Edited version of your written advice

Authorisation Number: 1051224718199

Date of Advice 19 May 2017

Ruling

Subject: Payments from mining company

Question 1

Is the Production Payment paid to the Direct Benefits Trust (DBT) under the Project Agreement a native title benefit under section 59-50 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question 2

Is any payment to the People under the Project Agreement, other than the Production Payment, unable to qualify as a native title benefit under section 59-50 of the ITAA 1997?

Answer

Yes

Question 3

Is the amounts paid to DBT under the Project Agreement a mining payment under section 59-15 of the ITAA 1997?

Answer

No

Question 4

Where the amount paid under the Project Agreement is paid to a trust, does the amount form part of the trust estate or the income of the trust?

Answer

The amount forms part of the trust estate

Question 5

Where the trustee distributes an amount of trust estate to a beneficiary of the trust who is an Indigenous person, an Indigenous holding entity or a distributing body, will the amount be non-assessable non-exempt income of the beneficiary?

Answer

Yes

Question 6

Where the amount paid to DBT under the Project Agreement is invested, will any income generated be non-assessable non-exempt?

Answer

No

Question 7

Where the trustee distributes an amount of trust income to a beneficiary of the trust who is an Indigenous person, an Indigenous holding entity or a distributing body, will the amount be non-assessable non-exempt income of the beneficiary?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2016

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

The scheme commences on:

29 January 2016

Relevant facts and circumstances

You have provided copies of relevant documents, which should be read in conjunction with, and form part of the scheme of this ruling.

The People are a society of Aboriginal people whose traditional country is located in a State or Territory of Australia.

Native title claims

Up until a particular date, certain members of the People (the Applicant) were the applicant on behalf of the native title claim group in respect of a native title claim under the Native Title Act (NTA).

After that date, the Applicant was also the applicant on behalf of the native title claim group in respect of another native title claim under the NTA.

At all times the native title claims have remained extant and have been registered on the Register of Native Title Claims. The Applicants to have the claim registered with the National Native Title Tribunal are not all the same as the Applicant for the native title claim.

Each member of the Applicant and each member of the native title claim groups is an indigenous person.

Native title agreements

The native title claim group authorised the Applicant to enter into a Primary Native Title Mining Agreement (PNTMA) and the Project Agreement. Party to both agreements is the mining company.

The PNTMA is an Agreement between the parent company of the mining company and the People. The parent company currently conducts and desires to further conduct mining operations in the native title Claim Area, including through Project Entities. Project Agreements may be entered into in relation to specific mining projects to be undertaken by Project Entities. A Project Agreement applies some of the terms of the PNTMA to the project mining area and may also contain additional terms that relate to the particular project.

The Project Agreement is between the mining company and the People and relates to a particular project. The mining company is a Project Entity as defined in the PNTMA and is a Project Agreement contemplated by the PNTMA.

When the last of the parties to the PNTMA and the Project Agreement executed those agreements, both agreements commenced.

The Project Agreement states that the mining company has to pay the People a signature payment within 14 days of the Commencement Date; and has to pay a Production Payment calculated by reference to minerals obtained or produced and sold from mining operations within the Project Mining Area.

The Project Agreement defines the Project Mining Area as the land and waters the subject of particular mining lease applications.

The parties to Section 31 Deeds for the grant of each mining lease executed those agreements and they commenced. Mining leases were consequently granted to the mining company.

The Project Agreement details that Aboriginal Heritage Surveys will be conducted by a Heritage Survey Team which will include a number of Indigenous consultants. The mining company will reimburse the consultant's costs of conducting the Aboriginal Heritage Surveys in accordance with a schedule of fees for field expenses, travel expenses, incidental expenses and administration fee.

The Project Agreement provides that the mining company will facilitate the employment of a number of members of the People within its business at all times. The salaries of the positions will be commensurate with commercial rates. Contracting opportunities for services by members of the People in the Agreement Area and the Project Mining Area are also detailed in the Project Agreement.

Benefits Management Structure

The Direct Benefits Trust (DBT) and the Charitable Trust (CT) were established with the same trustee.

The only beneficiaries of the DBT are:

1. Indigenous persons; and

2. Indigenous Holding Entities

The CT is registered under the Australian Charities and Not-for-profits Commission Act 2012 (Cth) as a charity.

A payment direction notice was provided to the mining company and nominated the account of the DBT to receive the Production Payment under the Project Agreement.

The mining company and the persons in the native title group executed a Deed of Amendment amending the Project Agreement by deleting each reference to some of the original parties to the Project Agreement and replacing those names with other names. This amendment resulted in all persons in the native title group being parties to the Project Agreement.

The mining company subsequently commenced paying the Production Payment under the Project Agreement.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 59-15

Income Tax Assessment Act 1997 Section 59-50

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 6-15

Income Tax Assessment Act 1997 Section 10-5

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment Act 1936 Subsection 95(1)

Income Tax Assessment Act 1936 Section 128U

Native Title Act 1993 Section 11

Native Title Act 1993 Section 24BB

Native Title Act 1993 paragraph 31(1)(b)

Native Title Act 1993 Subsection 61(1)

Native Title Act 1993 Section 225

Native Title Act 1993 Section 226

Native Title Act 1993 Section 228

Native Title Act 1993 Section 232

Native Title Act 1993 Section 233

Native Title Act 1993 Section 227

Native Title Act 1993 Section 193

Native Title Act 1993 Section 223

Native Title Act 1993 Section 237A

Native Title Act 1993 Section 238

Native Title Act 1993 Section 253

Mining Act 1978 (WA) Section 8

Reasons for decision

All future references to the Income Tax Assessment Act 1997 will appear as ITAA 1997.

All future references to the Income Tax Assessment Act 1936 will appear as ITAA 1936.

All future references to the Native Title Act 1993 will appear as NTA 1993.

Issue 1

Question 1

Summary

The Production Payment paid to the Direct Benefits Trust (DBT) under the Project Agreement is a native title benefit under section 59-50 of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed reasoning

For a payment to satisfy the requirements to be a native title benefit under section 59-50 of the ITAA 1997, the payment must:

● otherwise be included in assessable income (subsection 59-50(1) of the ITAA 1997)

● be made to an Indigenous person or Indigenous holding entity (subsection 59-50(1) of the ITAA 1997)

● arise under an agreement (subparagraph 59-50(5)(a)(i) of the ITAA 1997 or an ancillary agreement (subparagraph 59-50(5)(a)(ii) of the ITAA 1997)

● relate to an act that would extinguish native title or that would otherwise be wholly or partly inconsistent with the continued existence, enjoyment or exercise of native title (paragraph 59-50(5)(a) of the ITAA 1997) OR is compensation determined in accordance with Division 5 of Part 2 of the Native title Act 1993 (paragraph 59-50(5)(b) of the ITAA 1997).

Payment would otherwise be included in your assessable income

The assessable income of a taxpayer consists of the following amounts:

● amounts which constitute income according to ordinary concepts (ordinary income) (section 6-5 of the ITAA 1997)

● amounts which are not ordinary income but are included in the assessable income of a taxpayer by virtue of the specific provisions contained in the ITAA 1997 and the ITAA 1936 (statutory income) (section 6-10 of the ITAA 1997)

If an amount received by a taxpayer is neither ordinary income nor statutory income then the amount is not included in the assessable income of the taxpayer (section 6-15 of the ITAA 1997).

There is no definition of 'ordinary income' contained in either ITAA 1997 or the ITAA 1936 but a substantial body of case law has evolved over time which sets out various factors that must be taken into account to determine whether an amount is ordinary income.

Where an amount is not ordinary income, it may give rise to statutory income.

Section 10-5 of the ITAA 1997 contains a list of provisions in the ITAA 1997 and the ITAA 1936 which, amongst other things, deal with the specific types of amounts which are included in statutory income.

Where an amount does not have the characteristics of ordinary income, and is not statutory income, the amount may be regarded as capital in nature. The difficulties encountered in determining whether an amount is income or capital are recognised in extensive case law including IRC v British Salmon Aero Engines Ltd [1938] 2 KB 482 per Lord Greene; Hallstroms Pty Ltd v Federal Commissioner of Taxation (1946) 72 CLR 634 per Dixon J and Scott v Commissioner of Taxation (NSW) (1935) SR (NSW) 215 per Jordan CJ.

In GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation (1990) 170 CLR 124 the Full Bench of the High Court set out a number of factors which they considered indicative of whether an amount was received on income or capital account including the 'periodicity, regularity, recurrence, character of the thing disposed of and the scope of the transaction, venture or business which gave rise to the receipt'.

Further, in Federal Commissioner of Taxation v Anstis (2010) 76 ATR 735, the court stated that the 'totality of the circumstances' must be considered in determining the character of the amount in the recipients hands.

If the amounts paid to the DBT under the Project Agreement are not native title benefits it is considered they would otherwise be included in assessable income; as ordinary income.

Payment must be made to an *Indigenous person or an *Indigenous holding entity

Subsection 995-1(1) of the ITAA 1997 defines an 'Indigenous person' as an individual who is a member of the Aboriginal race of Australia or a descendent of an Indigenous inhabitant of the Torres Strait Islands.

Subsection 59-50(6) of the ITAA 1997 defines 'Indigenous holding entity' as:

(a) a distributing body;

(b) a trust if the beneficiaries of the trust can only be Indigenous persons or Indigenous holding entities; or

(c) a registered charity.

Subsection 128U(1) of the ITAA 1936 defines a 'distributing body' as:

(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

(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.

Further assistance is provided in the NTA 1993.

● Subsection 61(1) of the NTA 1993 defines a 'native title claim group' as those persons who, according to their traditional laws and customs, hold the common or group rights and interests comprising the particular native title claimed.

● Subsection 223(1) of the NTA 1993 defines 'native title' as the communal, group or individual rights and interests of Aboriginal people or Torres Strait Islanders.

● Section 225 of the NTA 1993 requires that a determination of native title must specify who holds it.

Application to your circumstances

Under the Project Agreement the payments are made to the DBT.

DBT is not a registered charity and does not satisfy the definition of a distributing body as it is not an Aboriginal Land Council or an incorporated entity.

DBT satisfies the definition of Indigenous Holding Entity however because it is a trust whose beneficiaries are restricted to Indigenous persons.

The amount or non-cash benefit must arise under an agreement made under an Act of the Commonwealth, a State or a Territory, or under an instrument made under such an Act OR an ancillary agreement to such an agreement

While the terms 'agreement' and 'ancillary agreement' are not defined in either the ITAA 1936 or the ITAA 1997, Note 1 to subsection 59-50(5) of the ITAA 1997 states that Indigenous Land Use Agreements (ILUAs) within the meaning of the NTA 1993; agreements under paragraph 31(1)(b) of the NTA 1993 or recognition and settlement agreements under the Traditional Owners Settlement Act 2010 (Vic) will satisfy the requirement to be an agreement or an ancillary agreement.

Further Note 2 to subsection 59-50(5) of the ITAA 1997 states that an ILUA does not require a determination of native title under the NTA 1993.

Paragraph 1.27 of the Explanatory Memorandum (EM) to Taxation Laws Amendment Bill 2012 No. 6 (TLAB 2012/6) which introduced section 59-50 of the ITAA 1997 also confirms that an ILUA would be considered an agreement.

Paragraph 1.29 of the EM to TLAB 2012/6 states that '..An ancillary agreement is a subsidiary agreement that is directly connected with a primary agreement and may provide details not contained in the primary agreement.'

For indigenous land use agreements (body corporate agreements), an agreement meeting the requirements of sections 24BB to 24BE NTA 1993 is an indigenous land use agreement.

For indigenous land use agreements (area agreements), an agreement meeting the requirements of sections 24CB to 24CE NTA 1993 is an indigenous land use agreement.

Section 24BB and section 24CB of the NTA 1993 provide that an agreement must be about one or more of the following matters in relation to an area:

(a) the doing, or the doing subject to conditions (which may be about procedural matters), of particular future acts, or future acts included in classes,

(aa) particular future acts (other than intermediate period acts) or future acts (other than intermediate period acts) included in classes, that have already been done.

Section 24BE and section 24CE of the NTA 1993 go on to provide that:

(1) The agreement may be given for any consideration, and subject to any conditions, agreed by the parties (other than consideration or conditions that contravene any law)

(2) Without limiting subsection (1), the consideration may be the grant of a freehold estate in any land, or any other interests in relation to land whether statutory or otherwise.

Therefore, where the parties have made an agreement under the NTA 1993, it is this agreement which should be construed as the 'agreement' under paragraph 59-50(5)(a) of the ITAA 1997 and any other agreements between the parties should fall within the term 'ancillary agreement'.

Application to your circumstances

The Project Agreement is a 'Project Agreement' as contemplated under the Primary Native Title Mining Agreement (NTMA).

Sections 24CB to 24CE of the NTA 1993

Sections 24CB to 24CE of the NTA1993 are the relevant sections to determine if the Project Agreement is an indigenous land use agreement for the purposes of the NTA.

The Project Agreement meets the requirements of section 24CB and section 24CE as the agreement is about the doing of particular future acts in relation to the area, is given for consideration and subject to conditions agreed by the parties.

Section 24CC of the NTA 1993 is also met as there are no registered native title bodies corporate in relation to all of the area.

The requirements of section 24CD of the NTA 1993 were not initially met as the same persons in the native title group, named as applicants on the 'Extract from the Register of Native Title Claims', were not parties to the agreement.

The Deed of Amendment later amended the Project Agreement by deleting each reference to some of the original parties to the Project Agreement and replacing them with other names. This meant that all persons in the native title group are parties to the Project Agreement.

The Project Agreement is therefore an indigenous land use agreement as it meets the requirements of sections 24CB to 24CE of the NTA 1993.

Paragraph 31(1)(b) of the NTA

The Project Agreement is also an agreement of the kind mentioned in paragraph 31(1)(b) of the NTA 1993.

Paragraph 31(1)(b) of the NTA provides that the Government party must negotiate in good faith with the native title parties and the grantee parties with a view to obtaining agreement 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.

The Section 31 Deeds for the grant of mining leases are the kind of agreement contemplated by paragraph 31(1)(b) of the NTA.

The Section 31 Deeds were executed, commenced and all mining leases were subsequently granted. The People nominated the account of the DBT to receive the payments under the Project Agreement.

Accordingly, the payments from the mining company to the DBT arise under a negotiated agreement regarding the doing of an act - an agreement of the kind mentioned in paragraph 31(1)(b) of the NTA 1993, being an Act of the Commonwealth.

The Project Agreement could also be an ancillary agreement to the deeds for grant of the mining leases.

The Project Agreement states that the People must procure the Applicant to execute any document including State Deeds that may be required for the grant of any Future Tenement. The Section 31 Deeds are 'State Deeds' as defined in the Project Agreement.

Further, 'ancillary agreement' is defined in the Section 31 Deeds to mean 'any existing or future agreement made between the native title party and the grantee party ….. in connection with the grant of the tenement(s)….'

The Project Agreement is connected to the grant of the mining leases providing detail of the agreed consideration between the People and the mining company.

Conclusion

The Production Payment arises under an agreement made under an Act of the Commonwealth or an ancillary agreement to such an agreement; meeting the requirement in paragraph 59-50(5)(a) of the ITAA 1997.

The amount or benefit must relate to an act that would extinguish native title or that would otherwise be wholly or partly inconsistent with the continued existence, enjoyment or exercise of native title OR is compensation determined in accordance with Division 5 of Part 2 of the Native title Act 1993

Whether a payment relates to an act (or acts) that would extinguish native title or would be wholly or partly inconsistent with the continued existence of native title, or the ability of an indigenous group to enjoy or exercise their native title rights, will be a question of fact in each case.

Subsection 995-1(1) of the ITAA 1997 states that 'native title' has the same meaning as in the NTA 1993.

Subsection 223(1) of the NTA 1993 defines the term 'native title' or 'native title rights and interests' as:

The expression native title, or native title rights and interests means the communal, group or individual rights and interests of Aboriginal peoples or Torres Strait Islanders in relation to land or waters, where:

(a) the rights and interests are possessed under the traditional laws acknowledged, and the traditional customs observed, by the Aboriginal peoples or Torres Strait islanders; and

(b) the Aboriginal peoples or Torres Strait Islanders, by those laws and customs, have a connection with the land or waters; and

(c) the rights and interests are recognised by the common law of Australia.

Subsections 223(2) and 223(3) of the NTA 1993 extend the definition in subsection 223(1) of the NTA 1993 to include hunting, gathering or fishing rights and rights and interests under subsection 223(1) of the NTA 1993 which are converted into, or replaced by, statutory rights and interests.

The particular rights and interests that will fall within the definition of 'native title' or 'native title rights and interests' will differ from one Indigenous group to another. These 'rights and interests' of an Indigenous group would be expected to be particularised in the native title claim lodged by the group under the NTA 1993, whether or not it has been determined. It is also possible that the native title rights and interests of several Indigenous groups may co-exist for a particular geographic region (claim area).

Even in situations where a native title claim is not successful, paragraph 1.28 of the EM to TLAA 2012/6 states that 'it is possible for an amount or benefit arising under an agreement to qualify as a native title benefit even if it is later found that native title does not exist. It is sufficient that the agreement is made under Australian legislation and the amount or benefit otherwise meets the criteria of the provision, if the acts to which the agreement pertains would extinguish native title if it was found to exist' [see also example 1.9]. Therefore, if an agreement is struck after a claim is lodged but before it is determined, the benefits under the agreement may qualify as a native title benefit under section 59-50 of the ITAA 1997. However, if an agreement is struck after a native title claim has been rejected, amounts paid under the agreement could never qualify as native title benefits.

The ITAA 1997 does not define the 'act' that might extinguish or impair the exercise of native title. However section 226 of the NTA 1993 defines 'act' to include the grant, issue, variation, extension, renewal, revocation or suspension of a licence, permit, authority or instrument; the creation, variation, extension, renewal or extinguishment of any interest in relation to land or waters or any legal or equitable right (under contract or otherwise) and any act having an effect at common law or in equity.

The relevant 'act' in paragraph 59-50(5)(a) of the ITAA 1997 is not confined to an act or acts that have already occurred and could encompass a 'past act' (section 228 of the NTA 1993), an 'intermediate period act' (section 232A of the NTA 1993), a 'future act' (section 233 of the NTA 1993) or arguably any act at common law which may have the effect of extinguishing native title, which prevails over native title or causes native title to yield. (see Brown v Western Australia (2012) 294 ALR 223 at 456 upheld in Western Australia v Brown [2014] HCA 8; 306 ALR 168).

The ITAA 1997 does not define 'would' however the term appears to contemplate acts that are yet to occur, but which will have an impact on native title when they do. This might include situations where the agreement between the native title group and the mining company contemplates consent being given to a future grant of a mining right for an area yet to be identified but which will impose restrictions on the ability of the members of the native title group to access or enjoy the land when the mining right is granted.

The ITAA 1997 does not provide a list of circumstances where native title is considered to have been 'extinguished' or when some act may be considered to be 'wholly or partly inconsistent with its continued existence, enjoyment or exercise'.

However the NTA 1993 states the following at section 227:

An act affects native title if it extinguishes the native title rights and interests or if it is otherwise wholly or partly inconsistent with their continued existence, enjoyment or exercise.

It has been argued that it is sufficient that an act affects native title rights and interests, regardless of who holds those rights and interests. In particular the ITAA 1997 does not require that the native title rights and interests be held by the same persons receiving, or directing, the amounts under the agreement.

The circumstances under which a benefit 'relates to' an act that extinguishes or affects native title is not set out in the ITAA 1936, ITAA 1997 or the NTA. However, the phrase has been considered in a number of cases which support a wide interpretation. In Tooheys Ltd v Commissioner of Stamp Duties (NSW) (1961 105 CLR 604, Taylor J acknowledged that the phrase 'relating to' was extremely wide but considered some precision was to be found within the context in which the phrase was expressed. In Oceanic Life Ltd v Chief Commissioner of Stamp Duties (NSW) [1999] NSWCA 416 Fitzgerald JA considered the width of the phrase 'relating to' is undoubted. The most recent consideration of the phrase appears in Commonwealth Bank of Australia v Garuda Aviation Pty Ltd (2013) 45 WAR 92.

While it is not necessary to establish a direct link between the payment (or the quantum of the payment) under the relevant agreement or ancillary agreement and the act or acts asserted to have extinguished native title or been wholly or partly inconsistent with its continued existence, enjoyment or exercise there must be a connection between the payment and the act for the amount paid to qualify as a native title benefit.

Application to your circumstances

The Applicant filed an application for native title with the Federal Court of Australia and the claim was entered on the National Native Title Tribunal Register of Native Title Claims.

The People authorised the Applicant to enter in to the Primary Native Title Mining Agreement (PNTMA) and the Project Agreement.

The PNTMA is an Agreement between the parent company of the mining company and the People. The parent company currently conducts and desires to further conduct mining operations in the native title claim area, including through Project Entities. Project Agreements may be entered into in relation to specific mining projects to be undertaken by Project Entities.

The mining company is a Project Entity and the Project Agreement is between the mining company and the People and relates to a particular mining project.

The payments to the DBT are not compensation determined in accordance with Division 5 of Part 2 of the NTA. Therefore, to qualify as native title benefits for the purposes of section 59-50 of the ITAA 1997, the payments must relate to an act that would extinguish native title or that would otherwise be wholly or partly inconsistent with the continued existence, enjoyment or exercise of native title.

Claimed native title rights and interests

The native title rights and interests particularised in the native title claim include a right to:

● access and move about the area

● use the area

● enjoy the area

● live within the area in camps and shelters

● engage in cultural activities within the area

● conduct and participate in ceremonies and meetings

● visit, care for and maintain places of importance and protect them from physical harm

● hunt and fish, take flora (including timber), stones, clay, ochre and water

● manufacture traditional items from the resources of the area and trade in the resources of the area

● maintain, conserve and protect significant places and objects located within the area.

The payments

Under the Project Agreement, the financial benefits to be paid by the mining company are:

a) a signature payment; and

b) a quarterly Production Payment.

Acts given consent

The Project Agreement requires the People to support the mining company's business including by:

a) consenting to the grant to the mining company of any Future Tenements and Ancillary Tenure within the Project Mining Area

b) consenting to the grant of any Approval required by the mining company in connection with any Mining Operations to be conducted within a Future Tenement or Ancillary Tenure granted in accordance with the Project Agreement

c) agreeing to the mining company exercising its rights and discharging its obligations under the Future Tenements, Ancillary Tenure and Approvals in connection with any Mining Operations to be conducted by the mining company; and

d) not disputing, challenging, contesting in any manner whatsoever the validity of the grant of any Future Tenement, Ancillary Tenure or Approval granted in accordance with the Project Agreement and not objecting to any applications triggering procedural rights under the NTA.

Other key terms above are defined in clause 1.1 of the Project Agreement:

Future Tenements - any *mining tenement under the Mining Act wholly within the Project Mining Area.

Ancillary Tenure - any tenure (other than a tenure which authorises the extraction of minerals) located wholly within the Agreement Area and which is required by the Project Entity for services or ancillary facilities for the sole purpose of the Mining Operations to be conducted on a Future Tenement (including water or gas pipes, communications facilities, power infrastructure, railway, haul roads and minor roads and tracks).

Approval - means any approval, authorisation, permit, licence, certificate, consent, direction or notice (including any renewal, replacement or extension) from any government or other competent authority (whether Commonwealth, State or local), including any approved mining proposal under the Mining Act, for the purposes of or in connection with the development (including planning, design and construction), operation and maintenance of, or to facilitate or carry out, Mining Operations.

* mining tenement means a prospecting licence, exploration licence, retention licence, mining lease, general purpose lease or a miscellaneous licence granted or acquired under the Mining Act 1978.

Connection between the payments and acts

In exchange for the Production Payments the People must consent to the grant of any mining tenement, Ancillary tenure and Approval and agree with the mining company exercising its rights under those acts. Under the Project Agreement the People must also execute any documents including, State Deeds, required for the grant of these acts.

The Project Agreement provides that the mining company may suspend all or part of the payments in the event of a breach of the Agreement by the People which results in any material delay or adverse effect on the grant of any Future Tenement or Ancillary Tenure or the conduct of Mining Operations by the mining company under this Agreement.

Mining leases that had been applied for were granted to the mining company.

The mining company commenced paying the Production Payment under the Project Agreement. The People's giving of consent to the issue of mining leases is the act/s for which the Production Payments is paid.

The Production Payments are instalments of the consideration negotiated between the parties to enable the mining company to conduct its mining project on land to which the People have claimed native title. The consents which the People have given, or future consents that they are bound to give under the Project Agreement are acts which could be considered to be wholly or partly inconsistent with the People's enjoyment or exercise of the native title rights and interests particularised in their native title claim.

Conclusion

The Production Payments have the required connection to an act, or acts, which would affect the People's claimed native title.

The amounts paid under the Project Agreement are native title benefits under section 59-50 of the ITAA 1997.

Question 2.

Summary

There is some payment to the People under the Project Agreement, other than the payment, that is unable to qualify as a native title benefit under section 59-50 of the ITAA 1997.

Detailed reasoning

Subsections 59-50(1) and (2) of the ITAA 1997 set out the requirements that must be satisfied for a payment to be a native title benefit. However subsection 59-50(3) of the ITAA 1997 states that an amount or benefit will not be a native title benefit to the extent that it is:

(a) for the purposes of meeting the provider's administrative costs, or

(b) as remuneration or consideration for the provisions of goods or services.

In relation to subsection 59-50(3) of the ITAA 1997, the Explanatory Memorandum (EM) to Taxation Laws Amendment (2012 Measures No. 6) Bill 2012 (TLAB No.6 2012) provides further clarification and a number of examples (examples 1.5, 1.6 and 1.7) which demonstrate when an amount has been paid for administrative costs or for goods and services. In particular paragraph 1.23 of the EM states:

An amount or benefit someone provides to meet their administrative costs or as remuneration or consideration for the provision of goods and services is not NANE income, even if the amount is, or arises from, a native title benefit. This is the case even where the amount or benefit is provided to an Indigenous holding entity or Indigenous person (who would be entitled to receive the native title benefit). Administrative costs is a broad term and includes, but is not limited to, fees for legal and accounting services and other necessary costs associated with the ongoing administration of the entity.

Therefore, if an amount is paid for the purposes of meeting (or reimbursing) an entity's administrative costs or is remuneration, or is for goods and services that have been provided, the amount cannot qualify as a mining payment or as a native title benefit, even if the payment is made to or on behalf of, an Indigenous person, an Indigenous group or Indigenous holding entity.

Application to your circumstances

Financial Benefits

No part of the Production Payments paid to the People under the Project Agreement is for the purpose of meeting administration costs, or remuneration, or consideration for the provision of goods or services. Accordingly, no part of the Production Payments is unable to qualify as a native title benefit.

The mining company had to pay the People a signature payment following the Commencement Date of the Project Agreement. The signature payment is considered to be a native title benefit.

Other payments

Where other payments under the Project Agreement, such as reimbursement of the costs of conducting Aboriginal Heritage Surveys, implementation costs, salaries, and payment for contracted services are made, no part of those payments will be a native title benefit under section 59-50 of the ITAA 1997 and must be included in the recipient's ordinary income.

Question 3.

Summary

The amounts paid to DBT under the Project Agreement are not a mining payment under section 59-15 of the ITAA 1997.

Detailed reasoning

Under section 59-15 of the ITAA 1997 a payment will be a non-assessable non-exempt mining payment if it satisfies the following conditions:

● it is a mining payment (section 128U of the ITAA 1936)

● it relates to Indigenous land (subsection 995-1(1) of the ITAA 1997); and

● it is made to a distributing body (section 128U of the ITAA 1936); or

● it is made to one or more Indigenous persons (subsection 995(1) of the ITAA 1997) or applied for their benefit.

A 'mining payment' is defined in subsection 128U(1) of the ITAA 1936 as 'a payment made to a distributing body or made to, or applied for the benefit of, an Indigenous person or persons, being:

(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,

However it does not include a payment made by a distributing body (paragraph 128(1)(d) ITAA 1936) or a native title benefit (paragraph 128U(1)(e) ITAA 1936).

Subsection 6(1) of the ITAA 1936 defines 'Indigenous land' as having the same meaning as in the Income Tax Assessment Act 1997. Subsection 995-1(1) of the ITAA 1997 defines 'Indigenous land' to mean 'any estate or interest in land that, under an *Australian law relating to *Indigenous persons, is held for the use or benefit of Indigenous persons'. The term 'Indigenous land' replaced the former term 'Aboriginal land' which was repealed by No 84 of 2013, s 3 and Sch 1 item 14, effective 28 June 2013.

Neither the ITAA 1936 nor the ITAA 1997 define 'estate' or 'interest' in land.

Section 253 of the NTA 1993 defines an 'interest, in relation to land or waters' as meaning:

(a) a legal or equitable estate or interest in the land or waters; or

(b) any other right (including a right under an option and a right of redemption), charge, power or privilege over, or in connection with:

(i) the land or waters; or

(ii) an estate or interest in the land or waters; or

(c) a restriction on the use of the land or waters, whether or not annexed to other land or waters.

Section 253 of the NTA 1993 defines 'land' as including the airspace over, or subsoil under, land, but does not include waters. 'Waters' is defined as including:

(a) sea, a river, a lake, a tidal inlet, a bay, an estuary, a harbour or subterranean waters; or

(b) the bed or subsoil under, or airspace over, any waters (including waters mentioned in paragraph (a)); or

(c) the shore, or subsoil under or airspace over the shore, between high water and low water.

Therefore, if a payment is made to an Indigenous person or persons or applied for their benefit or to a distributing body, to the extent the payment is not a native title benefit under section 59-50 of the ITAA 1997 it may still be a mining payment under section 59-15 of the ITAA 1997.

However a payment will not be non-assessable non-exempt to the extent the amount is paid to a distributing body for the purposes of meeting its administrative costs (subsection 59-15(4) of the ITAA 1997 or where the amount is remuneration or considerations for goods and services provided (subsection 59-15(5) of the ITAA 1997).

Application to your circumstances

The Project Agreement is made under the NTA 1993 which is a Commonwealth Act that relates to Indigenous persons. This requirement is therefore satisfied.

The payments made to the DBT under the terms of the Project Agreement grant permission to the mining company to enter the Agreement Area in order to conduct its mining operation as defined in the Mining Act.

The People nominated the DBT to receive and manage the monetary benefits payable to them. The trustee of the DBT receives the Production Payment under the Project Agreement for the benefit of the DBT beneficiaries; who are restricted to Indigenous persons and Indigenous holding entities.

Each Production Payment made to the DBT, for distribution to the beneficiaries, satisfies the requirement that the payment is applied for the benefit of one or more Indigenous persons.

The definition of a mining payment requires that the payment is made in respect of 'Indigenous land'. It is only upon determination of native title pursuant to section 225 of the NTA 1993 that there is formal recognition that native title exists under the NTA 1993 in relation to a particular area of land or waters; and if it does exist the nature and extent of the rights and interests held by Indigenous person/s in respect of a particular area. A determination of native title has not yet been made so there is no formal recognition of the People's native title.

It is therefore considered that the native title rights and interests in the subject land are not 'held' under an Australian law for the use or benefit of Indigenous persons. Accordingly, the condition that the Production Payment is made in relation to 'Indigenous land' is not met.

In any event, a payment that is a native title benefit is excluded from the definition of a 'mining payment' in paragraph 128U(1)(e) of the ITAA 1936. As it was concluded at Question 1 that the amounts paid under the Project Agreement are native title benefits under section 59-50 of the ITAA 1997, they are not mining payments under section 59-15 of the ITAA 1997.

Question 4

Summary

Where the amount paid to the People under the Project Agreement is paid to a trust, the amount forms part of the trust estate.

Detailed reasoning

Sections 59-15 and 59-50 of the ITAA 1997 set out the conditions that must be satisfied for a payment to be a non-assessable non-exempt mining payment or a non-assessable non-exempt native title benefit. They do not discuss the nature of such a payment in the hands of a trustee.

Section 95 of the ITAA 1936 provides that the net income of a trust estate is the total assessable income of the trust estate calculated as if the trustee were a resident taxpayer, less allowable deductions. The income of a trust is what is generated by the trust property.

It follows that a payment, directed to the trustee of a trust pursuant to an agreement between an entity and an Indigenous person or a native title group, will not meet the definition of trust income. The amount directed to the trust will form part of the trust estate.

Application to your circumstances

A payment direction notice was provided to the mining company which nominated the account of the DBT to receive the Production Payments under the Project Agreement.

The mining company commenced paying the Production Payment under the Project Agreement.

As the Production Payment is paid to the DBT at the direction of the People, the payments made form part of the trust estate.

Question 5

Summary

Where the trustee distributes an amount of trust estate to a beneficiary of the trust who is an Indigenous person, an Indigenous holding entity or a distributing body, the amount will be non-assessable non-exempt income of the beneficiary.

Detailed reasoning

Subsection 59-50(2) of the ITAA 1997 provides that an amount or other benefit is non-assessable non-exempt income to the extent that the amount, or other benefit, arises directly or indirectly from a native title benefit and the person receiving that amount or other benefit is an Indigenous person or Indigenous holding entity.

Therefore where:

● the trust satisfies the definition of distributing body (for mining payments) or Indigenous holding entity (for native title benefits); and

● the trustee distributes a proportion of the trust estate to an eligible beneficiary who satisfies the definition of Indigenous person, distributing body (for mining payments) or Indigenous holding entity (for native title benefits);

the amount will be non-assessable non-exempt income in the hands of the beneficiary.

Relevant definitions

Indigenous person is defined in section 995-1 of the ITAA 1997 as an individual who is:

● a member of the Aboriginal race of Australia; or

● a descendant of an Indigenous inhabitant of the Torres Strait Islands.

Subsection 59-50(6) of the ITAA 1997 defines 'Indigenous holding entity' as:

a) a distributing body; or

b) a trust, if the beneficiaries of the trust can only be *Indigenous persons or Indigenous holding entities; or

c) a registered charity.

Distributing body is defined in section 128U of the ITAA 1936:

● an Aboriginal Land Council established by or under the Aboriginal Land Rights (Northern Territory) Act 1976;

● a corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006; or

● any other incorporated body that:

a. is established by or under the provisions of a law of the Commonwealth or of a State or territory that relate to Indigenous persons, and

b. is empowered or required (whether under that law or otherwise) to pay moneys received by the body to Indigenous Persons or to apply such money for the benefit of Indigenous persons, either directly or indirectly.

Application to your circumstances

As noted above, the DBT is an indigenous holding entity because it is a trust whose beneficiaries can only be Indigenous persons or Indigenous holding entities.

If the DBT distributes a portion of the trust estate that is native title benefit to a beneficiary, the amount will be non-assessable non-exempt income in their hands (except any portion that is interest, remuneration or for administration costs).

Question 6

Summary

Where the amount paid to the People under the Project Agreement is invested, any income generated will not be non-assessable non-exempt.

Detailed reasoning

Subsection 59-50(2) of the ITAA 1997 provides that an amount or other benefit is non-assessable non-exempt income to the extent that the amount, or other benefit, arises directly or indirectly from a native title benefit and the person receiving that amount or other benefit is an Indigenous person or an Indigenous holding entity.

The EM to TLAB No. 6 2012 provides clarification at paragraphs 1.19, 1.20 and example 1.2 that an amount or benefit may still retain its character as a native title benefit where an Indigenous person or an Indigenous holding entity receives it through another Indigenous holding entity.

However, paragraph 59-50(4)(b) of the ITAA 1997 states that an amount will not be non-assessable non-exempt where it arises from an entity investing the native title benefit or an amount that arises directly or indirectly from it. Paragraphs 1.21, 1.22 and examples 1.3 and 1.4 of the EM to TLAB No.6 2012 demonstrate the limitations to the non-assessable non-exempt status of such payments. It does not extend to a situation where the amount or benefit has first passed to a person who is not an Indigenous person or an entity which is not an Indigenous holding entity (example 1.3). Nor will non-assessable non-exempt status apply where the amount or benefit has arisen from investing a native title benefit. Income earned from such an investment is intended to be subject to normal income tax rules (paragraph 1.22 and example 1.4).

In relation to a trust estate, where income is generated by a trustee investing an amount of trust capital, section 95 of the ITAA 1936 provides that the net income of the trust will be the total assessable income of the trust, less allowable deductions.

Further Draft Taxation Ruling TR 2012/D1 states:

Para 71. For trust law purposes, income of a trust is essentially that which is a product of the trust property - for example, rent from the letting of trust property or interest on loans of trust property. On that basis, it is likely to correspond in most cases with what would be ordinary income under section 6-5.

Para 86. The many references in Division 6 to the 'income of the trust estate' show that the trust estate and its income are distinct concepts, the income being the product of the estate.

Accordingly, where an amount is invested, even if the amount was a non-assessable non-exempt native title benefit, the income generated will form part of assessable income.

Application to your circumstances

The mining company pays the Production Payment under the Project Agreement to the DBT.

If the trustee invests any of the Production Payment, the non-assessable non-exempt (NANE) status will not apply to the investment. NDBT will need to include in its assessable income for the relevant income year, any income earned on the Production Payment.

Question 7

Summary

Where the trustee distributes an amount of trust income to a beneficiary of the trust who is an Indigenous person or an Indigenous holding entity, the amount will not be non-assessable non-exempt income of the beneficiary.

Detailed reasoning

As set out above, the EM to TLAB No.6 2012 clarifies that there are limitations to the non-assessable non-exempt status of an amount or benefit under subsection 59-50(2). In particular paragraph 1.22 and example 1.4 of the EM provide that where an amount or benefit has arisen from investing a native title benefit, the income generated will not be non-assessable non-exempt but rather will be subject to the normal income tax rules.

Where the trustee of a trust distributes an amount of trust income to an eligible beneficiary, and the beneficiary is not under a legal disability, the amount will be assessable income in the hands of the beneficiary under section 97 of the ITAA 1936. In all other cases the amount will be assessable to the trustee under section 99A of the ITAA 1936.

Application to your circumstances

A beneficiary of the DBT is restricted to an Indigenous person, an Indigenous holding entity or a distributing body.

Where a beneficiary receives a distribution from the DBT and any part of the distribution is income generated from the DBT investing the Production Payment, the investment income is not non-assessable non-exempt. The amount will be assessable income in the hands of the beneficiary.