Edited version of your written advice

Authorisation Number: 1051187499457

Date of Advice: 3 May 2017

Ruling

Subject: Goods and Services Tax and Native Title Payments

Question

a) Are you making creditable acquisitions under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to payments made under the Document 1?

b) Are you making creditable acquisitions under section 11-5 of the GST Act in relation to payments made under Document 2?

Answer

No.

The payments made by you to the People (but directed to the various trusts both under Document 1 and Document 2 are not in connection with any enterprise conducted by the People and therefore you are not making any creditable acquisitions in relation to these payments

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.

As part of your operations, you have entered into negotiations and concluded a number of agreements with various indigenous communities. The agreements, the subject of this ruling request, have been entered into by you and the People (and their associated entities).

The following Agreements have been entered into:

(a) Document 1 between X (in his capacities as plaintiff and a member of the counterclaim defendants), various others, the Native Title Aboriginal Corporation (NTAC), Trustee A Limited (A Ltd) (in its capacities as trustee of the Trust 1, trustee of Trust 2 and trustee of Trust 3 and you dated XXYYYY (Document 1); and

(b) Document 2 between you and the People dated XXYYYY (Document 2).

The operation of Document 1 and Document 2 is summarised below.

DOCUMENT 1

Document 1 was entered into on MMYYYY, between representatives of the People, NTAC, A Ltd and you. Pursuant to Document 1, the Parties agreed to settle the Proceedings. Document 1 further acknowledges the termination of Agreement A, with termination effected under Document 2.

The relationship between the Parties and Agreement A parties is as follows:

• X, the "plaintiff" in the Proceedings as recorded in Document 1, signed the Agreement A as a registered native title claimant for the native title claim (and on behalf of the Claim Group).

• A group of individuals, the "counterclaim defendants" in the Proceedings as recorded in Document 1, were the registered native title claimants for the combined Claim and hence the registered native title claimants for the "Claim" as defined under Agreement A.

• NTAC is a party to Document 1 (in its capacity as a registered native title body corporate and for and on behalf of the People) as it holds the native title rights and interests of the common law holders (who constitute the "Claim Group" under the Agreement A as a result of the Determination) on trust pursuant to the Determination.

• A Ltd is trustee of the Trust 1 and is a party to Document 1 in order to acknowledge the releases made by the parties and its view that the "Suspended Payments" referred to in Document 1 were not Trust 1 property. As the recipient of several payments in its capacity as trustee of Trust 2 and as trustee of Trust 1, A ltd is also a party to Document 1 in those capacities too.

A brief outline of the native title claim background to these relationships is set out below.

Native title claim background

As required by the NTA (Division 6 of Part 2) and as part of the orders made in the Determination, NTAC, a company registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) on MMYYYY, was determined on MMYYYY to hold the native title rights and interests the subject of the approved determination of native title in trust for the People and is a registered native title body corporate under the NTA.

Payments made under Document 1

In accordance with clauses XX and XX of Document 1, you have distributed, in lieu of the suspended payments under Agreement A and in relation to the rights obtained by you under Agreement A:

• $XX to A Ltd as trustee of Trust 2 (i.e.Trust 2 referred to under Document 2). This payment is to be applied in accordance with the Trust 2 Deed and Sub Fund Agreement. The Sub Fund Agreement sets out particular governance and administration requirements for the respective trusts that hold and administer payments received from you.

• $XX to A Ltd as the trustee of the Trust 2 (i.e. the Trust 2 referred to under Document 2). This payment is to be applied in accordance with the terms of the Trust 2 Deed and Sub Fund Agreement.

• $XX to A Ltd as agent of the People, NTAC, the "plaintiff" and the "counterclaim defendants", on account of costs and disbursements of the Claim and the Proceedings. A Ltd has transferred this amount to a trust account to cover the legal costs.

In addition, under clause XX you have paid $XX to the trustee of Trust 1, representing an amount that was payable by you prior to you suspending payments under the Agreement A and that was not previously paid.

Purpose of payments

In settling the Proceedings, the payments under clauses XX:

(a) are made in lieu of the suspended payments under Agreement A;

(b) have been calculated by reference to the quantum of financial benefits that would have been payable (if they had not been suspended) by you under clauses XX (various milestone payments) and XX (production payments) of the Agreement A, with the manner of calculation set out in the table at item X of Schedule X to Document 1; and

(c) are made in lieu of suspended payments in relation to the benefits obtained by you under Agreement A for the operation of its project .

DOCUMENT 2

Document 2 is a long term agreement between you, NTAC and the People, that provides benefits to you and joint ventures undertaking your business in the region and on the Peoples country.

Under the Document 2, the People agree to support your business in the area and deliver necessary statutory consents, approvals and cooperation, in exchange for financial benefits based on production in the agreement area. Document 2 also provides an agreed way for you and the People to work together on matters such as heritage, environment, education, health, employment and community participation.

Document 2 provides a process for a formal review to occur three years after commencement, and then every five years. These reviews are intended to identify whether the agreement is operating as originally intended, whether it continues to be workable and satisfactory, whether things could be done differently, and whether any amendments need to be made.

Any amendments resulting from such a review would be made in accordance with clause XX, which requires the agreement of you and NTAC (with evidence of consultation with and consent from the People). Accordingly, the review is likely to focus on operational and relationship issues, rather than substantive changes to the rights and obligations of each party.

In terms of the parties, NTAC enters into Document 2 in its capacity as the registered native title body corporate holding native title on trust for the People:

• the "PBC" (defined in Document 2 to be NTAC or a replacement registered native title body corporate that holds native title on trust or acts as agent of the common law holders of native title) as at the Commencement Date; and

• agent for and on behalf of the People.

Under clause XX:

• The People and each Person from time to time, must enforce the terms of Document 2 and exercise their rights, only through the PBC.

• The PBC, from time to time:

- is entitled to enforce the terms of Document 2 in the name of and for and on behalf of the People; and

- must comply with the terms of Document 2 insofar as Document 2 imposes obligations upon the PBC.

• The PBC must procure and continue to procure that each person who is from time to time an adult Person complies and acts at all times consistently with the obligations of the People under Document 2.

Further, under clause XX, NTAC, as the PBC, is required to not act inconsistently with the obligations of the People, which effectively imposes the various support obligations on NTAC. This is relevant as NTAC holds the determined native title rights and interests on trust for the People.

However, individual People must also sign a Community Ratification Deed which contains their individual confirmation of agreement to be bound by Document 2 and Sub Fund Agreement.

In addition, Document 2 provides for the role of a "Local Aboriginal Corporation" (which will initially be NTAC) for undertaking certain actions, such as receiving and providing notices (see clause XX Document 2). The Local Aboriginal Corporation must also sign a Deed of Assumption confirming it assumes the obligations of the Local Aboriginal Corporation under Document 2 and Sub Fund Agreement. The Deed of Assumption states that the Local Aboriginal Corporation has no rights under Document 2 and Sub Fund Agreement, but this is intended to mean that it has no such rights in its role as Local Aboriginal Corporation, not in its capacity as the PBC (various provisions of Document 2 clearly contemplate obligations separately imposed on the PBC.

Payments made under Document 2

You will make three different types of production payments under Document 2:

(a) XX Payments are based on the amount of product that you take out of the area within the area of the Determination.

(b) XX Payments are based on the amount of product that you take out of mines in the agreement area, outside of the specific Area mine. These payments are calculated quarterly from and start being paid following the registration of the related indigenous land use agreement (Initial ILUA).

(c) XX Payments are made by you in limited circumstances

Purpose of payments

In broad terms, the payments are:

• in exchange for the on-going support and cooperation of the People as necessary from time to time for you to operate your business in the region, including the obtaining of consents and approvals from time to time; as well as compensation for the temporary or permanent impact of mining activities on the People's native title rights and interests, based on the extent of mining activities from time to time.

The on-going support and cooperation provided by the People includes, in particular:

• Agreeing that existing interests and approvals are valid and doing all things reasonably requested by you to validate mining interests or approvals that are not valid.

• Inside the Agreement Area, consenting, from time to time, to certain interests and approvals for your Business. Because this is country the People speak for, the People have a positive obligation to do everything they can to assist you to conduct your business and obtain the interests and approvals you require and make sure they can be validly exercised.

• Outside the Agreement Area, agreeing, from time to time, not to oppose or object to you conducting your business. The People also agree not to encourage other people to lodge objections.

The on-going support and cooperation goes beyond just NTA procedures. Clauses XX (including the Heritage Protocol referred to in that clause), expressly concern a range of assistance and consents that are not directly related to NTA procedures.

Part X of Document 2 also contains a range of on-going obligations relating to the manner in which the parties are required to work together and clause XX contains on-going obligations in relation to entry into ILUAs.

In terms of compensation for mining activities, clause XX provides that the Production Payments, which are based on the quantity of product produced and hence the extent of mining activities, are compensation for the effect of the operation of your business on the People's native title rights and interests, Aboriginal heritage or cultural values and interests in relation to land derived from a connection or use of land pursuant to Aboriginal tradition.

Who are the payments made to?

Payments are made to the three trusts that are part of a Benefits Management Structure established under Document 2. In summary, when the agreement starts, you are required to pay XX% of the financial benefits to the Trust 2. The remaining XX% of the money will be split between Trust 3 and Trust 4.

Of the XX% that is paid Trust 2 at the beginning of the agreement, XX% of that is set aside by the Trustee into a fund called the Future Fund. The purpose of the Future Fund is to make sure that enough money is set aside for People into the future.

Once the Future Fund is sufficiently large (the intention is that the income on monies invested will support future generations and work under Trust 2) then you will increase the payments to be split between Trust 3 and Trust 4.

The entities in the benefits management structure are explained in further detail below:

• Trust 2 - This benefits the community - i.e. Aboriginal people and entities living in or having a connection with the Land. Some of the amounts paid to Trust 2 will be set aside by the Trustee into the Future Fund.

• Until the Future Fund is amassed, XX% of Production Payments are allocated to Trust 2:

• XX% for general purposes; and

• XX% to the Future Fund.

• After the Future Fund is amassed, XX% of Production Payments are allocated to Trust 2 for general purposes (the People can request this be changed to XX%).

• Trust 3 - This benefits certain adult People.

• Until the Future Fund is amassed, XX% Payments are allocated to Trust 3.

• After the Future Fund is amassed, XX% of Payments are allocated to the Trust 3.

• Trust 4 - This benefits certain adult People and relevant entities.

• Until the Future Fund is amassed, XX% of Payments and Floor Payments are allocated to Trust 4.

• After the Future Fund is amassed, XX% of Payments are allocated to the Trust 4.

Trust 3 and Trust 4 have been determined by the Commissioner to be Indigenous Holding Entities.

The Benefits Management Structure that receives payments under Document 2 also includes a “Sub Fund Agreement”.

A Ltd is permitted to enter into such an agreement by clause XX of each of the Trust 2, Trust 3 and Trust 4 deeds. As emphasised in clause XX of each of Trust 2, Trust 3 and Trust 4 deeds, each sub fund forms part of the relevant trust fund and does not form a separate trust fund.

The Sub Fund Agreement:

• establishes Sub Funds for each Trust and records the consent of the People to A Ltd (the current Trustee) receiving contributions from you;

• establishes obligations in relation to the governance, administration, accounting and reporting for the trusts and the sub funds;

• establishes a mechanism for receiving, remitting and refunding amounts in respect of GST for supplies under Document 2 ;

• requires you and the People to provide to A Ltd certain information relating to Document 2 as it applies to the benefits management structure; and

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 9-20

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5

A New Tax System (Goods and Services Tax) Act 1999 Section 184-5

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

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 11-1, an entity is entitled to input tax credits on any creditable acquisitions it makes.

The term 'creditable acquisition' is defined in section 11-5 as follows:

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a creditable purpose; and

(b) the supply of the thing to you is a taxable supply; and

(c) you provide, or are liable to provide, consideration for the supply; and

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

You will satisfy the requirements of section 11-5 if subsection 11-5(b) is satisfied.

Section 11-5(b) provides that an acquisition is a creditable acquisition if “the supply of the thing to you is a taxable supply”.

The People will make a taxable supply to you if the requirements of section 9-5 are satisfied. 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 this case, there is no provision that would make any supply by the People GST- free or input taxed.

Where the People do not meet any one of the criteria in section 9-5, a supply by the People will not be a taxable supply and the acquisition of any supply will not be a creditable acquisition by you.

You submit that under the Document 1, the supply or supplies made by the People to you are not taxable supplies under section 9-5 because:

a) The People are not making a supply in the course or furtherance of an enterprise that they carry on, as required under section 9-5(b); and

b) The requirement under section 9-5(d) has not been met as the People are not currently registered and are not required to be registered for GST.

In respect of Document 2, you submit that if the People are the relevant suppliers under Document 2, those supplies are not taxable supplies. However, in the alternative, you submit that if NTAC is the relevant supplier under Document 2, the supplies made by NTAC to you under Document 2 are taxable supplies under section 9-5.

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.

Both the Document 1 and Document 2 involve the entry into various obligations by the parties and therefore there are supplies made under the respective agreements. The parties to the Deed of Settlement include X (Plaintiff), Counterclaim Defendants, NTAC, A Ltd (Trustee) and you. NTAC, in its capacity as a registered native title body corporate, holding native title on trust for the People, and for and on behalf of the People who have capacity to contract, is a party to both Document 1 and Document 2.

Who is the supplier to you?

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 you.

Native Title Aboriginal Corporation (NTAC)

Pursuant to section 56(3) of the Native Title Act 1993 (NTA), on the making of a determination of Native Title, the prescribed body corporate holds, in accordance with the regulations, the rights and interest from time to time comprising the native title in trust for the common law holders. At the time of entering into Document 1 and Document 2, NTAC was the Prescribed Body Corporate (PBC).

Section 57(1) of the NTA states as follows:

(1) If the determination under section 56 is that the native title rights and interest are to be held in trust by a prescribed body corporate, the prescribed body corporate, after becoming a registered native title body corporate (see the definition of that expression in section 253), must also perform:

(a) any other functions given to it as a registered native title body corporate under particular provisions of this Act; and

(b) any function given to it as registered native title body corporate under the regulations (see section 58)

(2) …

Document 1 outlines in what capacity NTAC enters into Document 1. It states:

Native Title Aboriginal Corporation, a body incorporated pursuant to the provisions of the Corporations (Aboriginal Torres Strait Islander) Act 2006 (Cth) (NTAC) in its capacity as a registered native title body corporate holding native title on trust for the People, and for and on behalf of the People who have capacity to contract as at the Commencement Date.

Document 2 similarly outlines the role of NTAC in the agreements. Part X of Document 2 details the parties to the Agreement. It states that The PBC (NTAC) represents all People for the purposes of the agreement as their agent and as trustee of their native title. At the start of the agreement it is NTAC, which holds native title on trust for the People in accordance with the determination of native title made by the Federal Court on XXYYYY.

Clause X of Document 2 outlines the capacity of NTAC:

(a) NTAC in its capacity as the registered native title body corporate holding native title on trust for the People enters into this document as:

i. the PBC as at the Commencement Date; and

ii. agent for and on behalf of the People

iii. Subject to clause X, a reference to the PBC in this document is a reference to NTAC in both capacities referred to in clause X.

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.

From the information provided, it is clear that NTAC enters agreements merely, as an agent, for the People who have the capacity to contract in relation to the respective agreements. Therefore NTAC will not make taxable supplies to you in respect of the payments under these agreements. Any supplies made will be supplies by either the People individually or collectively.

The People individually and collectively

The People are a party to Document 1 and Document 2 and make supplies pursuant to these documents.

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

These arguments also relate to the analysis of whether the relevant entity is making supplies 'in the course or furtherance of an enterprise' they carry on.

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

People - Enterprise

You submit that the People are not, collectively, carrying on an enterprise and the requirement in paragraph 9-5(b) is not satisfied.

The definition of 'enterprise' in section 9-20 refers (in part) to an activity or series of activities, done:

(a) in the form of a business; or

(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.

Section 195-1 states that 'business' includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee. 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.

Paragraph 178 of MT 2006/1 states that some indicators of carrying on a business include:

● 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;

● the recurrent or regular nature of the activity;

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

● activity is systematic, organised and carried on in a businesslike manner and records are kept;

● the activities are of a reasonable size and scale;

● a business plan exists;

● commercial sales of product; and

● the entity has relevant knowledge or skill.

While both Document 1 and Document 2 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 Document 1, Document 2 and 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 respective agreements do not involve activities in the nature of trade.

Under the terms of Document 2, 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 you under Document 2. Rather, your 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 either Document 1 or Document 2.

A Limited (A Ltd)

For the sake of completeness we will address the role of A Ltd under both Document 1 and Document 2:

Document 1

A Ltd enters into Document 1 in two capacities:

1. Trustee of Trust 1; and

2. Trustee of Trust 2 and Trust 3.

Clause X of the recitals states as follows:

The Trustee is a party to this document at the request of the other parties, and will seek directions from the Supreme Court that it is justified in executing this document. By entering into this document the Trustee (in that capacity) acknowledges the releases made by the parties, and the Trustee documents its view that the Suspended Payments were not Trust 1 Property

A Ltd, as Trustee of both the Trust 2 and Trust 3, receives payments on behalf of the beneficiaries of the respective Trusts. It is responsible for looking after Trust 2 and Trust 3 and for applying funds in accordance with the Trust Deeds. .

A Ltd is referred to in this document as follows:

'A in its Relevant Trustee Capacity, as agent'

Furthermore, clause X and X state:

(X) A in its Relevant Trustee Capacity must only deal with GST Amounts in accordance with this document and otherwise as directed by the relevant supplier.

(X) A in its Relevant Trustee Capacity must pay the GST Amounts to the Commissioner of Taxation on behalf of the relevant supplier in accordance with the GST returns for the relevant supplier and as required by the GST Law.

It is clear from the details of Document 1 that A Ltd does not make supplies to you and does not receive Payments from you in this regard.

Document 2

Part X of Document 2 discusses the Benefits Management Structure. The term 'Trustee' is described as follows:

An independent professional trustee company is responsible for looking after the Trust 3, Trust 4 and Trust 2. At the start of this agreement, a professional trustee called A Ltd is the trustee. The Trustee is not a party to this agreement but it is a party to the Sub Fund Agreement. It can only take action to enforce the payment of money under this document with the consent and under the direction of the People.

The role of the Trustee is further explained in clause X. Subclause X states:

The Trustee must not take any action to enforce this document (including to compromise or waive any obligation of yours under this document) other than:

(i) The payment obligations in clause X; and

(ii) With the written consent of, and in accordance with any directions from time to time given by, the People.

It is clear from the contents of the Document 2 that A Ltd does not make supplies to you and does not receive payments from you in this regard.

Conclusion

The payments made by you to the People (but directed to the various trusts both under Document 1 and Document 2) 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 either Document 1 or Document 2. Therefore, as the supplies to you are not taxable supplies, the consideration paid under the respective Agreements is not consideration for a creditable acquisition by you.

In addition, as set out above, NTAC enters into the respective Agreements as the agent of the People and is not making a taxable supply under either Document 1 or Document 2.

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