Edited version of your written advice

Authorisation Number: 1012905932145

Date of advice: 9 November 2015

Ruling

Subject: Initial and Subsequent Payments

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 to the trustee of the # Charitable Trust (the Initial Payment); or

• any quarterly payment paid pursuant to a Claim Wide Participation Agreement (CWPA) between X Ltd, Y Ltd and the group of Indigenous persons comprising the # Claimant Group to the trustee of the # Charitable Trust (Subsequent Payment)

consideration for a taxable supply made to Z by the trustee of the # Charitable Trust?

Answer

No, a payment made by Z comprising:

• the Initial Payment; or

• any Subsequent Payment

is not consideration for a taxable supply made to Z by the trustee of the # Charitable Trust

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.

Certain claims 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 # native title claim group (# Claimant 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 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 $[ ] (CP Payment) upon fulfilment of two of the conditions precedent and pay a further $[ ] (CWPA Payment) when a claim wide co-existence agreement and land use agreement were signed. These payments were to be paid into a separate bank account opened and controlled by Z (BIA Preservation Account).

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 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. Z made the payments required by the BIA into the 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 CWA 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 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 are 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 # 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 a 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 for the # Charitable Trust and the trustee for 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 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 and Subsequent Payments:

Z paid the Initial Payment to the trustee of the # Charitable Trust, representing [ ]% 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.

Relevant legislative provisions

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

Reasons for decision

Summary

The Initial Payment and any Subsequent Payments are not consideration for a taxable supply made by the trustee of the # Charitable Trust.

Detailed reasoning

The Initial Payment and any Subsequent Payments are consideration for a taxable supply if they have a nexus with a supply made by the trustee of the # Charitable Trust which satisfies the requirements in section 9-5 of the A New Tax System (Goods 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.

Paragraph 9-5(a):

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

'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 P Claimant Group, i.e. the surrender of a right.

It was submitted, however, that the Initial Payment and any Subsequent Payments are not consideration for a supply made by the trustee of the # Charitable Trust, that the trustee of the # Charitable Trust is a passive recipient of those payments and has no entitlement to those payments under the Subfund Agreement.

The submissions referred to the Subfund Agreement which states that the trustee of the # Charitable Trust acknowledges that the trustee has no rights or obligations under the CWPA, including no entitlement to payment under the CWPA and no entitlement to enforce the terms of the CWPA, whether on behalf of the # Claimant Group or otherwise. It was further submitted that the trustee of the # Charitable Trust was not a party to the BIA or the CWPA.

We agree with these submissions. The trustee of the # Charitable trust does not have any entitlement to enforce the terms of the CWPA on behalf of the # Claimant Group and is merely part of the Benefits Management Structure provided for in the CWPA to receive various payments made by Z.

Goods and Services Tax Ruling GSTR 2006/9 (GSTR 2006/9) suggests that where an entity merely receives a payment without any action that entity does not 'make' a supply. Paragraphs 72 and 73 of GSTR 2006/9 refer to and agree with the decision of Underwood J in Shaw v Director of Housing and State of Tasmania (No.2) (2001) 46 ATR 242 that a judgement creditor does not make a supply with respect to extinguishment of a judgment debt when the judgment debtor pays up. We consider that the same principle applies when the Initial Payment and any Subsequent Payments are paid to the trustee of the # Charitable trust.

As the trustee of the # Charitable Trust does not make a supply the trustee does not make a taxable supply and the Initial Payment and any Subsequent Payments therefore are not consideration for a taxable supply made to Z by the trustee of the # Charitable Trust.