Edited version of your written advice

Authorisation Number: 1013139577940

Date of advice: 1 February 2017

Ruling

Subject: GST and Native Title payments

Question1

Are the Accumulated Payments and/or the Future Quarterly Payments (collectively the Payments) payable under the Agreement between the parties subject to GST as consideration for a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

No

For the payments to be consideration for a taxable supply, any supply that exists must be in the course or furtherance of an enterprise conducted by the entity. The activities of the People in seeking the status of native title holder and entering into and performing agreements with mining companies does not constitute an enterprise. Therefore the Payments by the mining companies to the relevant Trusts on behalf of the People collectively or individually are not consideration for a taxable supply.

The Incorporated entity enters into the Participation Agreement on behalf of the People and is not the relevant entity making supplies under the Participation Agreement in relation to the Payments. Therefore the Payments are not consideration for any taxable supply by the Incorporated Entity.

Question 2

Are the People (collectively or individually) entitled to an Australian Business Number (ABN)?

Answer

No. As set out above the People are not conducting an enterprise in relation to the Payments they receive and therefore are not entitled to an ABN in relation to any activities associated with these payments.

Question 3

Are the Payments subject to “ABN withholding” under section 12-190 of Schedule 1 of the Taxation Administration Act 1953 (Cth)?

Answer

No.

Relevant facts and circumstances

● People Group A and others (collectively the People) are a group of Aboriginal people whose traditional country is located in Australia. They are descendants of one or more of the apical ancestors who recognise themselves as the People and are recognised by others as such.

● Over the last few decades, the People have been in negotiations with various mining companies over the People's claim for rights over their ancestral lands.

● During negotiations with the mining companies the relevant mining companies put aside funds in an account pending the conclusion of a final agreement with the People.

● As a result of the negotiations and court cases, a determination of native title rights over specified areas of land was made in favour of the People and various agreements were entered into including agreements as to the amounts to be paid.

● The rights under this Determination included rights to:

● access and move about the land and waters of the Determination Area

● hunt and take fauna, gather and take flora, take fish and take stones, timber, ochre and water and

● maintain and protect places and areas of importance on or in the land and waters of the Determination Area, including rock art, engraving sites, stone arrangements and the like.

● The native title rights are held on trust by Entity A who is appointed as agent and attorney for the People in relation to all matters. Entity A is registered for GST. The objects of Entity A include

a) to be and perform the functions of a Prescribed Body Corporate and Registered Native Body Corporate under the Native Title Act (NTA)

b) supporting and providing education, training and employment for the People

c) supporting and providing housing for the People, and

d) holding title to any vested land.

● Entity A does not receive any of the payments from the mining companies. These are paid into a structure comprising three trusts called a Benefits Management Structure.

● The Agreements also require the People and their Agent to support the mining companies activities and Business by agreeing with, consenting to and supporting the Existing and future Operations.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Section 9-10

A New Tax System (Goods and Services Tax) Act 1999 Section 9-40

A New Tax System (Goods and Services Tax) Act 1999 Section 9-20and

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision

● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

● all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

● all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

Question 1

Are the Payments payable under the Agreement between the parties subject to GST as consideration for a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999?

Under section 9-40, you must pay GST on any taxable supply you make.

You will make a taxable supply if, pursuant to section 9-5:

● you make the supply for consideration

● the supply is made in the course or furtherance of an enterprise that you carry on

● the supply is connected with the indirect tax zone (Australia), and

● you are registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In your case there is no provision that would make any supply GST-free or input taxed.

Supply

Section 9-10 relevantly defines a supply to include an entry into or release from an obligation to do anything or refrain from an act.

The Participation Agreement involves the entry into various obligations by the parties and therefore there are supplies made under the agreement. The People and Entity A are relevant parties to the Participation Agreement.

Who is the supplier?

Paragraph 9-5(a) requires that 'you' make a supply. Section 195-1 states that if a provision of the GST Act uses the expression 'you', it applies to entities generally, unless its application is expressly limited.

Section 195-1 also states that 'entity' has the meaning given by section 184-1 and includes:

(a) an individual

(b) a partnership, and

(c) any other unincorporated association or body of persons.

For GST purposes a supply must be made by an entity. Consequently, we must examine who is making any supply in relation to the Payments from the Mining companies.

Entity A or the People

Entity A is the representative of the People and is a party to various agreements as a representative of the People. It is able to enter into agreements on behalf of the native title holders.

Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law describes what is meant by principal/agent relationships ('agency relationships').

An entity may be authorised by another party to do something on that party's behalf. The authorised entity is called an agent. The party who authorises the agent to act on their behalf is called the principal. In principal/agent relationships it is the principal that makes a supply, not the agent.

We consider that Entity A is an agent of the people and therefore not the relevant entity making any supplies in relation to the payments from the mining companies

There are arguments that the relevant entity (or entities) is either: (i) each of the People individually, or (ii) collectively as an unincorporated association or body of persons or partnership.

This question also relates to the analysis of whether a relevant entity is making supplies 'in the course or furtherance of an enterprise' they carry on.

As set out above where the payments are not in relation to any enterprise then there will be no taxable supply.

We will consider the question of enterprise below in relation to the People both collectively and individually.

Enterprise

An enterprise is an activity or series of activities done in certain ways as provided for under subsection 9-20(1) of the GST Act.

In particular, an 'enterprise' includes an activity or series of activities done:

(a) in the form of a business;

(b) in the form of an adventure or concern in the nature of trade; or

(c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

Paragraph 177 of MT 2006/1 provides that to determine whether an activity or series of activities amounts to a business, the activity needs to be considered against the indicators of a business established by case law. Some indicators of carrying on a business are:

● A significant commercial activity

● A purpose and intention of the taxpayer to engage in commercial activity

● An intention to make a profit from the activity

● The activity is or will be profitable

● Is recurrent or regular in nature

● The activity is carried out in a manner similar to that of other businesses in the same or similar trade

● Activity is systematic, organised and carried on in a businesslike manner

● Commercial sales of product and

● The entity has relevant knowledge or skill.

While the agreements involve significant payments, the purpose of the People in entering into the agreements relates to recognition of their native title rights and interests and not ongoing, regular activities of a commercial nature such as making sales and engaging in trade. On balance, the People, collectively or individually, are not undertaking activities in the form of a business in entering into and performing the obligations under the Participation Agreement and other similar agreements with mining companies.

The concept of an 'adventure or concern in the nature of trade' is considered in paragraphs 233-261 of MT 2006/1. The public ruling considers the characteristics of trade including the subject matter of realisation, length of period of ownership, frequency or number of similar transactions, supplementary work on or in connection with the property realised, and the circumstances responsible for the realisation. The People's native title rights and interests were not acquired for the purpose of commercial trade but arise from traditional laws and customs. On balance, the characteristics of trade are not satisfied and the activities of the People, collectively or individually, in entering into and performing the obligations under the Agreements do not involve activities in the nature of trade.

Under the terms of the Participation Agreement, the People, collectively or individually, do not enter into any lease or licence or provide any other grant of an interest in property. The People do not agree to provide access rights to mining company under the Participation Agreement. Rather, the mining companies interests in property derive from separate State Government agreements.

Therefore, the People, collectively or individually, are not making supplies in the course or furtherance of an enterprise in entering into and performing obligations under the Participation Agreement.

Conclusion

The Payments made by the mining companies to the People (but directed to the various trusts under the Benefits Management Structure) are not in connection with any enterprise conducted by the People and therefore there are no taxable supplies made by the People (collectively or individually) under the Agreement.

In addition, as set out above Entity A enters into the Participation Agreement as agent of the People and is not making a taxable supply under the Agreements.

Question 2

Are the People (collectively or individually) entitled to an Australian Business Number (ABN)?

Section 8 of the A New Tax System (Australian Business Number) Act 1999 ( ABN Act 1999) provides that you entitled to an Australian Business Number (ABN) if you are carrying on an enterprise in Australia; or in the course or furtherance of carrying on an enterprise, you make supplies that are connected with Australia.

As set out above the People are not conducting an enterprise in relation to the Payments they receive and therefore are not entitled to an ABN in relation to any activities associated with these payments.

Question 3

Are the Accumulated Payments and/or the Future Quarterly Payments subject to “ABN withholding” under section 12-190 of Schedule 1 of the Taxation Administration Act 1953 (TAA)?

Section 12-190 of the TAA relevantly provides that where a Recipient of a payment does not quote an ABN and the payment is for a supply that the other entity has made, or proposes to make, to the payer in the course or furtherance of an enterprise carried on in Australia by the other entity the payer must withhold an amount from a payment it makes to another entity.

In your case as set out in the answer to Question 1 the People are not conducting an enterprise in relation to the Payments from the mining companies. Therefore the mining companies are not required to make withholding payments pursuant to section 12-190 of the TAA.

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