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Edited version of your written advice
Authorisation Number: 1012940349973
Date of advice: 21 January 2016
Ruling
Subject: Native Title Benefit
Question 1
Is the BDBT Payment derived by the BDBT in the Relevant Year the Ordinary Income or the Statutory Income of the BDBT such that the BDBT Payment is required to be included in the BDBT's Assessable Income or net income (as that term is defined in section 95(1) of the ITAA36) in the Relevant Year?
Answer
No
Question 2
Is the YBDBT Payment derived by the YBDBT in the Relevant Year the Ordinary Income or the Statutory Income of the YBDBT such that the YBDBT Payment is required to be included in the YBDBT's Assessable Income or net income (as that term is defined in section 95(1) of the ITAA36) in the Relevant Year?
Answer
No
This ruling applies for the following periods:
Year ending 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
You have provided copies of the following documents, which should be read in conjunction with, and form part of the scheme of this private ruling
1. The Binding Initial Agreement
2. The Binding Heads of Agreement
3. The Combination Agreement
4. XY Judgement
5. XY Determination
6. Early Release Agreement
7. Internal Settlement Deed
8. XY Charitable Trust Deed
9. XY Direct Benefits Trust Deed
10. XYZ Direct Benefits Trust Deed
11. Sub-Fund Agreement
The Private Ruling Application outlines that;
• The XY People are registered claimants under the Native Title Act (NTA)
• They have entered into various agreements with the mining company over a number of years
• There has been changes to the details of the claims, however, the XY People have continued to be a party to a registered claim
• The XY People were to receive a certain amount pursuant to the Initial Agreement
• The Initial Agreement is considered to be an ancillary agreement
• The payments were not paid out (as intended) but were set aside in a bank account, whilst issues pertaining to the claimants were resolved.
• The amounts that had been set aside are now being paid out pursuant to a new agreement
• The trusts were established to receive these native title benefit payments on behalf of the XY People.
• The XY People are 'Indigenous persons' as defined in Section 995-1 of the Income Tax Assessment Act (ITAA) 1997.
• The XY and XYZ Trust are 'Indigenous holding entities' as defined in Section 59-50(6) of the Income Tax Assessment Act (ITAA) 1997.
• The initial payments comprise a native title benefit (it meets the requirements under subsection 59-50(5) of the ITAA 1997
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 59-50
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1997 Section 95(1)
Reasons for decision
Question 1
Is the Payment derived by the XY Trust in the Relevant Year the Ordinary Income or the Statutory Income of the XY Trust , such that the Payment is required to be included in the XY Trust's Assessable Income or net income (as that term is defined in section 95(1) of the ITAA36) in the Relevant Year?
Under subsection 59-50(1) of the ITAA 1997 to the extent that a native title benefit would otherwise be included in your assessable income, it is not assessable income and is not exempt income if you are an Indigenous holding entity.
Based on the facts provided, we consider that the Payment constitutes a "native title benefit" (defined under section 59-50(5) of the ITAA 1997). The XY Trust is also considered to be an "Indigenous holding entity" (defined under section 59-50(6) of the ITAA 1997)
Meaning of Native Title Benefit
The Explanatory Material to the Native Title Exposure Draft explains at [1.16] that the definition of Native Title Benefit (in section 59-50(5) of the ITAA 1997) covers agreements under Australian legislation that provide payments for an action affecting native title. An action affecting native title is one that extinguishes native title rights and interests or is otherwise wholly or partly inconsistent with their continued existence, enjoyment and exercise.
Subsection 59-50(5) of the ITAA 1997 defines the term 'native title benefit':
A native title benefit is an amount, or non-cash benefit, that:
a) arises under:
i. an agreement made under an Act of the Commonwealth, a State or a Territory, or under an instrument made under such an Act; or
ii. an ancillary agreement to such an agreement;
to the extent that the amount or benefit relates to an act that would extinguish native title or that would otherwise be wholly or partly inconsistent with the continued existence, enjoyment or exercise of native title; or
b) is compensation determined in accordance with Division 5 of Part 2 of the Native Title Act 1993
Meaning of Indigenous holding entity
An indigenous holding entity is defined in section 59-50(6) as (a) a distributing body; or (b) a trust, if the beneficiaries of the trust can only be Indigenous persons or distributing bodies; or (c) a registered charity.
The XY Trust satisfies the definition of an Indigenous holding entity. Furthermore, The XY People satisfy the definition of 'Indigenous person' under section 995-1(1) of the ITAA 1997.
Application to your situation
The XY People are registered claimants under the Native Title Act (NTA). They have entered into various agreements with the mining company over a number of years. As outlined in the facts, whilst there have been changes to the details of the claims, the XY People have continued to be a party to a registered claim.
The XY People were to receive certain amounts pursuant to the Initial Agreement (which is considered to be an ancillary agreement). The payments under the Initial Agreement were not paid out (as was intended) but were set aside in a bank account, while issues pertaining to the claimants were resolved.
The amounts that had been set aside are now being paid out pursuant to a new agreement, which we accept is an ancillary agreement. Therefore, these payments satisfy the definition of being "native title benefits". The XY trust was established to receive these native title benefit payments on behalf of the XY People. The amounts would be constructively derived by the trusts, accordingly they would not represent ordinary income of the trusts. Rather it is Non Assessable, Non Exempt (NANE income)
Non-Assessable Non Exempt Native Title Benefits is covered under Section 59-50 of the ITAA 1997. Subsection 59-50(1) of the ITAA 1997 states that;
To the extent that an amount, or other benefit, arising directly or indirectly from a native title benefit would otherwise be included in your assessable income, it is not assessable income and is not exempt income if you are an Indigenous person or an Indigenous holding entity.
Therefore, the Payment derived by the XY Trust is neither the Ordinary Income nor the Statutory Income of the XY Trust, therefore the Payment is not required to be included in the XY Trust's Assessable Income or net income in the income year ending 30 June 2015.
Question 2
Is the Payment derived by the XYZ Trust in the Relevant Year the Ordinary Income or the Statutory Income of the XYZ Trust, such that the Payment is required to be included in the XYZ Trust's Assessable Income or net income (as that term is defined in section 95(1) of the ITAA36) in the Relevant Year?
Under subsection 59-50(1) of the ITAA 1997 to the extent that a native title benefit would otherwise be included in your assessable income, it is not assessable income and is not exempt income if you are an Indigenous holding entity.
Based on the facts provided, we consider that the Payment constitutes a "native title benefit" (defined under section 59-50(5) of the ITAA 1997). The XYZ Trust is also considered to be an "Indigenous holding entity" (defined under section 59-50(6) of the ITAA 1997)
Meaning of Native Title Benefit
The Explanatory Material to the Native Title Exposure Draft explains at [1.16] that the definition of Native Title Benefit (in section 59-50(5) of the ITAA 1997) covers agreements under Australian legislation that provide payments for an action affecting native title. An action affecting native title is one that extinguishes native title rights and interests or is otherwise wholly or partly inconsistent with their continued existence, enjoyment and exercise.
Subsection 59-50(5) of the ITAA 1997 defines the term 'native title benefit':
A native title benefit is an amount, or non-cash benefit, that:
c) arises under:
iii. an agreement made under an Act of the Commonwealth, a State or a Territory, or under an instrument made under such an Act; or
iv. an ancillary agreement to such an agreement;
to the extent that the amount or benefit relates to an act that would extinguish native title or that would otherwise be wholly or partly inconsistent with the continued existence, enjoyment or exercise of native title; or
d) is compensation determined in accordance with Division 5 of Part 2 of the Native Title Act 1993
Meaning of Indigenous holding entity
An indigenous holding entity is defined in section 59-50(6) as (a) a distributing body; or (b) a trust, if the beneficiaries of the trust can only be Indigenous persons or distributing bodies; or (c) a registered charity.
The XYZ Trust satisfies the definition of an Indigenous holding entity. Furthermore, The XY People satisfy the definition of 'Indigenous person' under section 995-1(1) of the ITAA 1997.
Application to your situation
The XY People are registered claimants under the Native Title Act (NTA). They have entered into various agreements with the mining company over a number of years. As outlined in the facts, whilst there have been changes to the details of the claims, the XY People have continued to be a party to a registered claim.
The XY People were to receive certain amounts pursuant to the Initial Agreement (which is considered to be an ancillary agreement). The payments under the Initial Agreement were not paid out (as was intended) but were set aside in a bank account, while issues pertaining to the claimants were resolved.
The amounts that had been set aside are now being paid out pursuant to a new agreement, which we accept is an ancillary agreement. Therefore, these payments satisfy the definition of being "native title benefits". The XYZ trust was established to receive these native title benefit payments on behalf of the XY People. The amounts would be constructively derived by the trusts, accordingly they would not represent ordinary income of the trusts. Rather it is Non Assessable, Non Exempt (NANE income).
Non-Assessable Non Exempt Native Title Benefits is covered under Section 59-50 of the ITAA 1997. Subsection 59-50(1) of the ITAA 1997 states that;
To the extent that an amount, or other benefit, arising directly or indirectly from a native title benefit would otherwise be included in your assessable income, it is not assessable income and is not exempt income if you are an Indigenous person or an Indigenous holding entity.
Therefore, the Payment derived by the XYZ Trust is neither the Ordinary Income nor the Statutory Income of the XYZ Trust, therefore the Payment is not required to be included in the XYZ Trust's Assessable Income or net income in the income year ending 30 June 2015.
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