound up any remaining assets must be distributed to other charities or charitable purposes, and not back to any donors to the charity), or is a trust in relation to which an amount of income is derived by the trustees in trust for charitable purposes (section 13 of the Charities Act 2005). Consequently, in term of ownership, to the extent that any individuals could be said to have beneficial entitlement to, or enjoyment of, the assets of a charitable entity, it would be the people within New Zealand (predominantly New Zealanders)—that is, those that benefit from the charity’s activities:

• Further, in terms of control, the charitable entity must deal with assets consistently with its charitable purposes, and have donee status (including in the case of trusts), the charity’s funds must be applied wholly or mainly within New Zealand or the charity must have assets and activities based in New Zealand. Consequently, irrespective of whether the charity is controlled by overseas persons (with that control being constrained by New Zealand charities law), people within New Zealand (predominantly New Zealanders) effectively have beneficial entitlement to those assets. The Act is only concerned with the interests overseas persons have in assets:

• Finally, charities are most likely to be “overseas persons” under the Act not because of overseas persons having any ‘ownership’ interest in the charity’s assets, but instead because—

  • overseas persons control the composition of the governing body of the charity or have voting power over the charity—as explained above, the control of the charity’s assets is constrained by charities law; or

  • the charity is incorporated or organised under the law of another country—in any such cases where that charity nonetheless had donee status, its New Zealand activities would be regulated by the New Zealand charities law discussed above.

Consistent with the factors listed above, I consider that requiring charitable entities to obtain consent would be unduly burdensome and an inefficient use of the charitable entity’s assets, which are for the benefit of New Zealand-focused operations.

I consider this exemption is not broader than reasonable necessary to address those circumstances for the following reasons:

• The exemption would only apply to charitable entities with donee status under the Income Tax Act 2007. That is, broadly,—

  • societies, institutions (whether public or private), associations, organisations, and trusts (whether public or private) that are not carried on for the private pecuniary profit of an individual but rather apply their funds wholly or mainly to charitable, benevolent, philanthropic, or cultural purposes within New Zealand; and

  • community housing entities operating in New Zealand under New Zealand tenancy law; and

  • tertiary education institutions and Boards of Trustees constituted under Part 9 of the Education Act 1989 (which will be operating in New Zealand):

• The exemption would not apply to charitable entities listed in Schedule 32 of the Income Tax Act 2007. The Schedule 32 list allows charitable entities that do not meet those tests above (from section LD 3(2) of the Income Tax Act 2007) to still obtain donee status. That is, those charitable entities are not required to apply their funds wholly or mainly within New Zealand, or have assets and activities based in New Zealand, so cannot use the exemption.

I recommend that “TrustPower Limited” be deleted from Schedule 4 of the principal regulations. This deletion is at the request of the company and means that TrustPower Limited will no longer get the benefit of the exemptions in regulations 34 to 36. This will reduce the number of persons that could rely on those exemptions, so I consider it is appropriate as a technical matter and having regard to the Act’s purpose.

I recommend that the following minor or technical amendments be made to existing exemptions, or that the following existing exemptions be replaced with only minor or technical amendments:

• the exemptions contained within existing regulation 33 be split out into topic groups in new regulations 37 to 46, and the existing exemption contained in regulation 33(1)(p) be inserted into new regulation 38 (see in particular new regulation 38(2)(c)(i)):

• the existing regulations’ language of “securities or rights or interests in securities or property” be replaced with the term “property” (which is defined in section 6 of the Act) to simplify the text:

• existing regulation 36AA of the regulations be amended to clarify that it does not apply to forestry rights and non-forestry profits à prendre, as those interests in land are subject to the new exemptions in new regulations 54 and 55 respectively. Existing regulation 36AA includes an exemption from screening for overseas persons acquiring sensitive leasehold land as a result of the “re-granting” of a lease as long as the new lease is on essentially the same terms and will expire within 20 years of the commencement of the lease for which consent was first granted:

• example 2 in regulation 36B(3) be amended so that “custodial property” is replaced with “custodial securities”, to correct a typographical error.