Telstra Corporation (Ownership—Interests in Shares) Regulations 2018

Ownership provisions are the rules in the Schedule to the Act that determine whether a foreign‑ownership situation exists. They define “stake”, “foreign person”, “associate”, and “interest in a share”, and set the percentage thresholds. The Regulations do not restate those thresholds but supply the catalogue of interests that must be ignored when applying the calculations.

Prescribed kind of interest in a share is the core concept in Part 3. An interest that meets the description in sections 11 to 18 and is held by a person who satisfies the corresponding conditions is “disregarded” for the ownership provisions. The interest is not nullified; it simply does not count toward any person’s stake. This avoids situations where the same economic exposure is counted multiple times because it passes through intermediaries.

Prescribed person is the holder of the interest. The Regulations require that holder to meet certain criteria (e.g. not a foreign person, no discretionary voting authority, no control by a foreign person). Both the interest and the person must satisfy the conditions for the disregard to operate.

Substantially Australian investment fund is defined in section 11(3). It is an investment fund (including a unit trust, life insurance statutory fund, or superannuation entity) in which, in the reasonable opinion of the interest‑holder, no more than 40% of capital or distributable income is held by foreign persons, or (for life insurance) no more than 40% of policyholder liabilities are owed to foreign persons. This is a self‑assessment safe harbour; if the holder’s opinion is reasonable, the fund qualifies and the holder’s interest in Telstra shares is disregarded. If the opinion is unreasonable, the disregard does not apply and the interest may be attributed to the fund’s foreign beneficiaries, potentially pushing Telstra over the cap.

Beneficial interest is defined expansively in section 6. It includes joint interests, prospective interests under contracts to purchase, options to acquire, and other rights to have a beneficial interest transferred. The only exclusion is a bare security interest held by a moneylender in the ordinary course of lending (section 6(3)). This broad definition matters when determining whether a fund is substantially Australian, because the 40% test looks at beneficial interests held by foreign persons.

Unacceptable foreign‑ownership situation is defined in the Act but implemented through Part 2. The Regulations give the Minister power to direct the Telstra successor company to notify the Minister if the company has reason to believe such a situation may exist. The notice must include the grounds for belief, steps taken to verify the situation, and steps intended to remedy it. This is a reporting obligation, not a prevention mechanism.

Associate (used in sections 16 to 18) is defined in the Schedule to the Act. The Regulations create special disregards for Australian associates of foreign persons, provided the Australian associate is not controlled by, does not act in concert with, and is not accustomed to act in accordance with the directions of the foreign person. Section 17 goes further: even if the Australian associate is controlled by a foreign person, the interest may be disregarded for the purposes of counting an “irrelevant associate’s” stake if the primary holder’s interest is already counted for the foreign person. Section 18 prevents double‑counting within a group under subclause 11(3) of the Schedule.

The primary entity affected is the Telstra successor company (currently Telstra Group Limited). It bears the information‑giving obligations under Part 2. The company must have systems to identify when there is reason to believe an unacceptable foreign‑ownership situation may exist, and must respond to Ministerial directions and notices within defined time frames (minimum 14 days). If the company fails to comply, it faces no direct penalty under these Regulations (penalties are under the Act), but non‑compliance may trigger enforcement action by the Minister under the Act.

Trustees, managers, custodians, and depositaries of investment funds are directly affected by section 11. To benefit from the disregard, they must form and document a reasonable opinion that their fund is “substantially Australian”. This imposes a compliance cost: the fund must have processes to monitor beneficial ownership by foreign persons, especially if the fund has a broad or shifting investor base. The 40% threshold requires continuous monitoring, not just a one‑off assessment. Fund managers who fail to make the assessment, or who make an unreasonable assessment, risk having their Telstra interests attributed to foreign beneficiaries, which could push those beneficiaries over the individual 5% cap or contribute to the aggregate 35% cap. Life insurance companies and superannuation trustees have similar obligations for statutory funds and superannuation entities.

Custodians, nominees, and clearing agencies (section 12) are affected. Their interests in Telstra shares are disregarded only if they hold no beneficial interest and have no discretionary voting authority. Many institutional custodians in Australia operate under these conditions, so the Regulations effectively codify market practice. However, if a custodian exceeds its role (e.g. exercises discretionary voting without instructions), the disregard falls away and the custodian’s interest counts, potentially creating attribution problems.

Brokers (section 13) are affected similarly. A broker’s interest is disregarded only if it arises solely from acting on a client’s express instruction in the ordinary course of business, and the broker holds no beneficial interest and no discretionary voting authority. A broker that holds shares in its own name as a principal cannot rely on the disregard.

Indirect interest‑holders (section 14) are affected: a person whose interest exists solely because the person is a shareholder in a company (other than a Telstra successor company) that is not a foreign person under the Foreign Acquisitions and Takeovers Act 1975 gets its interest disregarded. This prevents upstream corporate structures from causing inadvertent foreign attribution. The condition requires the intermediate company to be non‑foreign by the stricter FATA test, not just the Act’s test.

Telstra successor company employees (section 15) participating in employee share plans benefit from the disregard if they are not foreign persons, not controlled by a foreign person, not acting in concert with a foreign person, and not accustomed to act on a foreign person’s directions. This is a typical exemption for employee equity plans.

Australian associates of foreign persons (sections 16-18) are affected in nuanced ways. Section 16 gives a full disregard to Australian associates who are independent of the foreign associate. Section 17 gives a limited disregard: the interest is still counted for the primary holder and for any foreign person who controls or directs the primary holder, but it is not counted again for an “irrelevant associate”. Section 18 prevents double‑counting within a group that includes the interest‑holder but where the interest‑holder is not a group member under subclause 11(3) of the Schedule. These provisions reduce the risk of multiple counting across related parties, but require careful legal analysis of control, concert, and accustomed‑to‑act relationships.

Duty of the Telstra successor company to report suspected unacceptable foreign‑ownership situations. Section 8(1) imposes a duty: if the Minister has given a direction to do so, and the company has reason to believe an unacceptable foreign‑ownership situation may exist, the company must give written notice to the Minister. The Minister’s direction can specify circumstances, manner, and time (minimum 14 days after direction). The notice must include the reason for belief, steps taken or intended to verify the situation, and steps intended to remedy it if verified. This is a continuing obligation, not a one‑off; the company must keep monitoring.

Duty to respond to Ministerial information notices. Section 9 gives the Minister power to require, by written notice, that the Telstra successor company give information about an ownership matter. The company must comply within the time specified (minimum 14 days) or, if no time is specified, before the end of 14 days after receiving the notice. The information can be required in a particular manner. There is no explicit ground for refusing on the basis of legal professional privilege or self‑incrimination; the Regulations are silent on that, so the Act’s general provisions may apply.

Right of the Minister to direct and to demand information. The Minister’s direction under section 8 is a gateway for the reporting duty. The Minister also has a free‑standing power under section 9 to require information about any ownership matter. This is not limited to suspected breaches; it can be used for routine monitoring or investigation. The Minister does not need to suspect a breach. The power is broad but is exercised by written notice, creating a formal record.

Right of interest‑holders to have their interests disregarded under Part 3, provided the conditions are met. This is not a right in the sense of a claim against the Minister, but a statutory direction to the person calculating stakes to ignore the interest. The interest‑holder does not need to apply for the disregard; it operates automatically if the facts exist. However, proving that the facts exist may require the interest‑holder to maintain records (e.g., proof that a fund is substantially Australian, or that a broker had no beneficial interest). If the Minister later disputes the disregard, the burden of showing it applies falls on the person relying on it.

Duty of investment fund managers to form a reasonable opinion. Section 11(3) conditions the disregard on the holder’s reasonable opinion that the fund is substantially Australian. The opinion must be reasonable, not merely honestly held. This creates a duty to gather sufficient information about the fund’s beneficial ownership to form a defensible opinion. The judgement standard is objective: would a reasonable manager in the circumstances conclude that foreign beneficial interests are below 40%? If the manager makes no assessment or bases it on inadequate data, the disregard likely fails.

Duty of custodians, nominees, and brokers to abstain from beneficial ownership and discretionary voting. Sections 12(2)(a)-(b) and 13(2)(a)-(b) require the holder not to hold a beneficial interest or have discretionary voting authority. A custodian that manages a voting pool or exercises proxy discretion loses the disregard. Similarly, a broker that holds stock in its own house account cannot rely on the broker disregard.

Duty of associates to establish independence. For sections 16 and 17, the associate must not be controlled by, act in concert with, or be accustomed to act on the directions of the foreign person. This requires legal and factual analysis: control can be de facto, concert can be informal, and accustomed‑to‑act can be subtle. The parties must document the absence of these relationships to be confident the disregard applies.

The Regulations themselves do not create penalty provisions. Instead, they operate by reference to the Act. Failure by the Telstra successor company to comply with a Ministerial direction under section 8 or a notice under section 9 may constitute an offence under the Act. Section 8BN of the Act (which section 7 of the Regulations references) likely imposes a penalty for non‑compliance, though the Regulations do not reproduce that penalty. The maximum penalty under the Act for a corporation failing to give required information is presumably substantial, though not stated in the Regulations.

There are no criminal penalties for an interest‑holder who erroneously claims a disregard. If the disregard is found not to apply, the consequence is that the interest counts toward the foreign‑ownership calculations. That may cause an unacceptable foreign‑ownership situation to arise. The Act then provides remedies: the Minister may direct the divestiture of shares, impose voting restrictions, or seek court orders. The cost of non‑compliance is not a fine under the Regulations but the risk of forced divestiture at potentially adverse prices and suspension of voting rights. This is a powerful economic penalty.

The Minister’s enforcement tools are not set out in the Regulations, but the Regulations create the factual predicates for enforcement. For example, if a fund manager relies on an unreasonable opinion that the fund is substantially Australian, foreign persons’ interests may be under‑counted. If Telstra then exceeds the foreign‑ownership cap, the Minister can act. The Regulations thus shift compliance risk onto intermediaries without creating a direct liability for them. A fund manager whose unreasonable opinion causes a breach could face civil liability under the Act (e.g. for being knowingly concerned in a contravention) or contractual liability to Telstra or investors, though that is outside the Regulations.

There is no private right of action under the Regulations. Only the Minister can enforce the information‑gathering provisions. A shareholder cannot sue Telstra for failing to report a suspected breach. Enforcement is entirely public.

The Regulations provide a minimum 14‑day response period for notices, which is designed to give the Telstra successor company time to gather information. Failure to comply by the deadline could expose the company to immediate enforcement action. The Regulations do not provide for extensions or excuses; any request for additional time would be at the Minister’s discretion.

Telstra Corporation Act 1991. The Regulations are made under that Act and are expressly part of the scheme. Section 7 of the Regulations provides that Part 2 is made for the purposes of paragraph 8BN(1)(b) of the Act, which enables regulations to require information relevant to an ownership matter. Part 3 is made for the purposes of paragraph 9(1)(d) of the Schedule to the Act, which allows regulations to prescribe kinds of interests to be disregarded. The Regulations cannot override the Act; if there is a conflict, the Act prevails. The Act’s definitions (e.g. “associate”, “foreign person”, “stake”) are imported by section 5 of the Regulations.

Foreign Acquisitions and Takeovers Act 1975 (FATA). The Regulations use FATA’s definition of “foreign person” as a reference point in section 14. An indirect interest‑holder’s interest is disregarded only if the intermediate company is not a foreign person within the meaning of FATA. This creates an inter‑statutory dependency: changes to FATA’s definition automatically affect the operation of section 14. For example, if a company is treated as foreign under FATA due to tracing rules, its shareholders cannot rely on the disregard. This may create uncertainty when FATA is amended.

Life Insurance Act 1995. The Regulations define “investment fund” to include a statutory fund under the Life Insurance Act, and the substantially Australian test in section 11(3)(a) looks at policyholder liabilities owed to foreign persons. Life insurers must assess their policyholder base using the Life Insurance Act’s categories.

Superannuation Industry (Supervision) Act 1993 (SIS). Superannuation entities (including regulated super funds, approved deposit funds, and pooled super trusts) are included in the definition of “investment fund”. Exempt public sector superannuation schemes under SIS are also included. Trustees of these funds must apply the 40% beneficial interest test based on capital and income distribution.

Corporations Act 2001. The Regulations intersect with the Corporations Act in several ways. The definition of “associate” in the Schedule to the Act is different from the Corporations Act’s “associate” provisions, so legal analysis must be done under the Act’s definition. Custodians and brokers who hold interests under Chapter 7 of the Corporations Act (licensing and market integrity) must comply with the Regulations’ additional restrictions on beneficial ownership and voting discretion. Employee share plans regulated under the Corporations Act must also meet the conditions in section 15 of the Regulations.

US securities laws. Section 12(3) expressly references the US Securities Exchange Act 1934 for clearing agencies. A clearing agency registered under section 17A of that Act (e.g. the Depository Trust Company) is treated as within the agent disregard. This aligns the Regulations with US market infrastructure, reducing cross‑border compliance friction.

The repealed 1997 Regulations. Section 19 of the Regulations preserves the validity of anything done under the 1997 Regulations. If a direction, notice, or assessment was made under the old regulations, it continues to have effect under the new ones. This prevents a regulatory gap.

The Regulations commenced on 22 February 2018, replacing the Telstra Corporation (Ownership , Interests in Shares) Regulations 1997 which were repealed on the same day. The text of the Regulations as provided shows no amendments have been made. The Explanatory Statement (not provided) would indicate that the changes from the 1997 Regulations were primarily updates to definitions (e.g., inserting “Telstra successor company” to reflect the demerger of Telstra’s infrastructure business, and expanding “investment fund” to include life insurance statutory funds and superannuation entities). The notes to section 5(1) suggest that “Telstra successor company” was added after the 1997 version, likely by the amending Act or by the regulation‑maker at the 2018 re‑make.

The Regulations are subject to disallowance by either House of the Commonwealth Parliament within 15 sitting days of tabling, as with all legislative instruments under the Legislation Act 2003. No disallowance motions have been recorded, indicating the instrument is politically uncontroversial.

The authority for the Regulations is section 8BN(1)(b) and paragraph 9(1)(d) of the Schedule to the Telstra Corporation Act 1991. Those enabling provisions have not been amended since the Regulations were made, so the Regulations have not needed updating on that ground. However, if the Act is amended (e.g., to raise or remove the foreign‑ownership caps), the Regulations would likely need consequential amendments to the definitions or disregard categories. As of the latest available text, no such amendments have been made.

The transitional provision in section 19 ensures continuity, but also means that any administrative law issues arising from the 1997 Regulations (e.g., validity of a direction given under the old instrument) are carried over. The Regulations do not contain sunset clauses or review requirements. They continue in force until repealed or amended.

The Regulations themselves have not been the subject of any known litigation. The source text contains no reference to any case, and no Australian court has considered the 2018 Regulations in a published judgment as of the date of this analysis. The predecessor 1997 Regulations also appear not to have been litigated. This is likely because the Regulations are procedural and interpretive; they reduce, rather than create, disputes by clarifying which interests count. The main litigation risk would arise if a person claimed a disregard that the Minister later challenged, leading to a dispute over the ownership calculations. That would crystallise in proceedings under the Act (e.g., a divestiture order), not under the Regulations.

However, the broad definitions could be tested. For example, the “reasonable opinion” standard in section 11(3) may be argued in court if a fund manager’s opinion is contested. The phrase “reasonable opinion” suggests an objective test: would a reasonable person in the manager’s position, with the information available, have formed that opinion? Litigation could arise if a manager relied on outdated or incomplete data and the Minister alleged the opinion was unreasonable. No such case has been reported.

Similarly, the concepts of “control”, “act in concert”, and “accustomed to act” in sections 15-17 are fact‑dependent and could be subject to judicial interpretation. The Act’s Schedule defines “associate” in a complex way, and the Regulations rely on that definition. Litigation under the Act has dealt with associate relationships in other contexts (e.g., foreign‑takeover litigation under the Foreign Acquisitions and Takeovers Act), but not specifically under these Regulations.

The lack of litigation does not mean the Regulations are risk‑free. It suggests that compliance has been manageable and that the safe harbours are workable. But it also means there is little judicial guidance for borderline cases. Practitioners should be cautious when applying the disregards in unusual structures, such as multi‑layered funds, trust‑owned entities, or cross‑border employee share plans.

The “reasonable opinion” test is a trap for the unwary. Section 11(3) conditions the substantial‑Australian‑fund disregard on the holder’s “reasonable opinion”. A fund manager who does not actually form an opinion (e.g., who assumes without checking that the fund is substantially Australian) cannot rely on the disregard. Even if the facts objectively show the fund is below 40% foreign, the holder must have turned its mind to the question and reached a conclusion. A court might find that no opinion was formed, making the disregard unavailable. The opinion must also be documented; a verbal opinion is hard to prove. This creates a compliance burden: managers need a process, not just a hope.

The disregard is not a blanket exemption. Each interest‑holder must satisfy the conditions individually. A trustee who qualifies under section 11 may still lose the disregard if it also acts as a custodian and exercises discretionary voting. A broker who holds stock as a principal cannot rely on section 13, even if the trade was for a client. The disregards are cumulative only to the extent each section’s conditions are met.

Beneficial interest is broadly defined. Section 6 extends beneficial interest to include prospective interests, options, and rights to acquire. This means that a person who has entered into an off‑market contract to purchase an interest in a fund is treated as holding that interest for the 40% foreign‑ownership test, even before settlement. Fund managers must look beyond the register to capture pending transfers and off‑market arrangements. Moneylenders are excluded only if the interest is held as security in the ordinary course and the loan has not ceased. A moneylender that takes legal title (e.g., a mortgagee) may still be caught.

The interplay between FATA and the Act’s definitions creates a double test. Section 14 uses FATA’s “foreign person” definition, not the Act’s. A company may not be a foreign person under the Act but be foreign under FATA (e.g., because FATA has a lower threshold for control). In that case, the intermediate company is foreign under FATA, so section 14 does not apply and the shareholder’s indirect interest must be counted. This is a trap for offshore holding companies that are not foreign under the Act but are foreign under FATA.

Ministerial direction can be retrospective in effect. Section 8(2) allows the Minister to direct that a notice be given “under particular circumstances” and “within a certain time”. There is no prohibition on the Minister requiring a notice about a past event. If the Telstra successor company had reason to believe a situation may have existed in the past but did not previously report, the Minister can direct a report now. The company cannot argue that the situation has already been resolved.

No grace period for inadvertent loss of disregard. If an investment fund exceeds the 40% foreign threshold, the existing disregard stops applying from that moment (or from the moment the manager should have known). There is no transition period. If the manager continues to rely on the disregard after the fund no longer qualifies, the company’s foreign‑ownership calculations may be inaccurate, potentially creating an unacceptable situation. The manager must have systems to detect crossing the threshold promptly.

Double counting is only avoided for the purposes of the Regulations, not for other laws. Sections 17 and 18 prevent double counting for the ownership provisions. But those same interests may still be counted for other purposes under the Act (e.g., determining whether a person is an “associate” for other provisions). The disregard does not affect liability under the Act’s other provisions.

For the Telstra successor company. The company should maintain a compliance program that monitors foreign‑ownership levels on a continuous basis, not just at reporting intervals. The program should include: (a) procedures for identifying when the company has “reason to believe” an unacceptable foreign‑ownership situation may exist, which is a lower threshold than actual knowledge; (b) a system for responding to Ministerial directions under section 8 within the required time, including drafting a notice that covers the three required elements (reason for belief, verification steps, remedial steps); (c) a process for handling section 9 information notices, including gathering the requested information and serving it within the 14‑day default period or any shorter period specified. The company should also maintain records of all communications with the Minister and of internal assessments of foreign ownership levels.

For investment fund trustees, managers, and life insurers. To rely on the disregard under section 11, the holder must form a reasonable opinion that the fund is substantially Australian. The recommended approach is to adopt a documented due diligence procedure that: (a) identifies the fund’s beneficial owners (with particular attention to foreign persons); (b) calculates the percentage of capital and distributable income held by foreign persons, using a tracing methodology consistent with the Act’s definition of “beneficial interest”; (c) monitors changes monthly or quarterly, with a trigger to reassess whenever there is a material change in the investor base; (d) records the basis for the opinion, including the date of assessment and the data sources used. If the fund is part of a master trust or wraps, the manager should obtain attestations from the platform provider about foreign ownership. The opinion must be formed at each time the disregard is relied upon; it cannot be formed once and forgotten.

For custodians, depositaries, and clearing agencies. Section 12 requires that the holder not hold a beneficial interest and not have discretionary voting authority. Custodians should review their custodial agreements to ensure they do not confer beneficial ownership (e.g., by re‑hypothecation rights) and do not grant discretionary voting rights. Many Australian custodials already limit themselves to holding legal title and exercising voting only on client instructions. If the custodian has authority to vote on routine or uncontested matters without client instructions, that may amount to discretionary authority. The custodian should formally renounce such authority or seek client instructions on every matter. For US depositaries in ADR programs, the reference to the Securities Exchange Act 1934 clearing agency registration is a safe harbour, but the depositary must still ensure it does not hold a beneficial interest.

For brokers. Section 13 requires that the interest exist solely because the broker acted on a client’s express instruction. The broker should maintain records of client instructions (written or recorded) for each transaction in Telstra shares. The broker must not hold a beneficial interest or have discretionary voting authority. A broker that holds shares on its own account as a market maker or principal cannot rely on this disregard; those shares will be counted. The broker should segregate client holdings from proprietary holdings in its records.

For employee share plan administrators and participants. Section 15 condition requires participants not to be foreign persons and not to be under the control or influence of a foreign person. The plan administrator should verify the residency and control status of participants. If a participant is an Australian citizen but is resident overseas, they may be a foreign person under the Act’s definition (which looks to residency, not citizenship). The plan administrator should obtain declarations from participants. The disregard also requires that the interest exists “solely as a result of” participation in the plan. If the participant holds additional Telstra shares outside the plan, those shares are not disregarded.

For Australian associates of foreign persons. Sections 16-18 require careful legal analysis. The associate should document its independence from the foreign person: no control, no acting in concert, no accustomed‑to‑act relationship. The analysis should consider both formal and informal arrangements (e.g., board representation, common directors, informal consultations, shared lawyers or advisors). If there is any doubt, the associate should assume the disregard does not apply and the interest will be counted. Section 17’s interaction with the “irrelevant associate” concept is particularly complex; it may require legal advice to determine whether an interest is counted twice. The safe approach is to assume that all interests are counted and to seek an individual ruling from the Minister if uncertainty persists.