Edited version of your written advice

Authorisation Number: 1012718231564

Ruling

Subject: GST and supply

Question

Is the payment made under the ER Agreement consideration for a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

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.

• A claimant application (Claim 1) was lodged with the National Native Title Tribunal (NNTT) in accordance with the Native Title Act 1993 (NTA) A number, but not all of the YY People were named as members of the native title claim group to the Claim 1.

• A second claimant application (Claim 2) was lodged with the NNTT. The claim area of the Claim 2 overlapped the claim area of Claim 1 to a significant extent. Many members of the claim group to the Claim 2 were former members of the claim group to the Claim 1.

• The Applicant to the Claim 1 acting for and on behalf of themselves and all of a certain indigenous people (X people) on whose behalf the Claim 1 was made (X Claimants) and a mining company entered into an "Initial Agreement" (AA Agreement), (a copy of which has been supplied).

• The Applicant to the Claim 2 acting for and on behalf of themselves and all of a certain indigenous people e on whose behalf the Claim 2 was made (C Claimants) and a mining company entered into ta" Binding Heads of Agreement" (XX Agreement). (a copy of which has been supplied)

• The Agreements related to the development and operation of a mining project on land within the respective claim areas of the Applicants to the Claim 1 and the Claim 2, which substantially overlapped. The initial mine for the Project was the CC #1 mine, which was situated substantially within the overlap area. ·

• During the course of the negotiation, and on the execution, of the Agreements, the Applicants to the Claim 1 and the Claim 2 were registered native title claimants under the NTA.

• Commercial production at the CC #1 mine commenced. However, the payments that would otherwise have been made in accordance with the Agreements have been retained by the mining company in an interest bearing account, pending firstly, the reaching of a binding agreement between the members of the native title claim groups to the overlapping Claim 1 and the Claim 2 (that could be relied on by the mining company) that resolves the claims to the overlap area and their respective proportionate entitlement to the mining benefits and secondly, the identification of the trust established or financial arrangements finalised in order to receive the mining benefits as envisaged under certain clauses of the Agreements.

• The Agreements were initial agreements as it was the intention of the parties to those agreements to negotiate and execute an Indigenous Land Use Agreement (ILUA) and for Project Agreement, in the case of the AA Agreement, and Final Agreement (being an ILUA and/or comprehensive Project Agreement), in the case of the XX Agreement, which would replace the Agreements and more fully give effect to the commitments of the parties in the Agreements.

• The Claim 1 and the Claim 2 together with two other claims (that are not relevant to this private ruling application) were ordered by the Federal Court to be combined into one single claimant application under the NTA to become the Claim 3 claimant application. The combination of those claims into the Claim 3 occurred pursuant to an agreement known as the "CC Agreement" (A copy of the CC Agreement has been supplied).

• The signatories to the CC Agreement later became the persons comprising the Applicant to the Claim 1 pursuant to an order of the Federal Court. The primary purpose of the CC Agreement was to amend and combine the Claim 1 and the Claim 2 into the Claim 3 and to ensure future compliance with certain agreements to which they are parties, including the AA and XX Agreements The CC Agreement also set out how the Claim 1 would be prosecuted and how the Claimants agreed to use their best endeavours to ensure that particular financial benefits under the Agreements would be divided equally between the Claimants.

• Following a trial of the Claim, the Federal Court determined that the YY people (some of whom were Claimants to the initial Claim 1 and subsequently all of whom were members of the native title claim group to the Claim 3, as well as being a party to the AA Agreement to not be common law holders of native title in the Claim 3 area, while all other members of the Traditional Owner Parties were determined to hold native title under the NTA Judgment and the approved determination of native title made by the Federal Court of Australia. As a result, the YY people do not hold any native title rights under the NTA in the claim area of the Claim 3 and, consequently, the area covered by the Agreements.

• Following the Native Title Determination by the Federal Court, the CC Agreement was subsequently terminated.

• The YY people and the X People were the members of the native title claim group to the Claim 3.

• All of the persons in the native title claim group for the Claim 3 are bound by the Agreements.

The Aboriginal Corporation (AC)

• AC, a company registered under the Corporations (Aboriginal & Torres Strait Islander) Act 2006 (Cth), was determined to hold the native title rights and interests the subject of the approved determination of native title in trust for the Claim 3 common law holders and is a registered native title body corporate under the NTA.

Relevant Agreements and Clauses

• The parties have entered into a number of Agreements that provide the basis of the arrangements and the rights and obligations of the relevant parties and the conditions associated with the financial benefits payment

• The relevant agreements are the AA Agreement, the XX Agreement, (which are collectively referred to as the Agreements) and the ER Agreement.

Assumption

As the ER Agreement has not yet been executed, for the purposes of responding to this private ruling application, the Commissioner (as per your facts and request) assumes that the Early Release Agreement will be executed in the form provided.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 9-5

Section 9-10

Section 9-20

Section 23-5

Section 184-5

Section 195-1

Reasons for decision

Question 1

Summary

The X people and the YY people are not entities for the purpose of section 184-1 of the GST Act and therefore are incapable of making supplies. They are not making taxable supplies in relation to the Agreements and/or the ER Agreement.

The Applicants individually, are entities for the purposes of section 184-1 of the GST Act. However, they are not carrying on an enterprise for GST purposes and therefore cannot make taxable supplies in relation to the Agreements and/or the ER Agreement.

In both cases there are no GST consequences in relation to the payment made under the ER Agreement.

Detailed reasoning

Taxable supply

Under section 9-40, an entity must pay GST on any taxable supply it makes.

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

For GST purposes a supply must be made by an entity, where there is no entity there is no supply.

Entity

'Entity' is defined under subsection 184-1 of the GST Act:

Entity means any of the following:

(a) an individual;

(b) a body corporate;

(c) a corporation sole;

(d) a body politic;

(e) a *partnership;

(f) any other unincorporated association or body of persons;

(g) a trust;

(h) a *superannuation fund.

Note: The term "entity" is used in a number of different but related senses. It covers all kinds of legal persons. It also covers groups of legal persons, and other things, that in practice are treated as having a separate identity in the same way as a legal person does.

You have provided in the application for private ruling:

X people -, being the common law holders of native title in relation to those parts of the claim area covered by the claimant application where native title was determined to exist in accordance with the approved determination of native title made by the Federal Court.

YY people - being the persons who were members of the native title claim group to the Claim 3 but who were determined by the Federal Court not to be common law holders of native title in the claim area of the Claim 3.

We will consider whether the Applicants comprising of XY individually and on behalf of the X people and XZ individually and on behalf of the YY people are entities for GST purposes.

Miscellaneous tax ruling MT 2006/1 considers the meaning of certain key words and phrases used to define an entity and an enterprise in determining the entitlement to an Australian business number (ABN).

Goods and services tax determination GSTD 2006/6 provides that the principles in MT 2006/1 apply equally to the terms 'entity' and 'enterprise' and can be relied upon for GST purposes.

Of relevance to your question is paragraph 184-1(f) of GST Act to consider whether the X People and the YY people are entities for GST purposes.

X people and the YY people

Paragraphs 44 to 54 of MT 2006/1 outline the specific requirements need to be present for an unincorporated association or body of persons to constitute an entity for GST purposes.

'Native title claim group' is mentioned in section 61(1) of the Native Title Act 1993 (Native Title Act):

The application must be made by a person or persons authorised by all of the persons (the native title claim group) who, according to their traditional laws and customs, hold the common or group rights and interests comprising the particular native title claimed, provided the person or persons are also included in the native title claim group.

You have provided that:

The X people and the YY people's identity was formalised for the purpose of initiating a claimant application under the NTA in respect of the area described in the Claim 3. However, the relevant indigenous group has, in effect and reality, always existed. There was no formation date or point in time at which the relevant indigenous group came into being.

The X people and the YY people have the following features:

• no formal or informal rules or contractual relationship between its members;

• no constitution or governing document;

• membership carries no formal rights or obligations, and is limited to those persons with the requisite ancestral lineage; and

• membership of the group consists of (and is restricted to) those descendants, from time to time, of the specific ancestors identified in the formal claimant application filed in the Claim 3.

The X people and the YY people, for the purposes of the Claim 3, are not a group in the nature of a club, society or unincorporated association. They are a group of individual persons associated for the purpose of making the Claim 3.

The X people and the YY people have no formal or informal rules or contractual relationship between its members.

The sole reason that there is a formalised identity of the X people and the YY people was for the purpose of making the Claim 3.

The X people and the YY people are not entities for the purposes of section 184-1 of the GST Act. Therefore, they are incapable of making supplies. As there is no supply made by them there are no GST consequences for the consideration provided under the ER Agreement by the mining company.

XY and XZ

As an individual, each of the Applicants is an entity for GST purposes under paragraph 184-1(a) of the GST Act. Each of the individuals became a party to the Agreements and/or the ER Agreement as representatives of the native title claimants.

Under section 23-5 of the GST Act, an entity is required to be registered for GST if the entity is carrying on an enterprise and the entity's GST turnover meets the registration turnover threshold.

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:

(a) in the form of a business;

(b) in the form of an adventure or concern in the nature of trade; or

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

From the information provided, there is no indication that each of the Applicants is conducting activities in the form of a business or in the form of an adventure or concern in the nature of trade in relation to the Agreements and/or the ER Agreement. Whilst the words 'in the form of' broaden the set of activities that would be considered a business or adventure or concern in the nature of trade, it is considered that some of the main factors that indicate the carrying on of a business or trade are missing; significant commercial activity, profit making intention, purpose of the activities and businesslike organisation.

Paragraph 9-20(1)(c) of the GST Act provides that an enterprise includes an activity that is done on a regular or continuous basis, in the form of a lease, licence or grant of an interest in property. This paragraph refers to the activity of participating as a lessor or grantor of an interest in a property.

None of the applicants are granting a lease, licence or interest in any property for the purposes of paragraph 9-20(1)(c) of the GST Act.

None of the Applicants have conducted any activity in relation to the Agreements and/or the ER Agreement and therefore are not carrying on any enterprise as being a party to the Agreements and/or the ER Agreement. Therefore each of the Applicants is not a relevant entity for the purposes of determining whether there is an entity that is required to be registered for the purposes of section 23-5 of the GST Act.

We have found that XY and XZ individually, are entities for the purposes of section 184-1 of the GST Act. However, they are not carrying on an enterprise for GST purposes and cannot make taxable supplies in relation to the Agreements and/or the ER Agreement. As all the conditions of section 9-5 of the GST Act have not been met there can be no GST consequences in return for the consideration provided under the ER Agreement by the mining company.

Additional Information

It is considered that following the grant of Native Title and the incorporation of AC that any future payments of money may be consideration for taxable supplies made by an entity and a further Private Ruling should be applied for to consider any GST consequences.