Edited version of your written advice

Authorisation Number: 1051186480889

Date of Advice: 24 February 2017

Ruling

Subject: GST and Native Title Rights

Question 1

Are the Entity A payments directed to the Charitable Trust (CT) and the Direct Benefits Trust (DBT) under the Agreement, subject to Goods and Services Tax (GST) as consideration for a taxable supply under section 9-5 by the Aboriginal Corporation (AC)?

Answer

No

The Aboriginal Corporation is an agent of the People, pursuant to the Deed.

Consequently, the Aboriginal Corporation will not be making taxable supplies to Entity A in their capacity as agent for the People.

Question 2

Are the Entity A payments under the Agreement subject to GST as consideration for a taxable supply under section 9-5 by either the Charitable Trust (CT) or the Direct Benefits Trust (DBT)?

Answer

No.

The CT and the DBT (Trusts) are an agreed vehicle for the receipt of payments from Entity A and are a conduit through which the Entity A payments are directed for the benefit of the People. The purpose of the Trusts is to ensure appropriate governance and distribution of the payments made by Entity A.

The Trusts do not make taxable supplies to Entity A for the payments received by them. The payments are received on behalf of the People.

Question 3

Are the Entity A payments directed to to the CT and the DBT under the Agreement subject to GST as consideration for a taxable supply under section 9-5 by the People, collectively or individually?

Answer

No

Payments made by Entity A to the People (but directed to the respective Trusts under the Benefits Management Structure) are not in connection with any enterprise conducted by the People (collectively or individually) and therefore there are no taxable supplies made by the People (collectively or individually) under the Agreement.

Question 4

Are the People (collectively) entitled to be registered for GST or to an Australian Business Number (ABN) in relation to the payments from Entity A under the Deed?

Answer

No

The People are not carrying on an enterprise in relation to the payments received from Entity A. Consequently, the People are not entitled to be registered for GST or to an ABN.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The People are a society whose traditional country is located in Australia.

You have advised that various payments have been made to the Trustee of the Direct Benefits Trust and the Trustee of the Charitable Trust (on behalf of the People) from sources unrelated to this ruling request and that these payments have been treated as consideration for taxable supplies.

The People entered into the Agreement with Entity A in its capacity as the Entity A Manager and for and on behalf of certain specified entities.

At the same time and in connection with the Agreement, the People also entered into:

(a) The Initial Indigenous Land Use Agreement with Entity A

(b) The Entity A Sub Fund Agreement for the Charitable Trust and Direct Benefits Trust” with Entity A and the trustee

In accordance with the Agreement, the Aboriginal Corporation (AC) executed the Local Aboriginal Corporation (LAC) Deed of Assumption (LAC Deed of Assumption) agreeing to accept its appointment as agent for the People and assume the rights and obligations of the LAC.

The People are currently registered for GST. It is intended to apply for cancellation of this GST registration (under section 25-50) and for cancellation of the ABN (under the ABN Legislation) on the basis that the People are not an 'entity' for the purposes of section 184-1 and/or are not “carrying on any enterprise” in relation to the specified payments.

Agreement

The Agreement documents the arrangement between the People and Entity A in relation to Entity A conducting its operations on the land and waters described in clause XX and shown in Schedule X (Agreement Area),

The Agreement is an ancillary agreement to the Initial Indigenous Land Use Agreement (ILUA) and future ILUA's and commences on the date it is signed by all parties being the Commencement Date.

Under the Agreement, the financial benefits to be paid by Entity A (Entity A Payments) comprise:

(a) $xx (within 30 Business days after the Commencement Date) and $xx (within 30 Business Days after the day the Initial ILUA is registered on the Register of ILUA's) to the DBT Trustee in accordance with clause xx (Milestone Payments);

(b) $xx per year from the Commencement Date to when production commences for a period of up to X years (adjusted to CPI) to the DBT Trustee in accordance with clause XX(Pre-Production Payments); and

(c) Quarterly benefit payments from when production commences to the CT Trustee and the DBT Trustee in accordance with clause XX and Schedule XX and in the proportions detailed below (Production Payments).

For the purpose of this ruling you have referred to the Milestone Payments, the Pre-Production Payments and the Production Payments are collectively referred to as the Entity A Payments.

Entity A is to pay the Entity A Payments to a Benefits Management Structure comprising the following entities and arrangements (as approved under clause XX):

(a) Entity A as trustee;

(b) A charitable trust

(c) A discretionary trust known as the DBT

(d) The Sub Fund Agreement

Pursuant to clause XX of the Agreement, Entity A is to pay each Production Payment as follows:

a) X% to CT Trustee as trustee for the Charitable Trust reducing to Y%

b) X% to DBT Trustee as trustee for the Direct Benefits Trust increasing to Z%

The Agreement relevantly provides that:

(a) The People agree that the Entity A Payments and other benefits provided under this document are in full and final satisfaction of all Claims arising from the doing of all acts covered by this document;

(b) The People unconditionally and irrevocably release and discharge Entity A from any and all claims, actions, demands or proceedings whether present or in the future for any Claim by any Person arising from the doing of any act covered by this document from time to time; and

(c ) Claim is defined in clause XX to mean claim, benefit, compensation, damages, restitution or other entitlements in money or kind, payable or awardable under any law arising directly or indirectly from the loss of, interference with or effect on any:

(i) Native title rights and interests;

(ii) Aboriginal heritage or cultural values; or

(iii) Interest of the People in relation to land that is derived from a connection with, or use or occupation of land pursuant to or derived from any Aboriginal tradition or traditional law or custom.

The Agreement requires the People to support Entity A's Business including by:

(a) Consenting to and agreeing to support and assist the grant of each Interest and Approval covered by this document (including those granted before the Commencement date) within the Agreement Area;

(b) Consenting to and agreeing to support and assist the conduct of each and every element of Entity A's Business authorised, contemplated or permitted by such Interest and Approvals within the Agreement Area; and

(c) Not opposing Entity A's Business including a thing or act done outside the Agreement Area

Under Part X of the Agreement, Entity A and the People also agree to work together on various matters relating to Entity A's Business.

A breach by the People of their obligations to provide support for Entity A's Business as contemplated by clause X gives rise to a contractual right of Entity A to suspend future Entity A Payments, set-off any loss or damage against future Entity A Payments and/or terminate the Agreement .

A breach by Entity A of its obligations to pay the Entity A Payments or other required payments gives rise to a contractual right of the People to issue notices, suspend their support and/or terminate the Agreement.

Initial Indigenous Land use Agreement (ILUA)

The Initial ILUA gives effect to the consents and support provided by the People for Entity A's Business under the Agreement and protects their rights in respect of the Initial ILUA Area as identified in Schedule X (Initial ILUA Area) which is part of the Agreement Area .

Under clauses XX and YY, the People agree that the benefits provided under the Agreement are in full and final satisfaction of all Claims arising from the doing of all acts covered by this document in the Initial ILUA Area and provides a release in similar terms to clause XX of the Agreement.

Sub-Fund Agreement

The Sub-Fund Agreement is part of the “Benefits Management Structure” approved to receive the Entity A Payments from the Commencement Date as specified in clause XX of the Agreement. By executing the Sub Fund Agreement and the Agreement, the People and Entity A have agreed the “Benefits Management Structure” as specified in clause XX of the Agreement.

The purpose of the Sub Fund Agreement is to record the terms on which the CT Trustee and the DBT Trustee will receive and manage the Entity A Payments and any other contributions by Entity A.

The Sub Fund Agreement is also a “Sub Fund Agreement” for the purposes of the Charitable Trust and the Direct Benefits Trust, which establishes a Sub Fund for each Trust to be known as the Entity A Sub Fund and records the consent of the People to the DBT Trustee and the CT Trustee receiving contributions from Entity A.

The Sub Fund Agreement also sets out, in Schedules X and Y, the particular requirements that will apply under the Charitable Trust Deed and the Direct Benefits Trust Deed to the Entity A Sub Fund (clause X). These requirements include obligations with respect to governance, accounting and reporting to Entity A.

The DBT Trustee and the CT Trustee acknowledge and agree that they have no rights or obligations under the Agreement, and will not attempt to assert any, entitlement to enforce terms of the Agreement except to the extent expressly provided in clause X of the Agreement

The DBT Trustee and the CT Trustee agree to act in a manner that is consistent with the rights and obligations of the parties to the Agreement

Local Aboriginal Corporation (LAC) Deed of Assumption

THE LAC Deed of Assumption is required to legally bind AC as it is not a party to the Agreement, Initial ILUA or Sub Fund Agreement.

The AC warrants that it is authorised by the People to perform the roles allocated to the Local Aboriginal Corporation in the Agreement, Initial ILUA and Sub Fund Agreement (including acting as agent of the People) and agrees to be bound by and perform the obligations of the LAC under the Agreement, Initial ILUA and Sub Fund Agreement including any obligations that accrued before the Commencement Date .

The AC agrees that it has no rights under the Agreement, Initial ILUA and Sub Fund Agreement and that it has no, and will not attempt to assert any, entitlement to enforce the terms of those documents.

Further information received

Your representative provided the following additional information:

The amounts received and declared in previous Business Activity Statements (BAS) for the People relate to payments to the Trustee of the Direct Benefits Trust and the Trustee of the Charitable Trust from another company under another similar type of agreement.

Relevant legislative provisions

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

Reasons for decision

In this reasoning:

unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

All terms marked by an asterisk are defined terms in the GST Act

All reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on ato.gov.au

Under section 9-40, an entity must pay Goods and Services Tax (GST) on any taxable supply it makes.

The Entity A payments under the Deed are consideration for a taxable supply if they have a nexus with a supply made either individually or collectively by the People which satisfies the requirements of section 9-5. This section provides that:

You make a taxable supply if:

(a) You make the supply for consideration; and

(b) The supply is made in the course or furtherance of an enterprise that you carry on; and

(c) The supply is connected with the indirect tax zone (Australia); and

(d) You are registered, or required to be registered.

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.

On XXYY, the People entered into the Agreement with Entity A.

The Agreement involves the entry into various obligations by the parties and therefore there are supplies made under the 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;

Before we consider the People collectively and individually, it is necessary to consider the role of the AC and the trusts within the Benefits Management Structure.

The Aboriginal Corporation

Clause X of the Agreement discusses the LAC and states that the People act through the LAC.

Clause X outlines which entity is the LAC at the commencement date of the Agreement .On XXYY and in accordance with clause X of the Agreement, the AC executed the LAC Deed of Assumption agreeing to accept its appointment as agent for the People and assume the rights and obligations of the LAC as detailed in clause X of the Agreement, clause X of the ILUA and clause X of the Sub Fund Agreement

Pursuant to clause X of the LAC Deed of Assumption, AC warrants that it is authorised by the People to perform the roles allocated to the LAC in the Agreement, Initial ILUA and Sub Fund Agreement. Further, AC agrees to be bound by and perform the obligations of the LAC under the Agreement, Initial ILUA and Sub Fund Agreement as if references in those documents and the CT and DBT to the LAC are references to it.

Finally, AC agrees that in its capacity as the LAC, it has no rights under the Agreement, Initial ILUA and Sub Fund Agreement and that it has no, and will not attempt to assert any entitlement to enforce the terms of those documents.

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.

Paragraph 28 of GSTR 2000/37 identifies factors that indicate an agency relationship. These include:

Any description of you as an agent, having authority to act for another party, in an agreement (express or implied) between you and the other party.

Any exercise of the authority that you are given to enter into legal relations with a third party.

Whether you bear any significant commercial risk

Whether you act in your own name

In this case, based on the documentation provided, we can conclude that the AC is an agent of the People.

Consequently, the AC will not be making taxable supplies to Entity A in its capacity as agent for the People.

The Benefits Management Structure

Part X of the Agreement discusses the Benefits Management Structure.

The People have set up a Benefits Management Structure to look after the money that Entity A pays the People under the Agreement. This structure is made up of a DBT, CT, Sub Fund Agreement and a Trustee.

Part X of the Agreement outlines that the payments must be directed as follows:

Milestone Payments must paid to the Direct Benefits Trust

Pre-Production Payments must be paid to the Direct Benefits Trust

Production Payments to be paid to both the CT and the DBT.

The Trustee is responsible for the proper operation, administration and management of the Benefits Management Structure The Trustee is however, not a party to the Agreement and is not a Related Entity.

The recitals to the DBT Deed clearly identify the purpose for which the Benefits Management Structure was established.

Clause X of the DBT Deed lists the objects of the Trust. These are stated as follows:

(a) To accept payments into the Trust Fund and hold the Trust Fund for the benefit of the beneficiaries; and

(b) Distribute the Trust Fund to the beneficiaries in accordance with the Deed.

The recitals to the CT include similar recitals to those outlined in the DBT. The recitals for the CT state further, that the trust has been created for the purposes of benefiting the Community, including the People and is established for Charitable Purposes (Recital X). The Charitable Trust objects are detailed in clause XX which states in part:

X Trust Objects

The Trust Fund will be applied by the Trustee in accordance with the terms of this Deed exclusively for the Trust Objects which are the provision of money, property or benefits for other persons or entities for the promotion and advancement of charitable purposes that benefit the current and future generations of Community members

The DBT and the CT are further underpinned by the Entity A Sub Fund Agreement for Trusts. The recitals further clarify the purpose of the trusts and the reason for the Benefits Management Structure.

It is clear from the contents of the above documents that the DBT and the CT are an agreed vehicle for the receipt of payments from Entity A and are a conduit through which the Entity A payments are directed for the benefit of the People. The purpose of the Trusts is to ensure appropriate governance and distribution of the payments made by Entity A.

The DBT and the CT do not make taxable supplies to Entity A for the payments received by them. The payments are received on behalf of the People. As such, we must examine whether the People collectively or individually are an entity for the purposes of section 9-5.

People individually and collectively

The 'People' are a party to the Agreement and make supplies. 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. We 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 activity 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 Agreement involves significant payments, the purpose of the People in entering into the Agreement relates to recognition of their 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 Agreement and similar agreements with 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 rights and interest 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 Project 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 Entity A under the Agreement. Rather, Entity A's interests in property derive from separate 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 Agreement.

Conclusion

Payments made by Entity A to the People (but directed to the respective Trusts under the Benefits Management Structure) are not in connection with any enterprise conducted by the People (collectively or individually) and therefore there are no taxable supplies made by the People (collectively or individually) under the Agreement.

In addition, as set out above, the AC will not be making taxable supplies to Entity A in its capacity as agent of the People or as agent of the LAC.

Finally, the DBT and the CT do not make supplies to Entity A for the payments received by them. The payments are received on behalf of the People.

Are the People (collectively) entitled to be registered for GST or to an Australian Business Number (ABN)?

The People are currently registered for GST.

We have determined above that the People are not carrying on an enterprise in relation to the payments received from Entity A. Consequently, the People are not entitled to be registered for GST in relation to these payments.

Similarly, the A New Tax System (Australian Business Number) Act 1999 (ABN Act) states who is entitled to an ABN. Subsection 8(1) states:

(1) You are entitled to have an Australian Business Number (ABN) if:

(a) you are carrying on an enterprise in Australia; or

(b) in the course or furtherance of carrying on an enterprise, you make supplies that are connected with the indirect tax zone.

We have determined above that the People are not carrying on an enterprise in relation to the payments received from Entity A. Consequently, the People are not entitled to an ABN in relation to these payments.

We note that the People are currently registered for GST and as set out above, their rights under the GST Act in relation to any other transactions have not been considered in this ruling.

ATO view documents

Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business number

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).