Edited version of your written advice

Authorisation Number: 1012905721686

Date of advice: 9 November 2015

Ruling

Subject: Payments made under Claim Wide Participation Agreement

Question 1

Is a payment made by X Ltd and Y Ltd as manager for and on behalf of a number of joint venture partners (collectively referred to as Z) comprising:

• $[ ] paid on to the trustee of the # Charitable Trust and $[ ] paid to the trustee of the # Direct Benefits Trust) (collectively the Initial Payments); or

• any quarterly payment subsequently paid to the trustee of the # Charitable Trust or the trustee of the # Direct Benefits Trust (Subsequent Payment)

consideration for a taxable supply made to Z either collectively by the # Claimant Group or individually by the Traditional Owner Applicant or a member of the # Claimant Group?

Answer

No, a payment made by Z comprising:

• the Initial Payments; or

• any Subsequent Payment

is not consideration for a taxable supply made to Z either collectively by the # Claimant Group or individually by the Traditional Owner Applicant or a member of the # Claimant Group.

Relevant facts and circumstances

Certain claimant applications were filed in the Federal Court in accordance with the relevant Act. The claims were lodged by named individuals as applicants acting for and on behalf of a group or persons comprising the # title claim group.

Binding Initial Agreement:

The # Claimant Group (by its representatives) entered into a Binding Initial Agreement (BIA) with X Ltd and Y Ltd as manager for and on behalf of the Joint Venture Partners (collectively referred to as Z).

The BIA related to the planning, development and conduct of mining and other associated activities (Operations) within the areas of the claims.

The BIA set out conditions precedent which made Z's commitments conditional upon certain cultural heritage surveys being completed, there being no objection or challenge by the # Claimant Group to the grant of certain mining tenements and titles, and the # Claimant Group executing deeds under section 31 of the NTA for the grant of specified mining tenements and titles.

The BIA stated that Z would pay financial benefits in quarterly instalments calculated on production from mines within certain areas (BIA Quarterly Payments), pay a CP Payment upon fulfilment of certain conditions precedent and pay a CWPA Payment when a claim wide co-existence agreement and indigenous land use agreement was signed.

The BIA stated that the BIA Quarterly Payments, the CP Payment and CWPA Payment constitute the # Claimant Group's full and final entitlement to compensation for the effect on their native title rights and interests of the grant of certain mining tenements and titles and the conduct of Operations.

Section 31 Deed:

Subsequently the State (as government party), X Ltd (as grantee party) and the # Claimant Group (as native title party) entered into a Deed for Grant of Mining Tenement pursuant to section 31 of the NTA (Section 31 Deed).

A mine which forms part of the Operations located in the area subject to the claims commenced commercial production and Z made the payments required by the BIA into a separate bank account opened and controlled by Z (BIA Preservation Account).

Claim Wide Participation Agreement:

The # Claimant Group and Z entered into a Claim Wide Participation Agreement (CWPA) which was intended to replace the BIA.

The CWPA required Z to pay a Signature Payment of to the Trustee of the # Direct Benefits Trust and to pay the net proceeds held in the BIA Preservation Account (BIA Preservation Payment) into the Benefits Management Structure. The CWPA also required Z to pay financial benefits in quarterly instalments calculated on production from mines which commenced after the BIA (CWPA Quarterly Payments).

The CWPA obliged the # Claimant Group to nominate and Z to approve a Benefits Management Structure that comprised a charitable trust that met the requirements set out in the CWPA (Charitable Trust) and a discretionary trust that met the requirements set out in the CWPA (Direct Benefits Trust).

The CWPA stated that the # Claimant Group acknowledged that the payments made in accordance with the CWPA were in full and final satisfaction of any Compensation Entitlements of the # Claimant Group. 'Compensation Entitlements' was defined in the CWPA as any rights or entitlements (including to compensation or damages) arising from or in connection with certain agreed acts, the grant or modification of certain titles, the grant of interests or approvals relating to certain areas and the effect of those things on native title.

Z paid the payments required under the CWPA into the CWPA Preservation Account.

Land Use Agreement:

Subsequently the # Claimant Group entered into the Indigenous Land Use Agreement (ILUA).

The ILUA states that the payments made by Z under the CWPA are in full and final satisfaction of any Compensation Entitlement of the # Claimant Group and that those payments release certain entities (including Z and the Joint Venture Partners) and the State from all claims brought by or on behalf of the # Claimant Group in relation to the Compensation Entitlements.

The ILUA also states that, except for the CWPA, the ILUA contains the entire agreement between the parties about its subject matter and any previous understanding or agreement relating to that subject matter is replaced by the ILUA and has no further effect.

The ILUA was registered on the Register of Indigenous Land Use Agreements maintained by the relevant Tribunal.

A payment was made from the CWPA preservation Account to assist with implementation of the CWPA.

The # Claimant Group authorised execution versions of the documents comprising the Benefits Management Structure, i.e. the Trust Deed for the # Charitable Trust, the Trust Deed for the # Direct Benefits Trust and the Sub Fund Agreement for the # Charitable Trust and # Direct Benefits Trust.

Trust Deeds for the # Charitable Trust and # Direct Benefits Trust:

The # Charitable Trust and the # Direct Benefits Trust were established by execution of the relevant trust deeds. The # Charitable Trust was registered as a charity. A Trustee Company is the trustee of the # Charitable Trust and the trustee of the # Direct Benefits Trust.

Sub Fund Agreement for the # Charitable Trust and # Direct Benefits Trust:

The trustees of the # Charitable Trust and # Direct Benefits Trust and the # Claimant Group entered into the Z Sub Fund Agreement for the # Charitable Trust and # Direct Benefits Trust (Sub Fund Agreement). The Sub Fund Agreement states that the Benefits Management Structure requires the Sub Fund Agreement to be entered into to give effect to certain governance and administration requirements with respect to money paid into the Benefits Management Structure.

Initial Payment and Subsequent Payments:

Z made the following payments (Initial Payments):

• $[ ] to the trustee of the # Charitable Trust representing a percentage of the BIA Preservation Payments, CWPA Quarterly Payments and accrued interest up to the date of payment from the CWPA Preservation Account, plus an amount for GST (which is to be refunded if the payment is not consideration for a taxable supply); and

• $[ ] to the trustee of the # Direct Benefits Trust representing the Signature Payment and a percentage of the BIA Preservation Payments, CWPA Quarterly Payments and accrued interest up to the date of payment from the CWPA Preservation Account, plus an amount for GST (which is to be refunded if the payment is not consideration for a taxable supply).

Z has made or will make CWPA Quarterly Payments (Subsequent Payments) to the trustee of the # Charitable Trust and the trustee of the # Direct Benefits Trust.

Relevant legislative provisions

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

Reasons for decision

Summary

The Initial Payments and any Subsequent Payments are not consideration for a taxable supply made by the # Claimant Group collectively. The Initial Payments and any Subsequent Payments are not consideration for a taxable supply made by either the Traditional Owner Applicant or the individual members of the # Claimant Group.

Detailed reasoning

The Initial Payments and Subsequent Payments are consideration for a taxable supply if they have a nexus with a supply made by made either collectively by the # Claimant Group or individually by the Traditional Owner Applicant or a member of the # Claimant Group which satisfies the requirements in section 9-5 of the A New Tax System (Good and Services Tax) Act 1999 (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

(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.

# Claimant Group - paragraph 9-5(a):

Paragraph (a) of section 9-5 of the GST Act requires that 'you' make a supply. Section 195-1 of the GST Act 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 of the GST Act.

'Supply' is defined in subsection 9-10(1) of the GST Act as any form of supply whatsoever and paragraph 9-10(2)(e) states that 'supply' includes a creation, grant, transfer, assignment or surrender of any right. The ruling request referred to the CWPA where the # Claimant Group acknowledges that the payments made in accordance with the CWPA are in full and final satisfaction of Compensation Entitlements and releases every Z entity and the State from all claims for Compensation Entitlements by or on behalf of the # Claimant Group. It was stated that, arguably, the Initial Payments and Subsequent Payments are consideration for a supply made by the # Claimant Group, i.e. the surrender of a right.

It was submitted, however, that that supply is not a taxable supply. The first reason is that the # Claimant Group is not an 'entity' as defined in section 184-1 of the GST Act and therefore the requirement in paragraph 9-5(a) that 'you make the supply' is not satisfied. Section 184-1 of the GST Act states:

(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

The submissions in the ruling request in relation to the # Claimant Group focussed on whether the # Claimant Group is a partnership or other unincorporated association or body of persons.

Section 195-1 of the GST Act states that 'partnership' has the meaning given by section 995-1 of the Income Tax Assessment Act 1997, i.e. an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly or a limited partnership. It was submitted that the # Claimant Group is neither carrying on business as partners nor in receipt of income jointly. We agree with that submission.

Miscellaneous Taxation Ruling MT 2006/1 (MT2006/1) deals with the meaning of 'entity' and 'enterprise' for the purposes of obtaining an Australian Business Number. Goods and Services Tax Determination GSTD 2006/6 (GSTD 2006/6) states that those principles can be relied on for GST purposes. Paragraph 47 of MT2006/1 states that an unincorporated association or body of persons may be seen as consisting of a group of persons who associate to achieve a common aim or purpose and who are bound by mutual obligations and rights. Paragraph 50 of MT2006/1 refers to Conservative and Unionist Central Office v Burrell (Inspector of Taxes) [1980] 3 All ER 42, 58 which described an unincorporated association as having members bound amongst themselves by a contract and with constitutional arrangements for meetings of members and appointing officers. It was submitted that the # Claimant Group is a 'community', i.e. a fluctuating group of individuals which is neither created to achieve a common aim or purpose nor bound by mutual obligations and rights.

The CWPA describes the # Claimant Group as the persons on whose behalf the Native Title Claim was made and acknowledges that there are many people who comprise the # Claimant Group and that it is possible that those people will change over time. Section 253 of the NTA states that, in relation to an application for determination of native title made to the Federal Court 'native title claim group' means the native title claim group mentioned in subsection 61(1) of the NTA Subsection 61(1) states that a native title determination application may be made by:

• A person or persons authorised by all the persons (the native title claim group) who, according to their traditional laws and customs, hold the common rights and interests comprising the particular native title claimed.

This suggests that the things that bind the # Claimant Group are the common rights and interests comprising the native title claimed and that there is neither a contract binding the members of the # Claimant Group amongst themselves (although they are bound to comply with the CWPA) nor any constitutional arrangement for members and appointment of officers. Consequently we consider that the # Claimant Group is not an unincorporated association or body of persons and is not an 'entity' as defined in section 184-1 of the GST Act and that the requirement in paragraph 9-5(a) of the GST Act that 'you' make a supply is not satisfied.

# Claimant Group - paragraphs 9-5(b) and 9-5(d):

It was submitted in the ruling request that even if the # Claimant Group was an entity, the # Claimant Group is not carrying on an enterprise and the requirement in paragraph 9-5(b) of the GST Act that the supply is made in the course or furtherance of an enterprise that you carry on is not satisfied. The definition of 'enterprise' in section 9-20 of the GST Act refers (in part) to 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…

Section 195-1 of the GST Act states that 'business' includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee. Paragraph 178 of MT2006/1 states that the indicators of a business include significant commercial activity, an intention to make a profit from the activity and recurrent or regular activity. Those indicators do not appear to be present in relation to the # Claimant Group. Although the words 'in the form of' in section 9-20 broaden the range of activities which may amount to an enterprise, we do not consider that the # Claimant Group is engaged in any activity which is in the form of a business.

Paragraph 234 of MT2006/1 states that an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business but which has the characteristics of a business deal. We do not consider that the # Claimant Group is engaged in such an activity. Nor is the # Claimant Group involved in leasing, licensing or granting an interest in property. The Section 31 Deed recites that the State, rather than the # Claimant Group, has given notice of its intention to grant the mining tenements to X Ltd in accordance with section 29 of the NTA.

We therefore agree with the submission in the ruling request that even if the # Claimant Group is an entity, the # Claimant Group is not carrying on enterprise and paragraph 9-5(b) is not satisfied.

As the # Claimant Group is not carrying on an enterprise, the # Claimant Group is not required by section 23-5 of the GST Act to register for GST. As a result paragraph 9-5(d) of the GST Act also is not satisfied.

Traditional Owner Applicant or the individual members of the # Claimant Group - paragraphs 9-5(b) and 9-5(d):

The definition of 'entity' in section 184-1 of the GST Act includes 'an individual' which is defined in section 195-1 of the GST Act as a natural person. Consequently the Traditional Owner Applicant and each member of the # Claimant Group is 'you' of the purposes of section 9-5 of the GST Act.

It was submitted, however, that neither the Traditional Owner Applicant nor the individual members of the # Claimant Group are carrying on an enterprise. We agree with that submission for the same reasons as are set out above in relation to the # Claimant Group. Consequently paragraph 9-5(b) of the GST Act is not satisfied and the Initial Payments and Subsequent Payments are not consideration for a taxable supply made by either the Traditional Owner Applicant or the individual members of the # Claimant Group.

As the Traditional Owner Applicant and individual members of the # Claimant Group are not carrying on an enterprise, they are not required by section 23-5 of the GST Act to register for GST. As a result paragraph 9-5(d) of the GST Act also is not satisfied.