The Target Conditions Component CCTWaterSurface calculates the distance between the player and the action target point incorrectly. It uses the GetGame().SurfaceY function to 'fix' the Y coordinate of the cursor position target, which actually returns the Y coordinate of the terrain under the water rather then the water surface. This manifests in fishing and other water interactions only being valid when close to to the shore where the water is shallow. This can be corrected by adding the depth of the water at the target point to the Y coordinate returned by SurfaceY:

//Need to adjust for the depth as SurfaceY gives the coordinates of the bottom not the surface of the water
float water_depth = g_Game.GetWaterDepth(hit_pos);
hit_pos[1] = hit_pos[1] + water_depth;