Edited version of private advice

Authorisation Number: 1051756995131

Date of advice: 17 September 2020

Ruling

Subject: Mining withholding payments

Question

Is the trustee of Trust B entitled to a refund of Mining Withholding Tax amounts withheld from royalty payments pursuant to Section 128V(1) of the Income Tax Assessment Act 1936?

Answer

Yes

This ruling applies for the following period:

1 July 20XX to 30 June 20XY

The scheme commences on:

n/a

Relevant facts and circumstances

In 196X an agreement was signed between Mining Co A and Trust A.

At the time the agreement was signed Trust A held a 'Permit to Enter' entitling it to prospect and seek Mining Titles in the said area.

Upon signing the agreement, Trust A agreed to surrender its Permit to Enter in favour of Mining Co A. Mining Co A agreed to apply for a Permit to Enter, and if it was granted valid Mining Titles to win, treat and ship ore and/or other minerals, by the Commonwealth Minister for the Territories or the Northern Territory Administration, it would provide consideration to Trust A. The amount of consideration to be paid by Mining Co A to Trust A was detailed in this agreement.

The agreement included clauses detailing the royalty calculation in each calendar year.

The Aboriginal Land Rights (Northern Territory) Act 1976 was enacted in 1976.

In 199X Mining Co A assigned to Mining Co B all its rights title and interest in the Agreements and Mining Co B accepted such assignment and assumed the obligations of Mining Co A pursuant to the Agreements.

In 20XX a second agreement was entered into between Trust A, the trustee for Trust B, Mining Co A and Mining Co B. In this agreement Trust A assigned Trust B all benefits, obligations and responsibilities under the agreements so that in future all decisions and relationship in respect to mining rights and royalties be a matter between Trust B and Mining Co B. A Clause of the Deed states "This deed is governed by the law in force in the Northern Territory of Australia".

None of the Agreements or Deeds mentioned above make reference to "indigenous persons".

Trust B is a charitable trust that aims to benefit the local community. The Trustee of Trust B is an incorporated association under the Northern Territory Associations Act (2003).

Trust B is exempt from Australian Income Tax, it is not required to lodge income tax returns. It does lodge quarterly BAS.

Documents have been provided to the ATO prepared by Mining Co B. These documents show the 'royalty calculation' for the royalty payments made to Trust B. Included in these calculations is an amount deducted from the total payment under the heading 'Mining Withholding Tax Payable to ATO (Pursuant to Section 128V(1) of the Income Tax Assessment Act 1936).

Trust B does not hold an Indigenous Land Use Agreement (ILUA) and does not receive or have an entitlement to Native Title payments.

Trust B's local land is covered by Land Council A who is responsible for the management of the land on behalf of the traditional owners. An ILUA exists between Mining Co B and Land Council A under which Land Council A receives native title payments. This document has not been provided as Trust B is not a party to this agreement and does not have access to it.

Relevant legislative provisions

Income Tax Assessment Act 1936

Subsection 128U(1)

Subsection 128V(1)

Reasons for decision

Subsection 128V(1) states:

"Where a mining payment is made to, or applied for the benefit of, a person, that person is liable to pay income tax on the amount of the mining payment at the rate declared by the Parliament for the purposes of this section."

Subsection 128U(1) defines Mining payment as:

"a payment made to a distributing body or made to, or applied for the benefit of, an Indigenous person or persons, being:

(a) a payment made on or after 1 July 1979 and before the day that the Financial Management Legislation Amendment Act 1999 commenced, out of the Aboriginals Benefit Reserve to the extent that the payment represents money paid into the Aboriginals Benefit Reserve on or after 1 July 1979 in pursuance of subsection 63(2) or (4) of the Aboriginal Land Rights (Northern Territory) Act 1976; and

(aa) a payment made on or after the day that the Financial Management Legislation Amendment Act 1999 commenced by the Commonwealth in respect of a debit from the Aboriginals Benefit Account to the extent that the payment represents an amount credited to the Aboriginals Benefit Account in pursuance of subsection 63(1) or (4) of the Aboriginal Land Rights (Northern Territory) Act 1976; and

(b) any payment made on or after 1 July 1979 that is of the kind referred to in subsection 44(1) or (2) of the Aboriginal Land Rights (Northern Territory) Act 1976; and

(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,

but does not include:

(d) a payment made by a distributing body; or

(e) a native title benefit (within the meaning of the Income Tax Assessment Act 1997)."

distributing body means:

"(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 by No 125 of 2006)

(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"

Section 128V(1) establishes that a person who receives a mining payment, or has a mining payment applied for his or her benefit, is liable to pay withholding tax on the amount of the payment at the rate declared by the Parliament.

To determine whether Trust B is liable to pay mining withholding tax, it must be established that the amounts paid to them are "mining payments". Mining payments are defined in subsection 128U(1) of the ITAA 1936.

A 'mining payment' is a payment made to a distributing body or made to, or applied for the benefit of, an Indigenous person or persons. The definition of 'distributing body' is also contained in subsection 128U(1). It appears that Trust B is not a distributing body however there is no requirement for an in-depth analysis of this point because the payments are made to or applied for the benefit of an indigenous person.

Point (a) of the definition of a 'mining payment' is not applicable to this request, as the relevant years are 20XX and 20XX financial year, which do not fall between 1979 and 1999.

Point (aa) of the definition of a 'mining payment' is also not applicable as the payments made to Trust B were not in respect of a debit from the Aboriginals Benefit Account.

Point (b) of the definition of 'mining payment' relates to the agreement of terms between the applicant of an exploration licence and the relevant Land Council. Trust B is not affiliated with a Land Council and hence payments made to Trust B have not been negotiated via the highlighted sections of the Aboriginal Lands Rights (Northern Territory) Act 1976 and thus point (b) does not apply to Trust B.

Point (c) of the definition of 'mining payment' includes payments made 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. The Agreement which governs the payment of royalties to Trust B was originally between Trust A and Mining Co A. The agreement allows that the holder of the Permit to Enter (entitling it to prospect and seek Mining Titles on said area), being Trust A, will surrender that right to Mining Co A in exchange for an annual royalty payment based on value of ore extracted. This agreement pre-dates laws regarding Native Title in the Northern Territory. In addition, this agreement does not make any reference to indigenous persons. These payments are not made under provisions of a Commonwealth, State or Territory law relating to indigenous persons, they are made under a provision of Territory law. Thus point (c) does not apply.

Although the rights to the royalties where later assigned to Trust B, the agreement itself was not altered and the agreements apply as if Trust B is and has been a party to them in place of Trust A. The reassignment deed specifically states that it is governed by the law in force in the Northern Territory of Australia. The deed is not governed by a Commonwealth, State or Territory law related to Indigenous persons.Trust B Inc is an incorporated association under the Northern Territory Associations Act (2003), it has not been incorporated under a Commonwealth, State or Territory law related to Indigenous persons. The reassignment does not change the applicability of point (c).

Exclusions to the definition of 'mining payments' are detailed at point (d) and (e). The payments made to Trust B are not native title benefits and are not made by a distributing body, hence the exclusions to the definition of mining payments in s128U(1) do not apply.

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