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Edited version of your written advice
Authorisation Number: 1012695468856
Advice
Subject: Status of proposed trusts as Indigenous holding entities
Issue 1
Status of proposed Direct Benefits Trust 1 and Direct Benefits Trust 2 as an indigenous holding entity
Question 1
Will the proposed Direct Benefits Trust 1 (DBT1) be an indigenous holding entity as that term is defined in section 59-50(6) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
Question 2
Will the proposed Direct Benefits Trust 2 (DBT2) be an indigenous holding entity as that term is defined in section 59-50(6) of the ITAA 1997?
Answer
Yes
This ruling applies for the following periods
01 July 2013 to 30 June 2014
01 July 2014 to 30 June 2015
01 July 2015 to 30 June 2016
The scheme commences on
1 July 2013
Relevant facts and circumstances
1. The Federal Court of Australia handed down a judgment (Federal Court Judgement) relating to DBT1. The Court ordered that the DBT1 People were entitled to a determination of native title under the Native Title Act 1993 (NTA) in relation to certain land and waters covered by the DBT1 People's claimant application (DBT1 Claim).
2. The Court found that it was not satisfied that the DBT2 people were not apical ancestors of the DBT1 People and for the purposes of the NTA and the proceeding were not DBT1 people.
3. The Federal Court Judgement did not recognise those members of the native title claim group who claimed to be native title holders by reason of being a descendent of the DBT2 people as such they were not recognised to be part of the DBT1 people native title holding community.
4. The Federal Court of Australia made an approved determination of native title (Federal Court Determination), which recognised that the DBT1 People are the native title holders for a determination area.
5. DBT1 Title Corporation holds the native title the subject of the Federal Court Determination on trust for the DBT1 common law holders and is a registered title body corporate under the NTA.
6. The DBT1 People and the DBT2 People are in the process of establishing an omnibus benefits management structure (Benefits management Structure) to receive and manage native title benefits and other monies from various contributors:
(a) that are payable under existing native title consent and land use agreements that the persons comprising the Applicant to the DBT1 Claim (and the persons who comprised the Applicant to other claimant applications under the NTA that were amended and combined to become the DBT1 Claim) entered into with proponents, and
(b) that are likely to be payable under proposed future native title consent and land use agreements (including proposed Indigenous Land Use Agreements) that DBT1 representatives are seeking to enter into with proponents.
7. The Benefits Management Structure is proposed (Proposed Benefits Management Structure) to consist of the:
• Direct Benefits Trust 1 (Proposed DBT1),
• Direct Benefits Trust 2 (Proposed DBT2), and
• The Charitable Trust (Proposed CT).
8. The Taxpayer is proposed to be the initial trustee (The Trustee) of the three trusts comprising the Proposed Benefits Management Structure.
9. Copies of non-executed non-settled trust deeds for each of the proposed trusts comprising the Proposed Benefits Management Structure have been provided:
• Proposed deed establishing the proposed DBT1(DBT1 Proposed Deed),
• proposed deed establishing the proposed DBT2(DBT2 Proposed Deed), and
• proposed deed establishing the proposed CT(CT Proposed Deed).
10. The Proposed DBT1 and Proposed DBT2 will not be established for a charitable purpose.
Relevant legislative provisions
Australian Charities and Not-for-profits Commission Act 2012, subsection 25-5(5)
Charities Act 2013, section 5
Charities Act 2013, subsection 5(b)
Charities Act 2013, Part 3
Income Tax Assessment Act 1997, section 59-50(6)
Income Tax Assessment Act 1997, subsection 995-1(1)
Income Tax Assessment Act 1936, subsection 128U(1)
Anti-avoidance rules
Part IVA, or any other anti-avoidance provision, has not been considered in preparing this ruling.
Reasons for decision
Issue 1
Question 1
Will the proposed DBT1 be an indigenous holding entity as that term is defined in section 59-50(6) of the ITAA 1997?
Summary
Analysis of The Proposed DBT1 demonstrates that once settled it will be a trust whose only beneficiaries will be Indigenous Persons or Indigenous Holding Entities.
As such, providing The Proposed DBT1 is settled in the terms specified in the DBT1 Proposed Deed it will be an indigenous holding entity as that term is defined in section 59-50(6) of the ITAA 1997.
Detailed reasoning
'Indigenous holding entity' is defined in subsection 59-50(6) of the ITAA 1997 to mean:
(a) a distributing body; or
(b) a trust, if the beneficiaries of the trust can only be Indigenous persons or Indigenous holding entities; or
(c) a registered charity.
Distributing Body
'Distributing body' is defined in subsection 128U(1) of the Income Tax Assessment Act 1936 (ITAA 1936) to mean:
(a) an Aboriginal Land Council established under the Aboriginal Land Rights (Northern Territory) Act 1976;
(b) a corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006; or
(c) (Repealed by No 125 of 2006)
(d) any other incorporated body that:
(i) is established by or under provisions of a law of the Commonwealth or a State or Territory that relate to Indigenous persons; and
(ii) is empowered or required (whether under that law or otherwise) to pay moneys received by the body to Indigenous persons or to apply such moneys for the benefit of Indigenous persons, either directly or indirectly.
As the definition of 'distributing body' requires the entity in question to be an incorporated body and the Proposed DBT1 will be a trust entity, it will not satisfy the definition of a distributing body specified in subsection 59-50(6)(a) of the ITAA 1997.
Registered Charity
'Registered Charity' is defined in subsection 995-1(1) of the ITAA 1997 to mean:
… an entity that is registered under the Australian Charities and Not-for-profits Commission Act 2012 as the type of entity mentioned in column 1 of item 1 of the table in subsection 25-5(5) of that Act.
In order to be registered under column 1 of item 1 of the table in subsection 25-5(5) of the Australian Charities and Not-for-profits Commission Act 2012 the entity must be a 'charity' as defined in section 5 of the Charities Act 2013. Subsection 5(b) of the Charities Act 2013 requires all the purposes of a charity to be charitable purposes as specified in Part 3 of the Charities Act 2013.
As the Proposed DBT1 will not be established for charitable purposes it will not qualify to be a registered charity as specified in subsection 59-50(6)(c) of the ITAA 1997.
Trust whose only beneficiaries are Indigenous persons or Indigenous Holding Entities
As the Proposed DBT1 will be a trust it will satisfy the definition of an Indigenous Holding Entity if its beneficiaries can only be Indigenous persons or Indigenous Holding Entities as specified by 59-50(6)(b) of the ITAA 1997.
'Indigenous person' is defined in subsection 995-1(1) of the ITAA 1997 to mean:
(a) a member of the Aboriginal race of Australia; or
(b) a descendant of an Indigenous inhabitant of the Torres Strait Islands.
Of relevance, the DBT1 Proposed Deed provides that:
• The Settlor and the Trustee declare that the Trustee will hold the Trust Fund and the income from the Trust Fund on trust for the benefit of the DBT1 Beneficiaries, with the powers and subject to the provisions in this Deed.
• DBT1 Beneficiaries are defined in such a way that they can only be Indigenous Persons as defined in the ITAA 1997 or Indigenous Holding Entities as defined in the ITAA 1997.
Analysis of the DBT1 Proposed Deed demonstrates that the proposed trust must be held for the benefit of the DBT1 Beneficiaries who can only be Indigenous people as defined in subsection 995-1(1) of the ITAA 1997 or Indigenous holding entities as defined in subsection 59-50(6) of the ITAA 1997.
As the Proposed DBT1 will be a trust whose only beneficiaries can be Indigenous persons or Indigenous Holding Entities it meets the criteria specified by 59-50(6)(b) of the ITAA 1997.
Conclusion
Providing The Proposed DBT1 is settled in the terms specified in the DBT1 Proposed Deed it will be an indigenous holding entity as that term is defined in section 59-50(6) of the ITAA 1997 because it will be a trust whose only beneficiaries can Indigenous persons or Indigenous Holding Entities specified by 59-50(6)(b) of the ITAA 1997.
Question 2
Will the proposed DBT2 be an indigenous holding entity as that term is defined in section 59-50(6) of the ITAA 1997?
Summary
Analysis of The Proposed DBT2 demonstrates that once settled it will be a trust whose only beneficiaries will be Indigenous Persons or Indigenous Holding Entities.
As such, providing The Proposed DBT2 is settled in the terms specified in the DBT2 Proposed Deed it will be an indigenous holding entity as that term is defined in section 59-50(6) of the ITAA 1997.
Detailed reasoning
'Indigenous holding entity' is defined in subsection 59-50(6) of the ITAA 1997 to mean:
(a) a distributing body; or
(b) a trust, if the beneficiaries of the trust can only be Indigenous persons or Indigenous holding entities; or
(c) a registered charity.
Distributing Body
'Distributing body' is defined in subsection 128U(1) of the Income Tax Assessment Act 1936 (ITAA 1936) to mean:
(a) an Aboriginal Land Council established under the Aboriginal Land Rights (Northern Territory) Act 1976;
(b) a corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006; or
(c) (Repealed by No 125 of 2006)
(d) any other incorporated body that:
(i) is established by or under provisions of a law of the Commonwealth or a State or Territory that relate to Indigenous persons; and
(ii) is empowered or required (whether under that law or otherwise) to pay moneys received by the body to Indigenous persons or to apply such moneys for the benefit of Indigenous persons, either directly or indirectly.
As the definition of 'distributing body' requires the entity in question to be an incorporated body and the Proposed DBT2 will be a trust entity, it will not satisfy the definition of a distributing body specified in subsection 59-50(6)(a) of the ITAA 1997.
Registered Charity
'Registered Charity' is defined in subsection 995-1(1) of the ITAA 1997 to mean:
… an entity that is registered under the Australian Charities and Not-for-profits Commission Act 2012 as the type of entity mentioned in column 1 of item 1 of the table in subsection 25-5(5) of that Act.
In order to be registered under column 1 of item 1 of the table in subsection 25-5(5) of the Australian Charities and Not-for-profits Commission Act 2012 the entity must be a 'charity' as defined in section 5 of the Charities Act 2013. Subsection 5(b) of the Charities Act 2013 requires all the purposes of a charity to be charitable purposes as specified in Part 3 of the Charities Act 2013.
As the Proposed DBT2 will not be established for charitable purposes it will not qualify to be a registered charity as specified in subsection 59-50(6)(c) of the ITAA 1997.
Trust whose only beneficiaries are Indigenous persons or Indigenous Holding Entities
As the Proposed DBT2 will be a trust it will satisfy the definition of an Indigenous Holding Entity if its beneficiaries can only be Indigenous persons or Indigenous Holding Entities as specified by 59-50(6)(b) of the ITAA 1997.
'Indigenous person' is defined in subsection 995-1(1) of the ITAA 1997 to mean:
(a) a member of the Aboriginal race of Australia; or
(b) a descendant of an Indigenous inhabitant of the Torres Strait Islands.
Of relevance, the DBT2 Proposed Deed provides that:
• The Settlor and the Trustee declare that the Trustee will hold the Trust Fund and the income from the Trust Fund on trust for the benefit of the DBT2 Beneficiaries, with the powers and subject to the provisions in this Deed.
• DBT2 Beneficiaries are defined in such a way that they can only be Indigenous Persons as defined in the ITAA 1997 or Indigenous Holding Entities as defined in the ITAA 1997.
Analysis of the DBT2 Proposed Deed demonstrates that the proposed trust must be held for the benefit of the DBT2 Beneficiaries who can only be Indigenous people as defined in subsection 995-1(1) of the ITAA 1997 or Indigenous holding entities as defined in subsection 59-50(6) of the ITAA 1997.
As the Proposed DBT2 will be a trust whose only beneficiaries can be Indigenous persons or Indigenous Holding Entities it meets the criteria specified by 59-50(6)(b) of the ITAA 1997.
Conclusion
Providing The Proposed DBT2 is settled in the terms specified in the DBT2 Proposed Deed it will be an indigenous holding entity as that term is defined in section 59-50(6) of the ITAA 1997 because it will be a trust whose only beneficiaries can Indigenous persons or Indigenous Holding Entities specified by 59-50(6)(b) of the ITAA 1997.
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