Edited version of private advice

Authorisation Number: 1051584821866

Date of advice: 3 October 2019

Ruling

Subject: GST and native title

Question

Are the Payments made by Entity A under the Comprehensive Agreement, considerationfor any taxable supplies pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act ), made by:

A.     The Native Title Holders collectively or individually or

B.     The Aboriginal Corporation?

Answer

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

B.       The Aboriginal Corporation enters into the Comprehensive Agreement as an agent for the Native Title Holders and therefore the Payments are not consideration for any taxable supplies by the Aboriginal Corporation to Entity A.

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.

Background

The Native Title Holders made a native title claim and it was determined on ddmmyyy.

Under the Determination, the Federal Court recognised that the Native Title Holders hold certain native title rights and interests over most of the claimed native title area (the Determination Area) pursuant to the Native Title Act 1993 (Cth) (NTA).

The Determination recognised that the Native Title Holders hold exclusive possession over parts of the Determination Area and otherwise hold non-exclusive rights and interests in respect of a majority of the Determination Area. In line with the Determination, the Native Title Holders are entitled to practice their traditional laws and customs (e.g. access, taking resources for any purpose, protecting sites of cultural significance and otherwise engaging in spiritual and cultural activities) on parts of the Determination Area.

The Aboriginal Corporation was registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Clth) on ddmmyyy and is a prescribed body corporate for the purposes of the NTA.

The Aboriginal Corporation holds the native title rights and interests (the subject of the Determination) on trust for the Native Title Holders in accordance with section 56 of the NTA (which contemplates a prescribed body corporate holding native title rights and interests on trust).

The objects of the Aboriginal Corporation are contained in its Constitution and include holding the native title rights and interests, the subject of the Determination, on trust for the Native Title Holders, performing the functions of a registered native title body corporate in accordance with the NTA and relieving the poverty, misfortune and disadvantage suffered by Native Title Holders.

As the entity that holds legal title in the native title rights and interests, the subject of the Determination, the Aboriginal Corporation acts for and on behalf of the Native Title Holders in respect of all native title related matters (subject to the requirements in the Native Title (Prescribed Bodies Corporate) Regulations 1999 (Cth) (PBC Regulations)).

Entity A, the Aboriginal Corporation and the Native Title Holders entered into two agreements.

·        the Initial Indigenous Land Use Agreement (ILUA) and

·        the Comprehensive Agreement

An explanation of the relation between the two agreements is set out below.

The Comprehensive Agreement records the way that Entity A, the Aboriginal Corporation and the Native Title Holders conduct their relationship and exercise their rights in recognition of the other's in a mutually beneficial way. It includes the provision of financial and non-financial benefits by Entity A in exchange for the consents granted by the Aboriginal Corporation and the Native Title Holders.

The ILUA includes the key provisions and obligations in the Comprehensive Agreement which has been registered. Upon registration of an ILUA, the Native Title Act operates to bind all persons who hold native title rights and interests in the area in Schedule 1 to the obligations and provisions in the ILUA.

It is intended that the ILUA and the Comprehensive Agreement operate in conjunction with each other. Where they say the same thing, both documents are intended to apply and performance of the obligations of the parties under one agreement is intended to satisfy the other. Otherwise, the Comprehensive Agreement prevails.

The Native Title Holders have not individually executed the Comprehensive Agreement. Instead the Aboriginal Corporation entered into the Comprehensive Agreement in its capacity as the registered native title body corporate, holding native title on trust for the Native Title Holders.

Part X of the Comprehensive Agreement sets out the financial Benefits (the Payments) to be paid under the agreement.

Clause X provides that the Payments will be payable to a Benefits Management Structure (BMS) and not directly to the Native Title Holders or the Aboriginal Corporation.

Part X provides that the Native Title holders will support and consent to Entity A's business.

Relevant legislative provisions

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

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

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

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

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

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

Section 9-5 provides that you will make a taxable supply if, pursuant to section 9-5:

¢ you make the supply for consideration

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

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

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

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

In the case of the Aboriginal Corporation and the Native Title Holders the payments were negotiated by the Aboriginal Corporation on behalf of the Native Title Holders and will be paid to a Benefits Management Structure (BMS) for the benefit of the Native Title Holders as set out in the facts.

We will refer to the Aboriginal Corporation and the Native Title Holders as the Parties. There is no provision that would make any supply by the Parties GST-free or input taxed. In addition the payments made by Entity A meet the definition of consideration found in section 9-15 and the payments are connected with Australia. Therefore the Parties will be liable for GST on any supplies they make either individually or together where the relevant supplies meet the rest of the conditions of 9-5.

Of particular relevance is whether a supply is made by either party in relation to the consideration received and whether the supply is in the course of an enterprise conducted by the parties. Where these criteria are met then, as the transactions are connected with Australia and the payments exceed the GST registration turnover threshold, the parties will be liable for GST on those supplies.

Supply

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

The Comprehensive Agreement involves the entry into various obligations by the Parties to the agreement and therefore there are supplies made under the agreement.

Who is the supplier?

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

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

1. an individual
2. a partnership, and
3. 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.

The Aboriginal Corporation or the Native Title Holders

As the entity that holds legal title in the native title rights and interests the subject of the Determination, the Aboriginal Corporation acts for and on behalf of the Native Title Holders in respect of all native title related matters (subject to the requirements in The Native Title (Prescribed Bodies Corporate) Regulations 1999 (CTH) (PBC Regulations)

Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law (GSTR 2000/37) 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.[1] In principal/agent relationships it is the principal that makes a supply, not the agent.

Clause X of the Comprehensive Agreement outlines the Capacity of the Aboriginal Corporation and states that the Aboriginal Corporation enters into the Comprehensive Agreement in its capacity as the registered native title body corporate holding native title on trust for the Native Title Holders.

Further, Clause Y of the Comprehensive Agreement provides that the Native Title Holders have authorised its entry into this document on behalf of the Native Title Holders with the intention that each adult member of the Native Title Holders having the capacity to contract at the Commencement Date is bound by this document as a member of the Native Title Holders and authorised it to undertake and carry out any obligations imposed on it by this document.

Consequently, the Aboriginal Corporation is acting as an agent for the Native Title Holders and does not make supplies to Entity A under the Comprehensive Agreement.

When considering native title arrangements of this nature, arguments have been presented that the relevant entity (or entities) making the supplies under the arrangements is either:

       i.                    each of the Native Title Holders individually, or

      ii.                    collectively, the Native Title Holders as an unincorporated association or body of persons or partnership.

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

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

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

Enterprise

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

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

                    i.     in the form of a business;

                   ii.     in the form of an adventure or concern in the nature of trade; or

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

The Commissioner considers these matters in Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1)

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

·        A significant commercial activity

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

·        An intention to make a profit from the activity

·        The activity is or will be profitable

·        Is recurrent or regular in nature

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

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

·        Commercial sales of product and

·        The entity has relevant knowledge or skill.

While the Comprehensive Agreement concerns significant payments, the purpose of the Native Title Holders in entering into the Comprehensive Agreement 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.

The recitals of the Comprehensive Agreement state that Entity A will provide the Native Title Holders with financial and non-financial benefits, including as compensation for impacts on Native Title Rights and Interests within the Agreement Area from time to time and within all their Country for acts done before the commencement of this document.

On balance, the Native Title Holders, collectively or individually, are not undertaking activities in the form of a business in entering into and performing the obligations under the Comprehensive Agreement and other similar agreements with mining companies.

The concept of an 'adventure or concern in the nature of trade' is considered in paragraphs 233-261 of MT 2006/1. The public ruling considers the characteristics of trade including the subject matter of realisation, length of period of ownership, frequency or number of similar transactions, supplementary work on or in connection with the property realised and the circumstances responsible for the realisation. The Native Title Holders'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 Native Title Holders, collectively or individually, in entering into and performing the obligations under the agreements do not involve activities in the nature of trade and are therefore not an 'adventure or concern in the nature of trade'.

Under the terms of the Comprehensive Agreement, the Native Title Holders, collectively or individually, do not enter into any lease or licence or provide any other grant of an interest in property. The Native Title Holders do not agree to provide access rights to Entity A under the Comprehensive Agreement. Rather, Entity A's interests in property derive from separate State Government Agreements.

Therefore, the Native Title Holders, collectively or individually, are not making supplies in the course or furtherance of an enterprise in entering into and performing any of the obligations under the Comprehensive Agreement.

Conclusion

The Payments made by Entity A to the Native Title Holders (but directed to the various trusts under the Benefits Management Structure) are not in connection with any enterprise conducted by the Native Title Holders and therefore there are no taxable supplies made by the Native Title Holders (collectively or individually) under the Comprehensive Agreement.

In addition, as set out above, the Aboriginal Corporation enters into the Comprehensive Agreement as agent of the Native Title Holders and is not making a taxable supply under the Comprehensive Agreement.

[1] GSTR 2000/37 paragraph 10

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).