Edited version of your written advice

Authorisation Number: 1051338442722

Date of advice: 19 February 2018

Ruling

Subject: Whether GST applies to payments made for use of native title land

Question

Are you, X Corporation, liable for GST pursuant to section 9-40 of A New Tax System (Goods And Services Tax) Act 1999 (GST Act) following receipt of the following payments :

1. Signing payment – Sch X, Item Y;

2. Payment on grant of primary production lease Sch X, Item Z; and

3. Payment in lieu of commercial production – Sch X, Item W.

Answer

No. This is because when you receive these payments you receive them as an agent for the X and Y People (the People) and not in your own right. Therefore you are not liable for GST on the receipt of these payments.

Relevant facts and circumstances

You, X Corporation, are a Registered Native Title Body Corporate incorporated under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth). You were incorporated to represent the People following their successful Native title claim. You are registered for GST.

You entered into the following agreements with X Pty Ltd and Y Pty Ltd (collectively “the Proponents”):

1. Deed regarding the Grant of Primary Production Lease X Deed (pursuant to s31(1)(b) of the Native Title Act 1993 (Cth) (“Deed”) between the Native Title Party, the Proponent and the State of X (“Government Party”);

2. Agreement ancillary to the Deed between the Native Title Party and the Proponent which sets out the terms of compensation between the parties (“Ancillary Agreement”); and

3. Compensation Agreement (pursuant to s279 of the Mineral Resources Act 1989 (X)) between the Native Title Party and the Proponent (“Compensation Agreement”).

The above 3 agreements operate as follows:

Deed

The Deed was entered into by You, the Proponent and the Government Party and sets out their agreement about consent to the Future Act (as that term is defined under the Native Title Act 1993 (Cth) (“NTA”), being the grant of primary production lease X including any agreement under section 31(1)(b) of the NTA.

You and the Proponent agree that they have, as part of the good faith negotiations, entered into an Ancillary Agreement that deals with the effect of the Future Act on the determined native title rights and interests of the People.

The Deed explicitly acknowledges that compensation is dealt with under the Ancillary Agreement.

Ancillary Agreement

The Ancillary Agreement referred to in Schedule 1 of the Deed compensates the People for the impact of the Future Act upon their native title rights and interests.

Under the Ancillary Agreement, you agree to deliver necessary statutory consents, approvals and cooperation, in exchange for financial benefits based on execution of the agreements and production in the agreement area. The Ancillary Agreement also provides an agreed way for the Proponent and yourself to work together on matters such as cultural heritage, business development and employment.

The Ancillary Agreement provides a process for a formal review to occur two years after commencement. The review is 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.

You entered into the Ancillary Agreement in your capacity as the registered native title body corporate, holding native title on trust for the People. Additionally, you:

(a) hold native title on trust or act as agent of the common law holders of native title as at the Commencement Date

(b) are entitled to enforce the terms of the Ancillary Agreement in the name of and for and on behalf of the People; and

(c) must comply with the terms of the Ancillary Agreement insofar as it imposes obligations upon you.

Payments made under the Ancillary Agreement

It is intended that you will receive payments under the Ancillary Agreement as follows:

(a) payments are based on the amount of product taken from the agreement area and are payable within 20 days of the end of each quarter;

(b) similarly, a percentage of royalties paid to the Government Party are in turn remitted to you under s 203 of the Aboriginal Land Act 1991 (X);

(c) payments upon signing of the Ancillary Agreement, s31 Deed and Compensation Agreement and upon grant of mining lease XXXXXX;

(d) annual floor payments guaranteeing basic minimum payments once commercial production has commenced;

(e) percentage based payments for any mineral other than bauxite removed from the agreement area.

To date, you have only received a signing payment (Item X, Schedule Y) although it is expected that a further payment will now be made upon grant of the primary production lease (Item Z, Schedule W).

You hold these payments in a separately identified bank account on trust for the People.

You expect that a Benefits Management Structure (BMS) will be set up once commercial operations, and production payments, begin to flow to the People. It is this structure that will ultimately receive all payments on behalf of the people. The BMS has not been set up yet.

At this stage, you issue an invoice to the Proponent on behalf of the People when payment milestones are reached. Those monies are held on trust on behalf of the People.

THE PEOPLE – Native Title Determination Background

As required by the NTA and as part of the orders made in native title determination application X, you were determined on Y to perform the functions mentioned in subsection 57(3) of the NTA including to act as agent or representative of the People in respect of matters relating to their native title rights and interests in the land and waters the subject of the Ancillary Agreement (“X Determination”).

Transaction Dates

1. Subject to clause Y therein, the Ancillary Agreement commenced on X

2. The Compensation Agreement was executed by you and the Proponent on Y;

3. The Deed was executed by the Native Title Party on X and the Proponent on X and Y June respectively, and the State of X on the Relevant date in 2017;

4. Signing of the 31 Deed by the Government Party satisfied clause 2 of the Ancillary Agreement. From X the Native Title Party was therefore eligible to receive the signing payment under Sch X, Item Y of the Ancillary Agreement. .

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 9-15

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

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

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

Taxable supply

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

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

● you make the supply for *consideration; and

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

● the supply is *connected with the indirect tax zone, and

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

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

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

For there to be a taxable supply you must meet all of the requirements of section 9-5. Where a supply does not meet a criteria then that supply will not be a taxable supply.

Paragraph 9-10(2)(g) defines a supply to include an “entry into or release from an obligation” to do anything or refrain from an act. In this case you, on behalf of the People, have made a number of undertakings in connection with the payments being made to it by the Proponents that include undertakings to do certain things and refrain from others.

On the information provided, we consider that the allowance of the use of land the subject of native title to the Proponents meets the definition of “supplies”. However, for the reasons set out below, they are not “taxable supplies” made by you.

The Supplier

Subsection 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 the application is expressly limited.

Therefore the question is “are you making any supplies in connection with these payments?”

Agency

In this case you are receiving payments from the Proponent on behalf of the People. You hold those payments in a separate bank account on trust for the People.

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.

An entity may be authorised by another to do something on that party’s behalf. The authorised entity is called the 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 the supply, not the agent. Therefore you are not receiving the payments under the agreements in relation to any activity of yours, but the activities of the People.

As such, you are acting as an agent for and on behalf of the People therefore any supplies that are made in relation to these payments are not being made by you but by the People.

Therefore you are not liable for GST on the receipt of these payments.

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).