Edited version of your written advice

Authorisation Number: 1051224164595

Date of Advice: 12 May 2017

Ruling

Subject: Payments from mining company to direct benefits trust

Question 1

Are the Payments paid to the Trustee for the Direct Benefits Trust (DBT) under the Indigenous Land Use Agreement (Body Corporate Agreement) (ILUA) a native title benefit under section 59-50 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question 2

Is any part of the payment to the DBT under the ILUA unable to qualify as a native title benefit because of subsection 59-50(3) of the ITAA 1997?

Answer

No

Question 3

Are the amounts paid to the trustee under the ILUA a mining payment under section 59-15 of the ITAA 1997?

Answer

No

Question 4

Where the amount paid under the ILUA is paid to a trust, does the amount form part of the trust estate or the income of the trust?

Answer

The amount forms part of the trust estate

Question 5

Where the trustee distributes an amount of trust estate to a beneficiary of the trust who is an *Indigenous person, an *Indigenous holding entity or a *distributing body, will the amount be non-assessable non-exempt income of the beneficiary?

Answer

Yes

Question 6

Where the amount paid to the trustee under the ILUA is invested, will any income generated be non-assessable non-exempt?

Answer

No

Question 7

Where the trustee distributes an amount of trust income to a beneficiary of the trust who is an Indigenous person, an Indigenous holding entity or a distributing body, will the amount be non-assessable non-exempt income of the beneficiary?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2016

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

The scheme commences on:

14 January 2016

Relevant facts and circumstances

You have provided copies of relevant documents which should be read in conjunction with and form part of the scheme of this ruling.

History of Native Title Claim

A native title claim was filed on behalf of the People in the Federal Court of Australia.

The Federal Court determined that the People held native title rights and interests in respect of parts of the Native Title Claim Area (Native Title Determination).

The Federal Court found that the native title rights and interests of the People included rights to access the native title determination area, to conduct ritual ceremonies on that area, to take and use water, to protect and care for sites and objects, to camp and to cook and light fires (Native Title Rights and Interests).

An Aboriginal Corporation (AC) was appointed to be the prescribed body corporate (PBC) in relation to the Native Title Rights and Interests. AC is an Aboriginal Corporation registered with the Office of the Registrar of Indigenous Corporations under the Corporations (Aboriginal and Torres Strait Islander) Act (CATSI Act). Membership of AC is open to adult persons (over 18 years of age) who are members of a class of people known as the People.

Negotiations and entry into the Indigenous Land Use Agreement

The mining company conducts mining operations on areas comprising the Native Title Claim Area. The operations include mining, processing, transporting and shipping mineral as well as developing and operating those things and all infrastructure, works and other things associated with those activities (mining business).

Following the Native Title Determination, the mining company and AC as trustee for the Native Title Rights and Interests and as agent for and on behalf of the People entered into negotiations. The purpose of the negotiations was to reach agreement between the parties about the ongoing development of the mining company's mining business within the Native Title Area.

The parties to the negotiations subsequently entered into the Indigenous Land Use Agreement (Body Corporate Agreement) (ILUA). The ILUA applies to the whole of the determination area.

The ILUA was registered with the National Native Title Tribunal.

Key aspects of the ILUA which are relevant include:

(a) The ILUA contains a comprehensive framework which:

(i) acknowledges and finalises the negotiations between the parties);

(ii) governs the relationship between the parties; and

(iii) outlines the respective rights and obligations of the parties in relation to the access to and use of the Native Title Claim Area.

(b) Under the ILUA the People and AC on behalf of the People consent to certain 'Agreed Acts' to be done by the mining company. The relevant clause is set out below:

(a) Each of the things agreed to in this clause is an Agreed Act.

(b) Subject to a particular subclause, the People and AC agree with, consent to and support and continue to agree with, consent to and support the Existing Operations including all Existing Interests and Existing Approvals.

(c) Subject to other subclauses, the People and AC agree with, consent to and support and continue to agree with, consent to and support:

(i) the doing of every Future Act;

(ii) the grant or Modification of every:

(A) Approval;

(B) Interest

(iii) the Modification of every:

(A) Existing Interest; and

(B) Existing Approval;

that is for an Agreed Purpose, and the giving effect to of each of those things.

(d) The Grant to the mining company or acquisition by the mining company from a third party of a mining lease, exploration licence, special prospecting licence or prospecting licence or any other exploration title is not an Agreed Act, unless it is the Grant of an Interest or Approval for an Agreed Purpose, such as exploring for or abstracting water, or constructing or maintaining a borrow pit or quarry required for the mining company's mining Business.'

The essence of this clause is that the parties consent to the ongoing operations of the mining company's mining Business including the grant of mining and explorations licences or permits within the Native Title Area.

The ILUA provides that the People and AC and must sign all documents and do all things requested by the mining company to facilitate the Agreed Acts including withdrawing any objections and signing any documents necessary to give effect to the consent to the Agreed Acts.

Monetary benefits and various non-monetary benefits to be provided to the People under the ILUA are set out in the ILUA. Some of the monetary benefits are discussed further below.

Establishment of the entities

The ILUA requires the People to nominate a Benefits Management Structure (BMS) for approval by the mining company to receive and manage the monetary benefits payable to the People under the ILUA. The BMS must comprise the following entities:

(a) one or more charitable trusts;

(b) one or more discretionary trusts;

(c) a trustee who is either a professional trustee company or a company limited by guarantee.

At the date of entering into the ILUA the People had nominated, and the mining company had accepted, a BMS comprising the following three entities:

(a) the Charitable Trust (CT);

(b) the Direct Benefits Trust (DBT)

(c) a professional trustee company to act as trustee of the CT and the DBT.

In further compliance with the ILUA, the People:

(a) nominated AC as the prescribed body corporate; and

(b) entered in a Sub-Fund Agreement between the mining company, AC and the trustee of the CT and the DBT.

The DBT Trust Deed defines the People as Aboriginal persons who recognise themselves as and are recognised by other People as members of the language group of the People and who hold in common the body of traditional law and culture of the Traditional Lands and who are entitled to membership of the PBC.

The DBT Trust Deed details the Traditional Owner Register, being the register of PBC Members to which the trustee may make distributions. PBC Members must be of the People. The Trustee may also keep, maintain and update a register of beneficiaries other than those described in the Traditional Owner Register. Any person/entity listed in this 'Register of Other Beneficiaries' must be an Indigenous person or an Indigenous holding entity.

Payment to the People under the ILUA

In accordance the ILUA, the mining company paid/is required to pay the People amounts on reaching various milestones, and quarterly production payments calculated on mineral shipped by the mining company (mining company Payments).

Under the ILUA, the Parties acknowledge that the mining company will also make certain payments directly to AC to assist AC to carry out its administrative functions in implementing the ILUA on behalf of the People.

The ILUA requires the mining company to pay a certain percentage of the mining company Payments to the CT and a certain percentage to the DBT (DBT Payments).

Since the execution of the ILUA, and in satisfaction of its obligations, the mining company made the milestone payments prior to the income year ending 30 June 2016.

In accordance with the ILUA, the People and AC acknowledged and agreed that any benefits provided under the ILUA are:

(a) in consideration of the undertakings and consents given by the People and AC;

(b) in full and final satisfaction of any 'Compensation Entitlements' (defined in the ILUA as any rights or entitlements whether monetary or otherwise, under any law arising from or in connection with the Agreed Acts, the grant of any of the Interests or Approvals and the enjoyment and exercise of rights or discharge of obligations under each Agreed Act); and

(c) received on behalf of any person who holds Native Title with respect to any part of the Native Title Claim Area including the People.

Deed of Variation

A Deed of Variation was executed amending the DBT Deed to amend the class of eligible beneficiaries.

Before execution of the Deed of Variation, the beneficiaries under the DBT Trust Deed were identified as:

a) the People listed on the Traditional Owner Register as amended from time to time

b) the members of the Prescribed Body Corporate (PBC)

c) those persons who would be entitled to be on the Traditional Owner Register but for the fact that they are under 18 years of age

d) a natural person who is not a Traditional Owner but in respect of whom the PBC has provided written notice to the Trustee that the person is approved as a beneficiary

e) the Charitable Trust (CT)

f) any entity in which a person referred to in (a) above (or any of them) or the PBC, has a membership interest (in accordance with section 960-135 of the Tax Law) and which is approved as a beneficiary by the PBC

g) the Prescribed Body Corporate (AC); and

h) a person or body nominated under a Sub-Fund Agreement as a Beneficiary, for the purposes of receiving benefits from that Sub-Fund only.

The Deed of Variation varies the DBT Trust Deed in respect of beneficiaries under the DBT Trust Deed as follows:

(a) the definition of 'Beneficiaries' is amended by:

(i) deleting the words 'a natural person' where they appear in sub-clause (d) and replacing them with the words 'an Indigenous person'.

(ii) deleting the words 'any entity' where they appear in sub-clause (f) and replacing them with the words 'any Indigenous Holding Entity'.

(iii) deleting the words 'a person or body' where they appear in subclause (h) and replacing them with the words 'an Indigenous person or an Indigenous Holding Entity'.

(b) inserting the following new definition 'Indigenous Holding Entity has the meaning given in the Tax Law;'

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 59-15

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 6-15

Income Tax Assessment Act 1997 Section 10-5

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment Act 1936 Subsection 95(1)

Income Tax Assessment Act 1936 Section 128U

Native Title Act 1993 Section 11

Native Title Act 1993 Section 24BB

Native Title Act 1993 paragraph 31(1)(b)

Native Title Act 1993 Subsection 61(1)

Native Title Act 1993 Section 225

Native Title Act 1993 Section 226

Native Title Act 1993 Section 228

Native Title Act 1993 Section 232

Native Title Act 1993 Section 233

Native Title Act 1993 Section 227

Native Title Act 1993 Section 193

Native Title Act 1993 Section 223

Native Title Act 1993 Section 237A

Native Title Act 1993 Section 238

Native Title Act 1993 Section 253

Reasons for decision

All future references to the Income Tax Assessment Act 1997 will appear as ITAA 1997.

All future references to the Income Tax Assessment Act 1936 will appear as ITAA 1936.

All future references to the Native Title Act 1993 will appear as NTA 1993.

Issue 1

Question 1

Summary

The Payments paid to the Trustee for the Direct Benefits Trust (DBT) under the Indigenous Land Use Agreement (Body Corporate Agreement) (RTIO ILUA) are a native title benefit under section 59-50 of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed reasoning

The Payments paid to the trustee for the Direct Benefits Trust (DBT) under the Indigenous Land Use Agreement (Body Corporate Agreement) (ILUA) are a native title benefit under section 59-50 of the Income Tax Assessment Act 1997 (ITAA 1997).

For a payment to satisfy the requirements to be a native title benefit under section 59-50 of the ITAA 1997, the payment must:

● otherwise be included in assessable income (subsection 59-50(1) of the ITAA 1997)

● be made to an Indigenous person or Indigenous holding entity (subsection 59-50(1) of the ITAA 1997)

● arise under an agreement (subparagraph 59-50(5)(a)(i) ITAA 1997) or an ancillary agreement (subparagraph 59-50(5)(a)(ii) ITAA 1997)

● relate 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 (paragraph 59-50(5)(a) ITAA 1997) OR is compensation determined in accordance with Division 5 of Part 2 of the Native title Act 1993 (paragraph 59-50(5)(b) ITAA 1997)

Payment would otherwise be included in your assessable income

The assessable income of a taxpayer consists of the following amounts:

● amounts which constitute income according to ordinary concepts (ordinary income) (section 6-5 of the ITAA 1997)

● amounts which are not ordinary income but are included in the assessable income of a taxpayer by virtue of the specific provisions contained in the ITAA 1997 and the ITAA 1936 (statutory income) (section 6-10 of the ITAA 1997)

If an amount received by a taxpayer is neither ordinary income nor statutory income then the amount is not included in the assessable income of the taxpayer (section 6-15 of the ITAA 1997).

There is no definition of 'ordinary income' contained in either the ITAA 1997 or the ITAA 1936 but a substantial body of case law has evolved over time which sets out various factors that must be taken into account to determine whether an amount is ordinary income.

Where an amount is not ordinary income, it may give rise to statutory income.

Section 10-5 of the ITAA 1997 contains a list of provisions in the ITAA 1997 and the ITAA 1936 which, amongst other things, deal with the specific types of amounts which are included in statutory income.

Where an amount does not have the characteristics of ordinary income, and is not statutory income, the amount may be regarded as capital in nature. The difficulties encountered in determining whether an amount is income or capital are recognised in extensive case law including IRC v British Salmon Aero Engines Ltd [1938] 2 KB 482 per Lord Greene; Hallstroms Pty Ltd v Federal Commissioner of Taxation (1946) 72 CLR 634 per Dixon J and Scott v Commissioner of Taxation (NSW) (1935) SR (NSW) 215 per Jordan CJ.

In GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation (1990) 170 CLR 124 the Full Bench of the High Court set out a number of factors which they considered indicative of whether an amount was received on income or capital account including the 'periodicity, regularity, recurrence, character of the thing disposed of and the scope of the transaction, venture or business which gave rise to the receipt.

Further, in Federal Commissioner of Taxation v Anstis (2010) 76 ATR 735, the court stated that the 'totality of the circumstances' must be considered in determining the character of the amount in the recipients hands.

Application to your circumstances

If the DBT Payments paid to the DBT under the ILUA are not native title benefits it is considered they would otherwise be included in assessable income; as ordinary income.

Payment must be made to an *Indigenous person or an *Indigenous holding entity

Subsection 995-1(1) of the ITAA 1997 defines an 'Indigenous person' as an individual who is a member of the Aboriginal race of Australia or a descendent of an Indigenous inhabitant of the Torres Strait Islands.

Subsection 59-50(6) of the ITAA 1997 defines 'Indigenous holding entity' as:

(a) a distributing body

(b) a trust if the beneficiaries of the trust can only be Indigenous persons or Indigenous holding entities; or

(c) a registered charity

Subsection 128U(1) of the ITAA 1936 defines a 'distributing body' as:

(a) an Aboriginal Land Council established by or 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

(d) any other incorporated body that:

i. is established by or under provisions of a law of the Commonwealth or of 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

Further assistance is provided in the NTA 1993.

● Subsection 61(1) of the NTA 1993 defines a 'native title claim group' as those persons who, according to their traditional laws and customs, hold the common or group rights and interests comprising the particular native title claimed.

● Subsection 223(1) of the NTA 1993 defines 'native title' as the communal, group or individual rights and interests of Aboriginal people or Torres Strait Islanders.

● Section 225 of the NTA 1993 requires that a determination of native title must specify who holds it.

Application to your circumstances

Under the ILUA the payments are made to the trustee of the DBT.

The DBT does not satisfy the definition of a distributing body as it is not an Aboriginal Land Council or an incorporated entity. Further, the DBT is not a registered charity.

The DBT must therefore satisfy paragraph 59-50(6)(b) of the ITAA 1997 to qualify as an indigenous holding entity. That is, the beneficiaries of the DBT Trust Deed must be restricted to Indigenous persons or Indigenous holding entities.

'Indigenous person' is defined in section 995-1 of the ITAA 1997 as an individual who is:

(a) a member of the Aboriginal race of Australia; or

(b) a descendant of an Indigenous inhabitant of the Torres Strait Islands.

Prior to the execution of the Deed of Variation to the DBT Trust Deed, beneficiaries could by definition include a person who is not an Indigenous person or an entity that is not an Indigenous holding entity. Accordingly, prior to the execution of the Deed of Variation, DBT did not qualify as an Indigenous holding entity for the purposes of subsection 59-50(6) of the ITAA 1997.

The Deed of Variation varied the trust by amending the definition of 'Beneficiaries' in the Trust Deed. Where they appear in the relevant subclauses, the words 'a natural person' and the words 'any entity' were replaced pursuant to the Deed of Variation with the words 'Indigenous Holding Entity' and the words 'a person or body' are replaced with the words 'an Indigenous person or an Indigenous Holding Entity'.

As a result of the changes to the definition of 'Beneficiaries' the beneficiaries of the DBT can only be Indigenous persons or Indigenous holding entities. Further, any person/entity listed in the 'Register of Other Beneficiaries' must be an Indigenous person or an Indigenous holding entity.

The DBT therefore satisfies paragraph b) of subsection 59-50(6) of the ITAA 1997 from 14 January 2016.

The amount or non-cash benefit must arise under an agreement made under an Act of the Commonwealth, a State or a Territory, or under an instrument made under such an Act OR an ancillary agreement to such an agreement

While the terms 'agreement' and 'ancillary agreement' are not defined in either the ITAA 1936 or the ITAA 1997, Note 1 to subsection 59-50(5) of the ITAA 1997 states that Indigenous Land Use Agreements (ILUAs) within the meaning of the NTA 1993; agreements under paragraph 31(1)(b) of the NTA 1993 or recognition and settlement agreements under the Traditional Owners Settlement Act 2010 (Vic) will satisfy the requirement to be an agreement or an ancillary agreement.

Further Note 2 to subsection 59-50(5) of the ITAA 1997 states that an ILUA does not require a determination of native title under the NTA 1993.

Paragraph 1.27 of the Explanatory Memorandum (EM) to Taxation Laws Amendment Bill 2012 No. 6 (TLAB 2012/6) which introduced section 59-50 of the ITAA 1997 also confirms that an ILUA would be considered an agreement.

Paragraph 1.29 of the EM to TLAB 2012/6 states that '..An ancillary agreement is a subsidiary agreement that is directly connected with a primary agreement and may provide details not contained in the primary agreement.'

Section 24BB of the NTA 1993 provides that an agreement must be about one or more of the following matters in relation to an area:

(a) the doing, or the doing subject to conditions (which may be about procedural matters), of particular future acts, or future acts included in classes,

(aa) particular future acts (other than intermediate period acts) or future acts (other than intermediate period acts) included in classes, that have already been done.

Section 24BE of the NTA 1993 goes on to provide that

1) The agreement may be given for any consideration, and subject to any conditions, agreed by the parties (other than consideration or conditions that contravene any law)

2) Without limiting subsection (1), the consideration may be the grant of a freehold estate in any land, or any other interests in relation to land whether statutory or otherwise.

Therefore, where the parties have made an agreement under the NTA, it is this agreement which should be construed as the 'agreement' under paragraph 59-50(5)(a) of the ITAA 1997 and any other agreements between the parties should fall within the term 'ancillary agreement'.

Application to your circumstances

The payments to the trustee for the DBT arise under the ILUA which is an indigenous land use agreement made under the NTA, an Act of the Commonwealth. The ILUA is registered with the National Native Title Tribunal.

The ILUA contains a comprehensive framework which acknowledges and finalises the negotiations between the mining company, AC and the People (the Parties); governs the relationship between the Parties; and outlines the respective rights and obligations of the Parties in relation to the access to and use of the native title determination area.

Conclusion

The DBT Payments arise under an agreement made under an Act of the Commonwealth satisfying the requirement in paragraph 59-50(5)(a) ITAA 1997.

The amount or benefit must relate 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 is compensation determined in accordance with Division 5 of Part 2 of the Native title Act 1993

Whether a payment relates to an act (or acts) that would extinguish native title or would be wholly or partly inconsistent with the continued existence of native title, or the ability of an indigenous group to enjoy or exercise their native title rights, will be a question of fact in each case.

Subsection 995-1(1) of the ITAA 1997 states that 'native title' has the same meaning as in the NTA 1993.

Subsection 223(1) NTA 1993 defines the term 'native title' or 'native title rights and interests' as:

The expression native title, or native title rights and interests means the communal, group or individual rights and interests of Aboriginal peoples or Torres Strait Islanders in relation to land or waters, where:

(a) the rights and interests are possessed under the traditional laws acknowledged, and the traditional customs observed, by the Aboriginal peoples or Torres Strait islanders; and

(b) the Aboriginal peoples or Torres Strait Islanders, by those laws and customs, have a connection with the land or waters; and

(c) the rights and interests are recognised by the common law of Australia.

Subsections 223(2) and 223(3) of the NTA 1993 extend the definition in 223(1) of the NTA 1993 to include hunting, gathering or fishing rights and rights and interests under 223(1) of the NTA 1993 which are converted into, or replaced by, statutory rights and interests.

The particular rights and interests that will fall within the definition of 'native title' or 'native title rights and interests' will differ from one Indigenous group to another. These 'rights and interests' of an Indigenous group would be expected to be particularised in the native title claim lodged by the group under the NTA 1993, whether or not it has been determined. It is also possible that the native title rights and interests of several Indigenous groups may co-exist for a particular geographic region (claim area).

Even in situations where a native title claim is not successful, paragraph 1.28 of the EM to TLAA 2012/6 states that 'it is possible for an amount or benefit arising under an agreement to qualify as a native title benefit even if it is later found that native title does not exist. It is sufficient that the agreement is made under Australian legislation and the amount or benefit otherwise meets the criteria of the provision, if the acts to which the agreement pertains would extinguish native title if it was found to exist' [see also example 1.9]. Therefore, if an agreement is struck after a claim is lodged but before it is determined, the benefits under the agreement may qualify as a native title benefit under section 59-50 of the ITAA 1997. However, if an agreement is struck after a native title claim has been rejected, amounts paid under the agreement could never qualify as native title benefits.

The ITAA 1997 does not define the 'act' that might extinguish or impair the exercise of native title. However section 226 of the NTA 1993 defines 'act' to include the grant, issue, variation, extension, renewal, revocation or suspension of a licence, permit, authority or instrument; the creation, variation, extension, renewal or extinguishment of any interest in relation to land or waters or any legal or equitable right (under contract or otherwise) and any act having an effect at common law or in equity.

The relevant 'act' in paragraph 59-50(5)(a) of the ITAA 1997 is not confined to an act or acts that have already occurred and could encompass a 'past act' (section 228 of the NTA 1993), an 'intermediate period act' (section 232A of the NTA 1993), a 'future act' (section 233 of the NTA 1993) or arguably any act at common law which may have the effect of extinguishing native title, which prevails over native title or causes native title to yield. (see Brown v Western Australia (2012) 294 ALR 223 at 456 upheld in Western Australia v Brown [2014] HCA 8; 306 ALR 168).

The ITAA 1997 does not define 'would' however the term appears to contemplate acts that are yet to occur, but which will have an impact on native title when they do. This might include situations where the agreement between the native title group and the mining company contemplates consent being given to a future grant of a mining right for an area yet to be identified but which will impose restrictions on the ability of the members of the native title group to access or enjoy the land when the mining right is granted.

The ITAA 1997 does not provide a list of circumstances where native title is considered to have been 'extinguished' or when some act may be considered to be 'wholly or partly inconsistent with its continued existence, enjoyment or exercise'.

However the NTA 1993 states the following at section 227:

An act affects native title if it extinguishes the native title rights and interests or if it is otherwise wholly or partly inconsistent with their continued existence, enjoyment or exercise.

It has been argued that it is sufficient that an act affects native title rights and interests, regardless of who holds those rights and interests. In particular ITAA 1997 does not require that the native title rights and interests be held by the same persons receiving, or directing, the amounts under the agreement.

The circumstances under which a benefit 'relates to' an act that extinguishes or affects native title is not set out in the ITAA 1936, ITAA 1997 or the NTA 1993. However, the phrase has been considered in a number of cases which support a wide interpretation. In Tooheys Ltd v Commissioner of Stamp Duties (NSW) (1961 105 CLR 604, Taylor J acknowledged that the phrase 'relating to' was extremely wide but considered some precision was to be found within the context in which the phrase was expressed. In Oceanic Life Ltd v Chief Commissioner of Stamp Duties (NSW) [1999] NSWCA 416 Fitzgerald JA considered the width of the phrase 'relating to' is undoubted. The most recent considerate of the phrase appears in Commonwealth Bank of Australia v Garuda Aviation Pty Ltd (2013) 45 WAR 92.

While it is not necessary to establish a direct link between the payment (or the quantum of the payment) under the relevant agreement or ancillary agreement and the act or acts asserted to have extinguished native title or been wholly or partly inconsistent with its continued existence, there must be a connection between the payment and the act for the amount paid to qualify as a native title benefit.

Application to your circumstances

The Federal Court determined that the People held native title rights and interests in respect of parts of the Native Title Claim Area (Native Title Determination).

Following the Native Title Determination, the mining company and AC as trustee for the Native Title Rights and Interests; and as agent for and on behalf of the People, entered into negotiations to reach agreement about the ongoing development of the mining company's mining Business within the Native Title Area.

The mining company and AC entered into the Indigenous Land Use Agreement (Body Corporate Agreement) (ILUA). The ILUA applies to the whole of the determination area. The ILUA was registered with the National Native Title Tribunal.

The DBT Payments to DBT are not compensation determined in accordance with Division 5 of Part 2 of the NTA. Therefore, to qualify as native title benefits, the payments must relate 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.

Determined native title rights and interests; and qualifications

The Federal Court found that the native title rights and interests of the People included rights to access the native title determination area; to conduct ritual ceremonies on that area; to take and use water; to protect and care for sites and objects; to camp and to cook and light fires (Native Title Rights and Interests).

The payments

In accordance with the ILUA, the mining company paid or is required to pay the People various milestone payments; and quarterly production payments (DBT Payments) calculated on mineral shipped from the mining company's mines and ports (Mining company payments).

All of the milestone amounts were made prior to the income year ending 30 June 2016.

Acts given consent

In accordance with the ILUA, the People and AC acknowledged and agreed that any benefits provided under the ILUA, including the prepayments are:

(a) in consideration of the undertakings and consents given by the People and AC;

(b) in full and final satisfaction of any 'Compensation Entitlements' (which is defined in the ILUA as any rights or entitlements whether monetary or otherwise, under any law arising from or in connection with the Agreed Acts, the grant of any of the Interests or Approvals and the enjoyment and exercise of rights or discharge of obligations under each Agreed Act); and

(c) received on behalf of any person who holds Native Title with respect to any part of the native title claim area including the People.

A Future Act includes an act that takes place after 1 January 1994 and validly affects native title rights and interests to any extent.

Other key terms are defined as follows in the ILUA:

Agreed Act - means those things done or to be done by or for the mining company that are agreed to, consented to or supported under the relevant clause of the ILUA.

Existing Operations - those parts of the mining company's mining business that are within the Agreement Area at the Commencement Date.

Grant - means grant, re-grant or re-make.

Approval - means any authorisation, licence, permit, approval, certificate, consent, direction or notice inclusive of any Modification, and includes an approval from a Minister, Government Agency or other competent authority, for example the approval of proposals under a Government Agreement.

Interest - means (whether granted before, on or after the Commencement Date and as long as the activities are performed for an Agreed Purpose) any:

● legal or equitable interest in land or waters

● right to occupy, use or traverse land or waters

● right to explore for water or quarry

● easement, charge, power or licence over or in connection with land or waters

● authorisation, permit or licence from any Government Agency

'Agreed Purpose' is defined as a purpose that is for or in connection with the mining company's Existing Operations, expansion and further expansion of its mining business; a mining company entity exploring for and abstracting water; and specific town infrastructure.

Payments in satisfaction of Compensation Entitlement

The ILUA provides that the People and AC:

a) acknowledge and agree that the prepayments and the DBT Payments are in full and final satisfaction of any Compensation Entitlements of each member of the People and AC; and

b) release and discharge the mining company and the State from any and all claims, actions, demands or proceedings whether present or future for any Compensation Entitlements by or on behalf of the People and each member of the People.

'Compensation Entitlements' are any rights or entitlements to compensation or damages arising from or in connection with each Agreed Act, the enjoyment and exercise of rights or discharge of obligations under each Agreed Act, the Grant of Interests or Approvals and the exercise of rights or discharge of obligations under each Grant by the mining company or mining company entity; and any effect of each Agreed Act on Native Title including the enjoyment and exercise of rights or discharge of obligations.

Connection between the payments and acts

The ILUA covers acts for which the mining company needs to obtain the People's consent. The ILUA is entered on the Register of Indigenous Land Use Agreements; thereby validating the acts.

In consideration for the payments, the People must agree with, consent to and support, the mining company's existing operations and the doing of every Future Act, and the Grant of every Approval and Interest that is for an Agreed Purpose.

The definition of 'act' in section 226 of the NTA 1993 includes such 'legal acts'.

The rights and interests particularised in the native title determination are wide ranging and it is plausible that the acts, when done, would be wholly or partly inconsistent with enjoyment or exercise of native title; to some extent and for some period of time.

The payments made under the agreement between the parties are in satisfaction of any Compensation Entitlement. The definition of Compensation Entitlement relates directly to the doing of Agreed Acts and the Grant of Interests and Approvals and acknowledges that they may have an effect on the People's native title.

The DBT Payments are instalments of the total amount negotiated between the parties to permit the mining company to conduct its mining project/s on land over which the People hold native title.

Conclusion

Taking a holistic view of the agreement between the mining company and the People, it is considered that the overall package of payments has the required connection to an act, or acts, which would affect the People's native title.

The DBT Payments under the ILUA are 'native title benefits' as that term is defined in subsection 59-50(5) of the ITAA 1997.

From the date of execution of the Deed of Variation, DBT is an 'Indigenous holding entity' as that term is defined in subsection 59-50(6) of the ITAA 1997.

Accordingly, the DBT Payments to the trustee are non-assessable non-exempt (NANE) native title benefits under section 59-50 of the ITAA 1997 from the date of execution of the Deed of Variation and are not required to be included in assessable or net income.

Question 2

Summary

No part of the payment to the DBT under the ILUA is unable to qualify as a native title benefit because of subsection 59-50(3) of the ITAA 1997.

Detailed reasoning

Subsections 59-50(1) and (2) of the ITAA 1997 set out the requirements that must be satisfied for a payment to be a native title benefit. However subsection 59-50(3) of the ITAA 1997 states that an amount or benefit will not be a native title benefit to the extent that it is:

● for the purposes of meeting the provider's administrative costs, or

● as remuneration or consideration for the provisions of goods or services.

In relation to subsection 59-50(3) of the ITAA 1997, the Explanatory Memorandum (EM) to Taxation Laws Amendment (2012 Measures No. 6) Bill 2012 (TLAB No.6 2012) provides further clarification and a number of examples (examples 1.5, 1.6 and 1.7) which demonstrate when an amount has been paid for administrative costs or for goods and services. In particular paragraph 1.23 of the EM states:

An amount or benefit someone provides to meet their administrative costs or as remuneration or consideration for the provision of goods and services is not NANE income, even if the amount is, or arises from, a native title benefit. This is the case even where the amount or benefit is provided to an Indigenous holding entity or Indigenous person (who would be entitled to receive the native title benefit). Administrative costs is a broad term and includes, but is not limited to, fees for legal and accounting services and other necessary costs associated with the ongoing administration of the entity.

Therefore, If an amount is paid for the purposes of meeting (or reimbursing) an entity's administrative costs or is remuneration, or is for goods and services that have been provided, the amount cannot qualify as a mining payment or as a native title benefit, even if the payment is made to or on behalf of, an Indigenous person, an Indigenous group or Indigenous holding entity.

Application to your circumstances

DBT payments

No part of the DBT Payment paid to the DBT under the ILUA is for the purposes of meeting administration costs, or remuneration, or consideration for the provision of goods or services.

Accordingly, no part of each DBT Payment is unable to qualify as a native title benefit because of subsection 59-50(3) of the ITAA 1997.

Other payments

If other payments are made under the ILUA, such as payments for administration costs, reimbursement of the costs of conducting Cultural Heritage work, salary; and payment for contracted services, no part of those payments will qualify as a native title benefit under section 59-50 of the ITAA 1997 and must be included in the recipient's ordinary income.

Question 3

Summary

The amounts paid to the trustee under the ILUA are not a mining payment under section 59-15 of the ITAA 1997.

Detailed reasoning

Under section 59-15 of the ITAA 1997 a payment will be a non-assessable non-exempt mining payment if it satisfies the following conditions:

● it is a mining payment (section 128U of the ITAA 1936)

● it relates to Indigenous land (subsection 995-1(1) of the ITAA 1936); and

● it is made to a distributing body (section 128U of the ITAA 1936); or

● it is made to one or more Indigenous persons (subsection 995-1(1) of the ITAA 1997 or applied for their benefit.

A 'mining payment' is defined in subsection 128U(1) of the ITAA 1936 as 'a payment made to a distributing body or made to, or applied for the benefit of, an Indigenous person or persons, being:

(c) any other payment made on or after 1 July 1979 under provisions of a law of the Commonwealth or of a State or Territory that relate to *Indigenous persons or under an agreement made in accordance with such provisions, being a payment made:

(i) in consideration of the issuing, granting or renewal of a miner's right or mining interest in respect of *Indigenous land

(ii) in consideration of the granting of permission to a person to enter or remain on Indigenous land or to do any act on Indigenous land in relation to prospecting or exploring for, or mining of, minerals; or

(iii) by way of payment of mineral royalties payable in respect of the mining of minerals on Indigenous land or by way of payment of an amount determined by reference to an amount of mineral royalties received by the Commonwealth, a State or the Northern Territory in respect of the mining of minerals on Indigenous land,

However it does not include a payment made by a distributing body (paragraph 128(1)(d) of the ITAA 1936 or a native title benefit (paragraph 128U(1)(e) of the ITAA 1936).

Subsection 6(1) of the ITAA 1936 defines 'Indigenous land' as having the same meaning as in the Income Tax Assessment Act 1997. Subsection 995-1(1) of the ITAA 1997 defines 'Indigenous land' to mean 'any estate or interest in land that, under an Australian law relating to *Indigenous persons, is held for the use or benefit of Indigenous persons'. The term 'Indigenous land' replaced the former term 'Aboriginal land' which was repealed by No 84 of 2013, s 3 and Sch 1 item 14, effective 28 June 2013.

Neither the ITAA 1936 nor the ITAA 1997 define 'estate' or 'interest' in land.

Section 253 of the NTA 1993 defines an 'interest, in relation to land or waters' as meaning:

(a) a legal or equitable estate or interest in the land or waters; or

(b) any other right (including a right under an option and a right of redemption), charge, power or privilege over, or in connection with:

(i) the land or waters; or

(ii) an estate or interest in the land or waters; or

(c) a restriction on the use of the land or waters, whether or not annexed to other land or waters.

Section 253 of the NTA 1993 defines 'land' as including the airspace over, or subsoil under, land, but does not include waters. 'Waters' is defined as including:

(a) sea, a river, a lake, a tidal inlet, a bay, an estuary, a harbour or subterranean waters; or

(b) the bed or subsoil under, or airspace over, any waters (including waters mentioned in paragraph (a)); or

(c) the shore, or subsoil under or airspace over the shore, between high water and low water.

Therefore, if a payment is made to an Indigenous person or persons or applied for their benefit or to a distributing body, to the extent the payment is not a native title benefit under section 59-50 of the ITAA 1997 it may still be a mining payment under section 59-15 of the ITAA 1997.

However a payment will not be non-assessable non-exempt to the extent the amount is paid to a distributing body for the purposes of meeting its administrative costs (subsection 59-15(4) of the ITAA 1997 or where the amount is remuneration or considerations for goods and services provided (subsection 59-15(5) of the ITAA 1997).

Application to your circumstances

The ILUA is made under the Native Title Act which is a Commonwealth Act that relates to Indigenous persons. This requirement is therefore satisfied.

The payments made to the DBT under the terms of ILUA grant permission to the mining company to enter the Agreement Area in order to conduct its mining business which includes mining, processing, transporting and shipping, developing and operating those things and all associated works and infrastructure.

The definition of a mining payment requires that the payment is made in respect of 'Indigenous land'. A determination of native title has been made and there is formal recognition of the claimant's native title rights and interests in the land under the NTA. It is therefore considered that the native title rights and interests in the land are 'held' under an Australian law for the use or benefit of Indigenous persons. Accordingly, as the People's native title has been determined, the condition that the payments are made in relation to 'Indigenous land' is met.

The People were required to nominate a BMS to receive and manage the monetary benefits payable to them. The trustee receives and administers the proportion of the payments, set out in the ILUA, for the benefit of the DBT beneficiaries; who are restricted to Indigenous persons. Each future quarterly DBT Payment transferred into the DBT, for distribution to the beneficiaries, satisfies the requirement that the payment is applied for the benefit of one or more Indigenous persons.

Therefore, the payments paid to DBT under the ILUA would be mining payments under section 59-15 of the ITAA 1997. However, a payment that is a native title benefit is excluded from the definition of a 'mining payment' in paragraph 128U(1)(e) of the ITAA 1936. As it was concluded at Question 1 that the DBT Payments paid under the ILUA are native title benefits under section 59-50 of the ITAA 1997, they are not mining payments under section 59-15 of the ITAA 1997.

Question 4

Summary

Where the amount paid under the ILUA is paid to a trust, the amount forms part of the trust estate.

Detailed reasoning

Sections 59-15 and 59-50 of the ITAA 1997 set out the conditions that must be satisfied for a payment to be a non-assessable non-exempt mining payment or a non-assessable non-exempt native title benefit. They do not discuss the nature of such a payment in the hands of a trustee.

Section 95 of the ITAA 1936 provides that the net income of a trust estate is the total assessable income of the trust estate calculated as if the trustee were a resident taxpayer, less allowable deductions. The income of a trust is what is generated by the trust property.

It follows that a payment, directed to the trustee of a trust pursuant to an agreement between an entity and an Indigenous person or a native title group, will not meet the definition of trust income. The amount directed to the trust will form part of the trust estate.

Application to your circumstances

In accordance with the ILUA, the People nominated a BMS to receive and manage the monetary benefits payable to the People under the ILUA. The nominated BMS was approved by the mining company. The DBT is one of the three entities comprising the BMS.

The relevant clause of the ILUA requires the mining company to pay a percentage of the Payments to the DBT. The DBT receives the payments at the direction of the People. The payments made to the trustee therefore form part of the trust estate.

Question 5

Summary

Where the trustee distributes an amount of trust estate to a beneficiary of the trust who is an *Indigenous person, an *Indigenous holding entity or a *distributing body, the amount will be non-assessable non-exempt income of the beneficiary.

Detailed reasoning

Subsection 59-50(2) of the ITAA 1997 provides that an amount or other benefit is non-assessable non-exempt income to the extent that the amount, or other benefit, arises directly or indirectly from a native title benefit and the person receiving that amount or other benefit is an Indigenous person or Indigenous holding entity.

Therefore where:

● the trust satisfies the definition of distributing body (for mining payments) or Indigenous holding entity (for native title benefits); and

● the trustee distributes a proportion of the trust estate to an eligible beneficiary who satisfies the definition of Indigenous person, distributing body (for mining payments) or Indigenous holding entity (for native title benefits);

the amount will be non-assessable non-exempt income in the hands of the beneficiary.

Relevant definitions

Indigenous person is defined in section 995-1 of the ITAA 1997 as an individual who is:

● a member of the Aboriginal race of Australia; or

● a descendant of an Indigenous inhabitant of the Torres Strait Islands.

Subsection 59-50(6) of the ITAA 1997 defines 'Indigenous holding entity' as:

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 is defined in section 128U of the ITAA 1936:

● an Aboriginal Land Council established by or under the Aboriginal Land Rights (Northern Territory) Act 1976;

● a corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006; or

● any other incorporated body that:

a. is established by or under the provisions of a law of the Commonwealth or of a State or territory that relate to Indigenous persons, and

b. is empowered or required (whether under that law or otherwise) to pay moneys received by the body to Indigenous Persons or to apply such money for the benefit of Indigenous persons, either directly or indirectly.

Application to your circumstances

The DBT does not satisfy the requirements to be a distributing body because it is a discretionary trust and not an Aboriginal Land Council or a corporation defined above. Further, the DBT is not a registered charity.

The DBT is an indigenous holding entity however from when the Deed of Variation which restricted the beneficiaries of the trust to Indigenous persons or Indigenous holding entities was executed.

When the trustee distributes a proportion of the trust estate that is a native title benefit to an eligible beneficiary, the amount will be non-assessable non-exempt income in the hands of the beneficiary (except any portion that is interest, remuneration or for administration costs).

Question 6

Summary

Where the amount paid to the trustee under the ILUA is invested, any income generated will not be non-assessable non-exempt.

Detailed reasoning

Subsection 59-50(2) of the ITAA 1997 provides that an amount or other benefit is non-assessable non-exempt income to the extent that the amount, or other benefit, arises directly or indirectly from a native title benefit and the person receiving that amount or other benefit is an Indigenous person or an Indigenous holding entity.

The EM to TLAB No. 6 2012 provides clarification at paragraphs 1.19, 1.20 and example 1.2 that an amount or benefit may still retain its character as a native title benefit where an Indigenous person or an Indigenous holding entity receives it through another Indigenous holding entity.

However, paragraph 59-50(4)(b) of the ITAA 1997 states that an amount will not be non-assessable non-exempt where it arises from an entity investing the native title benefit or an amount that arises directly or indirectly from it. Paragraphs 1.21, 1.22 and examples 1.3 and 1.4 of the EM to TLAB No.6 2012 demonstrate the limitations to the non-assessable non-exempt status of such payments. It does not extend to a situation where the amount or benefit has first passed to a person who is not an Indigenous person or an entity which is not an Indigenous holding entity (example 1.3). Nor will non-assessable non-exempt status apply where the amount or benefit has arisen from investing a native title benefit. Income earned from such an investment is intended to be subject to normal income tax rules (paragraph 1.22 and example 1.4).

In relation to a trust estate, where income is generated by a trustee investing an amount of trust capital, section 95 of the ITAA 1936 provides that the net income of the trust will be the total assessable income of the trust, less allowable deductions.

Further Draft Taxation Ruling TR 2012/D1 states:

Para 71. For trust law purposes, income of a trust is essentially that which is a product of the trust property - for example, rent from the letting of trust property or interest on loans of trust property. On that basis, it is likely to correspond in most cases with what would be ordinary income under section 6-5.

Para 86. The many references in Division 6 to the 'income of the trust estate' show that the trust estate and its income are distinct concepts, the income being the product of the estate.

Accordingly, where an amount is invested, even if the amount was a non-assessable non-exempt native title benefit, the income generated will form part of assessable income.

Application to your circumstances

Where the amount paid to the trustee under the ILUA is invested, the non-assessable non-exempt (NANE) status will not apply to the investment income. Income generated in the trust fund, the Future Fund or the Accumulation fund will be included in assessable income.

Question 7

Where the trustee distributes an amount of trust income to a beneficiary of the trust who is an Indigenous person or an Indigenous holding entity, the amount will be non-assessable non-exempt income of the beneficiary.

Detailed reasoning

As set out above, the EM to TLAB No.6 2012 clarifies that there are limitations to the non-assessable non-exempt status of an amount or benefit under subsection 59-50(2) of the ITAA 1997. In particular paragraph 1.22 and example 1.4 of the EM provide that where an amount or benefit has arisen from investing a native title benefit, the income generated will not be non-assessable non-exempt but rather will be subject to the normal income tax rules.

Where the trustee of a trust distributes an amount of trust income to an eligible beneficiary, and the beneficiary is not under a legal disability, the amount will be assessable income in the hands of the beneficiary under section 97 of the ITAA 1936. In all other cases the amount will be assessable to the trustee under section 99A of the ITAA 1936.

Application to your circumstances

A beneficiary of the DBT is restricted to an Indigenous person, an Indigenous holding entity or a distributing body.

Where a beneficiary receives a distribution from the trustee and any part of that distribution is generated from the trustee investing a payment received in accordance with the ILUA, that portion of the distribution will not be non-assessable non-exempt income of the beneficiary. It will be assessable income in the hands of the beneficiary.

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