Edited version of your written advice

Authorisation Number: 1012756790228

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Ruling

Subject: Co-Existence Agreement

Question:

Should DC Pty Ltd (DC Trustee) as trustee of the DC Trust charge GST under the Co-Existence Agreement (Agreement)?

Answer:

The DC Trustee should not charge GST in respect of:

• the $AA paid by Mining Co at Completion pursuant to the Agreement;

• the $BB payable by Mining Co on the commencement of Commercial Production pursuant to the Agreement; and

• the DC Royalty payable by Mining Co pursuant to the Agreement

but should charge GST in respect of:

• the once-off payment of $CC plus any additional funding payable by Mining Co in respect of the supply of the Assistance by the DC Trustee pursuant to the Agreement; and

• the reimbursement by Mining Co of the salary and overhead costs of the Cultural and Social Component assessment undertaken by an employee of the DC Trustee pursuant to the Agreement.

Relevant facts and circumstances:

Entities referred to in the Agreement:

Mining Co is a party to the Agreement and is the registered holder of mining tenements (Granted Tenements) and has applied for other mining tenements listed in the Agreement (Pending Tenements) which are required by Mining Co in order to extract minerals on a commercial basis (Project Operations). The Pending Tenements include a mining lease which the State intends to grant to Mining Co (Mining Lease). Mining Co will undertake the Project Operations in an area of land (Project Area) which falls within land and waters (Claim Area) which are the subject of an application for a native title determination made by the Native Title Party on behalf of the X People (Native Title Claim). In addition, Mining Co will continue to explore for minerals in the Project Area.

The Native Title Party (that is, named individuals) on behalf of the X People is a party to the Agreement and is authorised by the X People to be the named applicant in the Native Title Claim (which has not been determined) and to negotiate in relation to the Mining Lease pursuant to Part 2, Division 3, Subdivision P of the Native Title Act 1993 (Cth) (NT Act). The Agreement indicates that the Native Title Claimant is a Registered Native Title Claimant as defined in section 253 of the NT Act.

The X People are indigenous people and, for the purposes of the NT Act, the Native Title Claimant Group on whose behalf the Native Title Claim is made.

DC Pty Ltd (DC Trustee) as trustee of the DC Trust is a party to the Agreement. The DC Trust was established to maximise outcomes from native title agreements, particularly business development opportunities. The X People have appointed the DC Trustee as their agent and manager for the purposes of meeting the X People's obligations under the Agreement and have agreed that some of the benefits from Project Operations should be distributed through the DC Trust. The DC Trustee holds an Australian Business Number (ABN) and is registered for GST and is registered with the Australian Charities and Not-For-Profits Commission as a public benevolent institution.

The Agreement describes the 'X Trust' as a trust to be established in accordance with the Agreement for the benefit of the X People and to be nominated to receive the amounts payable by Mining Co to the X Trustee (the corporate trustee appointed as trustee of the X Trust) under the BRPCA and:

…until that trust is established, means the DC Trust.

Operative provisions of the Agreement dealing with monetary benefits payable to the DC Trustee:

The Agreement states that at Completion Mining Co will pay the $AA to the DC Trustee to be held as property of the DC Trust and that, for the avoidance of doubt, Mining Co will only be required to pay the payment once all of the persons comprising the Native Title Party have executed the Agreement and the Section 31 Deed required for the grant of the Mining Lease (which is annexed to the Agreement).

The Agreement states that Mining Co will pay $BB to the DC Trustee on the commencement of Commercial Production (that is, when minerals mined from any part of the Mining Lease are transported for sale from the Project Area).

The Agreement also states that Mining Co shall pay the DC Royalty to the DC Trustee to be held as property of the DC Trust from the commencement of Commercial Production.

The Agreement states that within 30 days after Completion Mining Co will pay the DC Trustee $CC in recognition of the DC Trustee's obligation to undertake the Assistance (that is, assist the X People to establish the X Trust, develop a governance plan for the X People, and establish other corporate structures to assist the X People to maximise the economic opportunities arising under the Agreement).

The Agreement requires the DC Trustee to employ a qualified person to undertake the cultural and social component of a Social Impact Assessment of Project Operations and obliges Mining Co to reimburse the DC Trustee up to $DD for the salary and overhead costs of that person.

Obligations entered into by the DC Trustee under the Agreement:

The Agreement obliges the DC Trustee to ensure that the DC Trust is established for charitable objects and maintains its charitable status and obliges the DC Trustee to nominate the DC Account to Mining Co.

The Agreement the DC Trustee to employ a qualified person to undertake the cultural and social component of a Social Impact Assessment of Project Operations.

The Agreement obliges the DC Trustee to indemnify Mining Co and the X People from any claim brought by a third party and arising from a breach of the Agreement or negligent act by the DC Trustee.

Other operative provisions of the Agreement:

The Agreement states that the X People (including the Native Title Party) agree with and consent to the grant (which includes renew, extend and re-grant) of all Project Tenure (defined as the Granted Tenements (mining tenements granted to and held by Mining Co as at the date of the Agreement), Pending Tenements (mining tenements, including the Mining Lease required by Mining Co to undertake the Project Operations) and any Future Tenements (any grant to or application made by Mining Co for a miscellaneous licence or lease that is within the Project Area which are mining tenements).

The Agreement states that the Native Title Party agrees to execute the Section 31 Deed annexed to the Agreement contemporaneously with execution of the Agreement.

The GST clause in the Agreement is discussed in the Reasons for Decision.

Section 31 Deed:

Attached to the Agreement is the Section 31 Deed between the State and the Minister responsible for the State mining legislation (together the Government Party), the Native Title Party, and Mining Co (the Grantee Party) which the Native Title Party is obliged to execute and deliver to Mining Co at Completion.

The recitals to the Section 31 Deed state that Mining Co has applied for the tenement(s) (that is, the Mining Lease), that the grant of the tenement(s) affects native title, that the Government Party has given notice of intention to grant the tenement(s), and that the Native Title Party has made native title claim in respect of the subject land is the Registered Native Title Claimant in respect of the native title claim. The recitals to the Section 31 Deed also state:

In accordance with Part 2 Division 3 Subdivision P of the Native Title Act negotiations in good faith in respect of the grant of the tenement(s) have been conducted between the Government Party, the Grantee Party and the Native Title Party.

The Native Title Party agrees to the grant of the tenement(s) and this deed is entered into for the purpose of ensuring the validity of the tenement(s) under the Native Title Act.

The operative provisions of the Section 31 Deed state that the Native Title Party warrants that it has obtained all necessary authorisations and that the Section 31 Deed is enforceable against the Native Title Party and all the persons included in the Native Title Claim Group.

Those provisions also state that the Native Title Party agrees to the grant of the tenement(s) and to the Grantee Party (that is, Mining Co) exercising its rights and discharging its obligations under the tenement(s) and acknowledges that the Section 31 Deed is an agreement for the purposes of sections 28(1)(f) and 31(1)(b) of the NT Act.

Other provisions of the Deed set out conditions to be complied with by the parties and that all persons included in the Native Title Claim Group (that is, the X People) are taken to be parties in respect of those clauses.

Ruling request:

The ruling request asked the ATO to address the following questions:

Should DC Pty Ltd as trustee of the DC Trust charge GST under the Agreement; and

Should the X People charge GST under the Agreement?

Relevant legislative provisions:

A New Tax System (Goods and Services Tax) Act 1999 section 9-5.

Reasons for decision

Summary

DC Pty Ltd as trustee for the DC Trust (DC Trustee) should not charge GST in respect of the $AA paid by Mining Co at Completion as that payment does not have a nexus with a supply made by the DC Trustee, the DC Trustee is not liable to pay GST and Mining Co therefore is not required by the GST clause in the Agreement to pay an additional amount to the DC Trustee. The Agreement indicates that the $AA paid by Mining Co to the DC Trustee at Completion has a nexus with a supply made by the Native Title Party, that is, delivery of the executed Section 31 Deed, but the Native Title Party should not charge GST in respect of that supply because that supply is not a taxable supply as the Native Title Party is not carrying on an enterprise. Although the X People are bound by the conditions in the Section 31 Deed, that occurred by operation of the Native Title Act 1993 (Cth) (NT Act) without any positive action by the X People. Consequently, the X People did not 'make' a supply and should not charge GST.

The DC Trustee should not charge GST in respect of the $BB payable by Mining Co on the commencement of Commercial Production as the Agreement indicates that that payment also has a nexus with delivery of the executed Section 31 Deed by the Native Title Party. Consequently that payment does not have a nexus with a supply made by the DC Trustee, the DC Trustee is not liable to pay GST and Mining Co therefore is not required by the GST clause in the Agreement to pay an additional amount to the DC Trustee. As noted above, the Native Title Party should not charge GST in respect of delivery of the executed Section 31 Deed because the Native Title Party is not carrying on an enterprise. Although the X People are bound by the conditions in the Section 31 Deed, that occurred by operation of the NT Act without any positive action by the X People. Consequently, the X People did not 'make' a supply and should not charge GST.

The DC Trustee should not charge GST in respect of the DC Royalty payable to the DC Trustee by Mining Co pursuant to the Agreement as the DC Royalty has a nexus with the delivery of the executed Section 31 Deed by the Native Title Party. Consequently the DC Royalty does not have a nexus with a supply made by the DC Trustee, the DC Trustee is not liable to pay GST and Mining Co therefore is not required by the GST clause in the Agreement to pay an additional amount to the DC Trustee. The Native Title Party should not charge GST in respect of the delivery of the executed Section 31 Deed as the Native Title Party is not carrying on an enterprise. Although the X People are bound by the conditions in the Section 31 Deed, that occurred without any positive action by the X People. Consequently the X People did not 'make' a supply and should not charge GST.

The DC Trustee should charge GST in respect of the $CC plus any additional funding received from Mining Co in respect of the supply of the Assistance by the DC Trustee.

The DC Trustee should charge GST in respect of the reimbursement by Mining Co of the salary and overhead costs of the Cultural and Social Component assessment undertaken by an employee of the DC Trustee.

Detailed reasoning

Charging GST under the Agreement:

The ruling request asked the ATO to confirm whether the DC Trustee should 'charge GST' under the Agreement. We understand this to mean whether the DC Trustee is entitled to recover an additional amount from the recipient of any supply made by the DC Trustee pursuant to the GST clause in the Agreement:

If a party makes a supply (the supplier) to another party (the recipient) under or in connection with this Agreement, then (unless the consideration is expressly stated to be inclusive of GST) the consideration for that supply is exclusive of GST and, in addition to paying the consideration, the recipient must:

(i) pay to the supplier an amount equal to any GST for which the supplier is liable on that supply, without deduction or set-off of any other amount.

This clause requires a recipient to pay to the supplier an additional amount equal to any GST for which the supplier is liable on the relevant supply. Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which uses the expression 'you' to apply to entities generally, states:

You must pay the GST payable on any taxable supply that you make.

The combined effect of the GST clause and section 9-40 of the GST Act is that the DC Trustee is entitled to 'charge GST' under the Agreement if any monetary benefit paid to the DC Trustee has a nexus with a 'taxable supply' within the meaning of the GST Act.

Below we examine the clauses of the Agreement pursuant to which the DC Trustee may receive any monetary benefit and determine whether there is a nexus between that monetary benefit and a taxable supply made by the DC Trustee.

$AA paid by Mining Co to DC Trustee on Completion:

The Agreement indicates that the $AA paid Mining Co to the DC Trustee on Completion has a nexus with the Native Title Party delivering an executed Section 31 Deed to mining Co on Completion as the Agreement both obliges Mining Co to make the $AA payment to the DC Trustee and obliges the Native Title Party to deliver the executed Section 31 Deed to Mining Co and states that Mining Co is not required to make the $AA payment to the DC Trustee unless all members of the Native Title Party have executed the Section 31 Deed.

We therefore consider that the $AA payment paid by Mining Co to the DC Trustee does not have a nexus with a supply made by the DC Trustee. Consequently, the DC Trustee is not liable under section 9-40 of the GST Act to pay GST and Mining Co is not required by the GST clause in the Agreement to pay an amount additional to the $AA to the DC Trustee.

As noted above, the Agreement indicates that the $AA payment made by Mining Co to the DC Trustee at Completion is consideration for a supply made by the Native Title Party, that is, delivery of an executed Section 31 Deed to Mining Co by the Native Title Party.

'Section 31 Deed' is defined in the Agreement as a deed in the form annexed to the Agreement which is effective as an agreement for the purposes of section 31 of the Native Title Act 1993 (Cth) (NT Act) for the grant of the Mining Lease to Mining Co under the State mining legislation. Subsection 26(1) of the NT Act states that Part 2, Division 3, Subdivision P of the NT Act applies to certain 'acts' by the Commonwealth, a State or a Territory ('Government Party'), including the creation of a right to mine, whether by grant of a mining lease or otherwise (subsection 26(1)). Subsection 28(1) of the NT Act states that an act to which Subdivision P applies is invalid to the extent that it affects native title unless, before it is done the requirements of one of the paragraphs of subsection 28(1) are satisfied. One of the requirements in subsection 28(1) is that an agreement of the kind mentioned in paragraph 31(1)(b) of the NT Act is made (paragraph 28(1)(f) of the NT Act). Section 29 of the NT Act states that before an act is done the Government Party must notify any Registered Native Title Claimant in relation to land or waters that will be affected by an act and paragraph 31(1)(a) of the NT Act obliges the Government party to give all Native Title Parties an opportunity to make submissions regarding the act. Paragraph 31(1)(b) of the NT Act states:

The negotiation parties must negotiate in good faith with a view to obtaining the agreement of each of the native title parties to:

The doing of the act; or

The doing of the act subject to conditions to be complied with by any of the parties.

These provisions of the NT Act indicate that, as the relevant 'act' (that is, the grant by the State to Mining Co of the Mining Lease) affects native title, it is rendered invalid by section 28 of the NT Act unless the Native Title Party enters into the Section 31 Deed in which the Native Title Party agrees to that act. Clause 3 of the Section 31 Deed annexed to the Agreement states that the Native Title Party agrees both to the grant of the tenement(s) (defined as the Mining Lease) and to the Grantee Party (that is, Mining Co) exercising its rights and discharging its obligations under the tenement(s) and acknowledges that the Section 31 Deed is an agreement for the purposes of sections 28(1)(f) and 31(1)(b) of the NT Act.

Based on the NT Act provisions referred to above we consider that by delivering the executed Section 31 Deed to Mining Co the Native Title Party makes a supply which falls within paragraph 9-10(2)(g) of the GST Act. 'Supply' is defined in subsection 9-10(1) of the GST Act as any form of supply whatsoever and subsection 9-10(2) states that, without limiting subsection 9-10(1), supply includes any of a number of items including:

(g) An entry into, or release from, an obligation:

(i) To do anything; or

(ii) To refrain from an act; or

(iii) To tolerate an act or situation.

Although paragraphs 85 to 90 of Goods and Services Tax Ruling GSTR 2006/9 state that compulsory acquisition by a government authority of land and interests relating to that land (including native title rights under a particular statute) does not involve the native title claimants making a supply (because the rights are extinguished by operation of statute), paragraphs 90 and 91 contrast that situation with a sale of the land to the government authority (where the owner does make a supply). The Agreement states that the parties agree that the Non-Extinguishment Principle in section 283 of the NT Act will apply to the grant of all Pending Tenements (which includes the Mining Lease), that is, that if any act affects any native title, the native title is nevertheless not extinguished. In our view that agreement indicates that in the present case native title rights are not being extinguished and that the Native Title Party made a supply for GST purposes by delivering the executed Section 31 Deed to Mining Co.

Our view that the Native Title Party made a supply raises the issue of whether the Native Title Party should charge GST pursuant to the GST clause in the Agreement respect of the $AA paid to the DC Trustee. In our view the Native Title Party should not charge GST because the Native Title Party does not make a taxable supply as defined in section 9-5 of the GST Act:

You make a taxable supply if:

(a) you make the supply for consideration; and

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

(c) the supply is connected with Australia; and

(d) you are registered, or required to be registered.

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

Paragraph 9-5(b) of the GST Act is not satisfied because delivery of the executed Section 31 Deed by the Native Title Party is not made in the in the course or furtherance of an enterprise carried on by the Native Title Party. The definition of 'enterprise' in section 9-20 of the GST Act states:

An enterprise is an activity, or series of activities, done:

(a) in the form of a business; or

(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; or

…

(e) by a charity; or

(f) (Repealed by No 169 of 2012)

(g) by the Commonwealth, a State or a Territory, or by a body corporate, or corporation sole, established for a public purpose by or under a law of the Commonwealth, a State or a Territory; or

The definitions of 'Native Title Party' and 'Native Title Claim' in the Agreement indicate that the individuals comprising the Native Title Party have been authorised by the X People to be the named applicants in a native title determination application. A recital to the Agreement states:

The Native Title Party has the right to negotiate under Part 2, Division 3, Subdivision P of the NT Act in relation to the Mining Lease

and recitals to the Section 31 Deed annexed to the Agreement state:

In accordance with Part 2 Division 3 Subdivision P of the Native Title Act, negotiations in good faith in respect of the grant of the tenement(s) have been conducted between the Government Party, the Grantee Party and the Native Title Party.

The Native Title Party agrees to the grant of the tenement(s) and this deed is entered into for the purpose of ensuring the validity of the tenement(s) under the Native Title Act.

Essentially the Native Title Party is a creation of the NT Act and the activities, or series of activities, done by the Native Title Party are governed by the NT Act, including exercise of the right to negotiate in relation to an act (for example, the grant of the Mining Lease by the State to Mining Co) which affects the native title claim pursuant to Part 2 of the NT Act and pursuit of the native title application through the Federal Court pursuant to Part 3 of the NT Act.

We do not consider that the activities done by the Native Title Party are in the form of a 'business' (defined in section 195-1 to include any profession, trade, employment, vocation or calling, but does not include occupation as an employee)) as they do not have the indicators of a business referred to in paragraph 178 of Miscellaneous Taxation Ruling MT 2006/1, for example, a significant commercial activity and an intention to make a profit from the activity. Nor are the activities done by the Native Title Party in the form of 'an adventure in the nature of trade' as described in paragraph 234 of MT 2006/1, that is, an isolated or one-off transaction that does not amount to a business but which has the characteristics of a business deal. Nor do the activities of the Native Title Party fall within paragraph 9-20(1)(c), that is, regular or continuous in the form of a lease, licence, or other grant of an interest in property as it is the State, not the Native Title Party which grants the Mining Lease to Mining Co.

As the Native Title Party is not carrying on an enterprise paragraph 9-5(b) is not satisfied and the delivery of the executed Section 31 Deed by the Native Title Party to Mining Co is not a taxable supply made by the Native Title Party. Consequently the $AA paid by Mining Co to the DC Trustee at Completion is not consideration for a taxable supply made by the Native Title Party, the Native Title Party is not liable to pay GST and Mining Co is not obliged to pay an additional amount to the Native Title Party pursuant to the GST clause in the Agreement.

Our view that the $AA paid to the DC Trustee by Mining Co on Completion has a nexus with the delivery of the executed Section 31 Deed by the Native Title Party also raises the issue of whether the X People should charge GST pursuant to the GST clause in the Agreement on the basis that the Native Title Party delivered the Section 31 Deed on behalf of the X People. As noted above, the first page of the Agreement states that the Native Title Party is a party to the Agreement 'on behalf of the X People' and a recital to the Agreement states:

The Native Title Party is authorised to deal with all matters arising from the Native Title Claim for and on behalf of the X People.

The Section 31 Deed states that the Native Title Party acknowledged that the Section 31 Deed is an agreement for the purposes of section 28(1)(f) and section 31(1)(b) of the NT Act. Section 3 of the NT Act is followed by a note which states:

Note: The native title parties are set out in paragraphs 29(2)(a) and (b) and section 30. If they include a registered native title claimant, the agreement will bind all of the persons in the native title claim group concerned: see subsection 41(2).

Subsections 41(1) and (2) of the NT Act state:

(1) Subject to this section:

(a) a determination by the arbitral body; or

(b) an agreement of the kind mentioned in paragraph 31(1)(b);

that the act may be done subject to conditions being complied with by the parties has effect, if the act is done, as if the conditions were terms of a contract among the negotiation parties. The effect is in addition to any other effect that the agreement or determination may have apart from this subsection.

Other negotiation parties

(2) If a native title party is a registered native title claimant, any other person included in the native title claim group concerned is taken to be a negotiation party for the purposes only of subsection (1).

'Native Title Claim Group' is defined in section 253 of the NT Act in relation to a claim in an application for an approved determination of native title made to a recognised State/Territory body as either the person or persons making the claim, or on whose behalf the claim is made. In the present case the X People are a Native Title Claim Group.

The effect of subsection 41(2) of the NT Act in the present case is that because the Native Title Party is a Registered Native Title Claimant (which is confirmed in a recital to the Section 31 Deed), any other person included in the Native Title Claim Group concerned, that is, the X People, is taken to be a negotiation party for the purposes of subsection 41(1).

The effect of subsection 41(1) in the present case is that the conditions in clauses [ ], [ ] and [ ] of the Section 31 Deed have effect as if they were terms of a contract between the negotiation parties (which section 30A of the NT Act states to be the Government Party (that is, State), Native Title Party and the Grantee Party (that is, Mining Co) and which subsection 41(2) deems to include the Native Title Claim Group, that is, X People). This is reflected in the Section 31 Deed which states:

Clauses [ ], [ ], and [ ] of this deed constitute conditions to be complied with by the parties for the purposes of subsections 41(1) and 41(2) of the Native Title Act, and all persons included in the native title claim group are taken to be parties in respect of those clauses.

Goods and Services Tax Ruling GSTR 2006/9 deals with supplies and includes Proposition 5, that is, that an entity must take some action to 'make' a supply for the purposes of section 9-5 of the GST Act. Paragraph 74 of GSTR 2006/9 states that an entity can still 'make' a supply even if the supply is made under compulsion of statute if the entity takes some action to cause the supply to occur, but paragraph 78 of GSTR 2006/9 states that an entity does not make a supply brought about by operation of law in the absence of that entity taking positive action.

In the present case the Native Title Party delivered to Mining Co the executed Section 31 Deed pursuant to which the Native Title Party agreed to the grant of the Mining Lease to Mining Co. The agreement by the X People to the conditions in clauses [ ], [ ] and [ ] of the Section 31 Deed did not involve the X People taking any positive action but was brought about by the operation of law (subsections 41(1) and (2) of the NT Act). Consequently the X People did not 'make' a supply, the $AA paid to the DC Trustee by Mining Co on Completion is not consideration for a taxable supply for which the X People would be liable to pay GST, and Mining Co is not obliged to pay an additional amount to the X People pursuant to the GST clause in the Agreement.

$BB payable to the DC Trustee by Mining Co on the commencement of Commercial Production:

The Agreement states that, subject to the terms of the Agreement, Mining Co will pay $BB to the DC Trustee on the commencement of Commercial Production that is, when minerals mined from any part of the Mining Lease are transported for sale from the Project Area.

The Agreement states:

For the avoidance of doubt:

[Mining Co] will only be required to make the milestone payments referred to in subclauses [ ] and [ ] once all of the persons comprising the Native Title Party (that is, all members of the named applicant with respect to the Native Title Claim) have executed this Agreement and the Section 31 Deed required for the Grant of the Mining Lease;

We therefore consider that the $BB payable by Mining Co to the DC Trustee does not have a nexus with a supply made by the DC Trustee. Consequently the DC Trustee is not liable under section 9-40 of the GST Act to pay GST and Mining Co is not required by the GST clause in the Agreement to pay the DC Trustee an amount additional to the $BB.

Although the $BB payable by Mining Co to the DC Trustee has a nexus with a supply made by the Native Title Party (that is, delivery of the executed Section 31 Deed), that supply is not a taxable supply because paragraph 9-5(b) of the GST Act is not satisfied as the Native Title Party is not carrying on an enterprise. Consequently the $BB is not consideration for a taxable supply made by the Native Title Party, the Native Title Party is not liable to pay GST, and Mining Co is not obliged to pay an additional amount to the Native Title Party pursuant to the GST clause in the Agreement.

Although the X People are bound by the conditions in the Section 31 Deed, that occurred by operation of subsections 41(1) and (2) of the NT Act without the X People taking any positive action. Consequently the XX People did not 'make' a supply, the $BB payable by Mining Co on commencement of Commercial Production is not consideration for a taxable supply for which the X People would be liable to pay GST and Mining Co is not obliged to pay an additional amount to the X People pursuant to the GST clause in the Agreement.

DC Royalty payable quarterly from the commencement of Commercial Production:

The Agreement states that Mining Co shall pay the DC Trustee a DC Royalty in respect of each tonne of minerals sold by Mining Co.

A recital to the Agreement states:

The X People have appointed the DC Trustee as an agent and manager to assist the X People in meeting its obligations under this Agreement, and have agreed that some benefits arising from the Project Operations should be distributed…the DC Trust…

The Agreement states that the DC Royalty is approximately 1/5^th of the X Royalty (that is, payable by Mining Co to the X Trustee to be held as property of the X People per other operative provisions of the Agreement) and that Mining Co shall be wholly relieved of any obligation to make payments under the Agreement after the commencement of Commercial Production if Mining Co decides that Project Operations should cease (whether temporarily or permanently).

The recital and operative provisions described above indicate that the DC Royalty is an amount that Mining Co otherwise would be obliged to include in the X Royalty but which the X People have agreed should be paid to the DC Trustee. Consequently we do not consider the DC Royalty to be consideration for a supply made by the DC Trustee. In our view the DC Royalty has a nexus with the delivery of the executed Section 31 Deed by the Native Title Party because the DC Royalty is payable from the commencement of Commercial Production. 'Commercial Production' is defined as when minerals mined from any part of the Mining Lease are transported for sale from the Project Area. Commercial Production cannot commence without the grant of the Mining Lease, and the act of granting the Mining Lease is invalid without the delivery of the executed Section 31 Deed to Mining Co by the Native Title Party.

The DC Royalty does not have a nexus with a supply made by the DC Trustee. Consequently the DC Trustee is not liable under section 9-40 of the GST Act to pay GST and Mining Co is not required by the GST clause in the Agreement to pay the DC Trustee an amount additional to the DC Royalty.

Although the DC Royalty has a nexus with a supply made by the Native Title Party (that is, delivery of the executed Section 31 Deed), that supply is not a taxable supply because paragraph 9-5(b) of the GST Act is not satisfied as the Native Title Party is not carrying on an enterprise. Consequently the DC Royalty is not consideration for a taxable supply made by the Native Title Party, the Native Title Party is not liable to pay GST, and Mining Co is not obliged to pay an additional amount to the Native Title Party pursuant to the GST clause in the Agreement. Although the X People are bound by the conditions in the Section 31 Deed, that occurred by operation of subsections 41(1) and (2) of the NT Act without the X People taking any positive action. Consequently the X People did not 'make' a supply, the DC Royalty is not consideration for a taxable supply for which the X People would be liable to pay GST and Mining Co is not obliged to pay an additional amount to the X People pursuant to the GST clause in the Agreement.

$CC plus any additional funding payable by Mining Co in respect of Assistance:

The Agreement states that within 30 days after Completion Mining Co will pay to the DC Trustee a once-off payment of $CC 'in recognition of the DC Trustee's obligations undertake the Assistance'. The Agreement also states that Mining Co will consider reasonable requests for additional funding up until the time when Commercial Production has commenced and payments of the DC Royalty have commenced.

The Agreement also states that the DC Trustee agrees to 'provide support and assistance to the X People' to establish the X Trust and incorporate and appoint the X Trustee, build the organisational capacity of the X People, and provide other assistance required to enable the X People and the Native Title Party to enforce their rights and comply with their obligations under the Agreement (Assistance).

The Agreement obliges the DC Trustee to provide Mining Co with documentation to satisfy Mining Co that the $CC is applied to provide the Assistance.

The supply of the Assistance by the DC Trustee is a supply which falls within paragraph 9-5(2)(b) of the GST Act, that is, a supply of services.

In order for a supply to be a taxable supply the requirements of section 9-5 of the GST Act must be satisfied, including the requirement in paragraph 9-5(b) that the relevant entity (the DC Trustee) makes the supply 'for consideration'. Section 9-15 of the GST Act states that consideration includes any payment in connection with, in response to, or for the inducement of a supply of anything. The reference in the Agreement to Mining Co making the payment 'in recognition of' the DC Trustee's obligation to undertake the X Assistance indicates that such a nexus exists between the $CC payment made to the DC Trustee by Mining Co and the supply of the X Assistance by the DC Trustee.

The $CC payment made by Mining Co to the DC Trustee is not excluded from consideration by section 9-17 of the GST Act. Subsection 9-17(2) states:

Making a gift to a non-profit body is not the provision of consideration.

Paragraph 74 of Good and Services Tax Ruling GSTR 2012/2 states:

The term 'non-profit body' is not defined for the purposes of the GST Act so takes its ordinary meaning in the context in which it appears. A body is a non-profit body if, by operation of law (for example, a statute governing a body's activities) or by its constituent documents, the body is prevented from distributing its profits or assets amongst its members while the body is functional and on its winding-up.

The DC Trustee is registered with the Australian Charities and Not-For-Profits Commission as a public benevolent institution and the Agreement obliges the DC Trustee to ensure that the DC Trust is established for charitable objects for the benefit of the X People at all material times. Consequently the DC Trustee is a non-profit body. However the $CC payment made by Mining Co is not a 'gift'. Paragraph 70 of GSTR 2012/2 states that a 'gift' involves a transfer of beneficial interest in property that is made voluntarily, arises by way of benefaction, and where no material benefit or advantage is received by the payer in return. In the present case Mining Co does receive a material benefit or advantage in return for the $CC payment because the Agreement states the Assistance provided by the DC Trustee includes:

provide other assistance reasonably required by the X People, the Native Title Party or Mining Co to enable the X People and the Native Title Party to enforce their rights and comply with their obligations under this Agreement.

We consider that Mining Co would receive a material advantage or benefit to the extent that the DC Trustee provided Assistance to Mining Co or provided Assistance to the X People or the Native Title Party to enable the X People or the Native Title Party to comply with their obligations under the Agreement, including their obligations to Mining Co.

We also consider that the other requirements of section 9-5 are met in relation to the supply of the Assistance by the DC Trustee, i.e. that supply is made in the course or furtherance of an enterprise, the supply is connected with Australia, and the DC Trustee is registered or required to be registered for GST. The Trustee for the DC Trust has an ABN and therefore must be carrying on an enterprise (and paragraph 9-20(1)(e) states that an enterprise includes an activity or series of activities done by a charity). The supply of Assistance comprises services and subsection 9-25(5) of the GST Act states that such a supply is connected with Australia if either the thing is done in Australia or supplied through an enterprise carried on in Australia by the DC Trustee. The Australian Business Register indicates that the Trustee for the DC Trust is registered for GST.

For the reasons set out above we consider that the supply of the Assistance by the DC Trustee (whether for the $CC payment or additional funding provided by Mining Co) is a taxable supply. Consequently the DC Trustee will be liable to pay GST in respect of the supply of the Assistance pursuant to section 9-40 of the GST Act.

There is an issue, however, as to whether the GST clause in the Agreement obliges Mining Co to increase the $CC paid to the DC Trustee by an amount equal to the GST which the DC Trustee is liable to pay. The GST clause in the Agreement refers to one party (the supplier) making a supply to another party (the recipient) under the Agreement and states that:

…the recipient must pay to the supplier an amount equal to any GST for which the supplier is liable on that supply...

Goods and Services Tax Ruling GSTR 2006/9 discusses how to identify the recipient of a supply in a tripartite arrangement (that is, an arrangement involving more than two entities) where analysis may reveal one of three possible outcomes, that is, either a supply made to one entity but provided to another entity, two or more supplies made, or a supply made and provided to one entity and consideration paid by a third party (Para 115). The first possible outcome of that analysis, that is, a supply made to one entity but provided to another entity, is discussed in GSTR 2006/9 as Proposition 13:

When A has an agreement with B for B to provide a supply to C, there is a supply made by B to A (contractual flow) that B provides to C (contractual flow).

Paragraph 130 of GSTR 2006/9 states that in Proposition 13 B 'made' the supply to A (that is, for GST purposes A is the recipient of the supply made by B), although B 'provides' that supply to C. Paragraphs 131 and 132 of GSTR 2006/9 explain that 'made' takes its meaning from the definition of 'recipient' in section 195-1 of the GST Act (that is, 'recipient', in relation to a supply, means the entity to which the supply was made) and that 'provides' is used to contrast with 'made' to distinguish between the contractual flow of the supply to the recipient (the entity to which the supply was made) and the actual flow of the supply to another entity (the entity to which the supply is provided).

Proposition 11 in GSTR 2006/9 states that the agreement is the logical starting point when working out which entity makes a supply and the recipient of that supply. In the present case Mining Co, the Native Title Party, and the DC Trustee are parties to the Agreement, a recital to the Agreement states that the parties have agreed to the terms contained in the Agreement, the Agreement refers to 'DC Trustee obligations' and states:

The DC Trustee agrees to provide support and assistance to the X People to:

establish the X Trust….

and:

Within 30 days after Completion, Mining Co will pay to the DC Trustee a once-off payment of $CC in recognition of the DC Trustee's obligations…to undertake the Assistance

These provisions of the Agreement indicate an agreement between Mining Co and the DC Trustee whereby the DC Trustee enters into an obligation in favour of Mining Co to provide the Assistance to either the X People, the Native Title Party or Mining Co and in return Mining Co agrees to pay the DC Trustee $CC. In our these provisions indicate that the supply by the DC Trustee (that is, entry into an obligation to provide the Assistance) is 'made' to Mining Co and Mining Co is therefore the recipient of that supply for GST purposes, although the DC Trustee may 'provide' the Assistance to the X People or the Native Title Party. We therefore consider that Mining Co is the recipient of the supply of Assistance made by the DC Trustee and that the GST clause in the Agreement obliges Mining Co to increase the $CC payment to the DC Trustee by an amount equal to the GST for which the DC Trustee is liable. Consequently the DC Trustee should charge GST on the supply of the Assistance.

Mining Co reimburses the DC Trustee for costs of Cultural and Social Component:

The Agreement deals with heritage and cultural awareness and states that Mining Co shall take measures to ensure that the activities of Mining Co, Mining Co's subcontractors and other parties working on or attending the Project Operations do not adversely affect the social and cultural well-being of the Native Title Party.

The Agreement also states that when there is sufficient certainty about the scale, scope and nature of Project Operations, Mining Co will undertake a Social Impact Assessment (SIA) of Project Operations and that the SIA will have a Cultural and Social component (CS Component).

The Agreement also states that the initial CS Component will be undertaken by a person employed by the DC Trustee and approved by Mining Co and that Mining Co will reimburse the DC Trustee 100% of the reasonable salary and overhead costs of the person employed to undertake the initial CS Component, up to a total maximum of $DD.

These provisions indicate that Mining Co assumes an obligation to undertake an SIA, but that the initial CS Component of the SIA will be supplied to Mining Co by the DC Trustee for a consideration calculated as 100% of the salary and overhead costs (up to a maximum of $DD) incurred by the DC Trustee.

In our view the supply of the initial CS Component by the DC Trustee to Mining Co is similar to the supply of Assistance by the DC Trustee to Mining Co, that is, it is a supply made by the DC Trustee to Mining Co which is a taxable supply as all of the requirements of section 9-5 of the GST Act are met. Consequently the DC Trustee will be liable to pay GST to the ATO in respect of that supply pursuant to section 9-40 of the GST Act and the GST clause in the Agreement obliges Mining Co to increase the payment to the DC Trustee by an amount equal to the GST which the DC Trustee is liable to pay to the ATO.

The rulings in the register have been edited and may not contain all the factual details relevant to each decision. Do not use the register to predict ATO policy or decisions.