Edited version of your written advice

Authorisation Number: 1051291775691

Date of advice: 14 November 2017

Ruling

Subject: Native Title Payments

Question 1

Is The Company required to withhold an amount under section 12-320 of Schedule 1 to the Taxation Administration Act 1953 in relation to payments made under Document 1?

Answer

No.

Question 2

Is The Company required to withhold an amount under section 12-320 of Schedule 1 to the Taxation Administration Act 1953 in relation to payments made under Document 2?

Answer

No.

Relevant facts and circumstances

The Company entered into negotiations and concluded a number of agreements with various indigenous communities.

The following agreements have been entered into:

(a) Document 1, and

(b) Document 2.

Document 1

The Company, the indigenous people and registered native title claimants entered into Document 1.

Document 1 resolved the dispute between the parties.

Document 2

Document 2 is between The Company and other parties (the People) that provide benefits to The Company’s entities and joint venture undertakings in the People’s country.

Under Document 2, the People agree to support The Company's business and deliver necessary statutory consents, approvals and cooperation, in exchange for financial benefits based on The Company's production in the Document 2 area. Document 2 also provides an agreed way for The Company and the People to work together on matters such as heritage, environment, education, health, employment and community participation.

Payments made under Document 2

The Company will make three different types of payments under Document 2:

(a) Payments based on the amount of production that The Company makes.

(b) Payments based on the amount of production that The Company makes, outside of the area.

(c) Payments made by The Company in limited circumstances.

Purpose of payments

In broad terms, the payments are:

● In exchange for the on-going support and cooperation of the People as necessary from time to time for The Company to operate its business including the obtaining of consents and approvals from time to time; as well as compensation for the temporary or permanent impact of mining activities on the People's native title rights and interests, based on the extent of mining activities from time to time.

The on-going support and cooperation provided by the People includes, in particular:

● Agreeing that existing interests and approvals are valid and doing all things reasonably requested by The Company to validate mining interests or approvals that are not valid.

● Consenting, from time to time, to certain interests and approvals for The Company's Business. Because this is the country the People speak for, the People have a positive obligation to do everything they can to assist The Company to conduct its business and obtain the interests and approvals it requires and make sure they can be validly exercised.

● Agreeing, from time to time, not to oppose or object to The Company conducting its business.

In terms of compensation for mining activities, the payments, which are based on the quantity of production and hence the extent of mining activities, are compensation for the effect of the operation of The Company's business on the People's native title rights and interests, Aboriginal heritage or cultural values and interests in relation to land derived from a connection or use of land pursuant to Aboriginal tradition.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 128U

Income Tax Assessment Act 1936 subsection 128U(1)(c)

Income Tax Assessment Act 1936 subsection 128U(1)(e)

Income Tax Assessment Act 1936 section 128V

Taxation Administration Act 1953 section 12-320 of Schedule 1

Income Tax (Mining Withholding Tax) Act 1979 sections 3

Income Tax (Mining Withholding Tax) Act 1979 sections 5

Income Tax (Mining Withholding Tax) Act 1979 sections 6

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

Income Tax Assessment Act 1997 section 59-50

Income Tax Assessment Act 1997 subsection 59-50(3)

Income Tax Assessment Act 1997 subsection 59-50(5)

Income Tax Assessment Act 1997 paragraph 59-50(5)(a)

Reasons for decision

Question 1

Summary

The Company is not required to withhold an amount under section 12-320 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) because the payments under Document 1 are not mining payments as defined in subsection 128U(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

Detailed reasoning

Withholding obligation

Section 12-320 of Schedule 1 to the TAA 1953 requires an entity to withhold an amount from a mining payment that it makes to an entity or applies for the benefit of another entity. The amount withheld is not to be more than the mining withholding tax payable in respect of the mining payment.

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines mining withholding tax as being the income tax payable under section 128V of the ITAA 1936.

Section 128V of the ITAA 1936 provides that a person, to whom a mining payment is made or for whose benefit it is applied, is liable to pay income tax at the rate declared by Parliament for the purposes of section 128V. Sections 3, 5 and 6 of the Income Tax (Mining Withholding Tax) Act 1979 provides that the income tax payable, in accordance with section 128V, is 4 per cent.

Subsection 995-1(1) of the ITAA 1997 states that mining payment has the meaning given by section 128U of the ITAA 1936 and for present purposes relevantly states:

mining payment means a payment made to a distributing body or made to, or applied for the benefit of, an Indigenous person or persons, being:

(a) …

(aa) …

(b) …

(c) any other payment made 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 Document 2 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 mining mineral 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;

but does not include:

(d) a payment made by a distributing body; or

(e) a native title benefit (within the meaning of the Income Tax Assessment Act 1997).

Paragraphs 128U(1)(a), (aa) and (b) of the ITAA 1936 deal with payments under specifically prescribed legislation which do not apply to the payments under Document 1.

The payments under Document 1

Under the Document 1, subject to the releases and indemnities provided by the parties, amounts were paid in full and final settlement of the proceedings.

Character of the payments under Document 1

A payment takes on the character of what, if anything, it replaces. Where a payment is made in respect of lost income only, the payment will be assessable as ordinary income – refer to Commissioner of Taxation (NSW) v Meeks (1915) 19 CLR 568. Where payment is of a mixed nature and it represents payments of distinct claims (i.e. income or capital), some of which may be liquidated, and it is readily apportioned among these distinct claims, an income and non-income nature may be attributable to the respective portions accordingly refer to McLaurin v Federal Commissioner of Taxation [1960 – 1961] 104 CLR 381; 391; Allsop v The Commissioner of Taxation [1965] 113 CLR 341; 351.

In this instance, the question is whether the payments made under Document 1 take on the same character of the payments that were payable under an earlier agreement but were suspended.

It is the Commissioner’s view that the payments under Document 1 cannot be characterised as being wholly received in replacement of amounts payable under the earlier agreement and as such, he does not accept that the payments are properly characterised as native title benefits under section 59-50 of the ITAA 1997.

The dispute payments received by the People, are, in the Commissioner’s view, payments of unliquidated damages accepted as a compromise from which it cannot readily, or objectively, be discerned how much reflects a payment that is replacing native title benefits said to have accrued prior to them being suspended.

Conclusion

Regardless of whether the payments under Document 1 were made to a distributing body or applied for the benefit of an Indigenous person or persons, each of the payments made under Document 1 are not in the nature of:

● a mining payment as defined in subsection 128U(1) of the ITAA 1936, or

● a native title benefit as defined in subsection 59-50(5) of the ITAA 1997.

Relevantly, because the payments under Document 1 are not mining payments as defined in subsection 128U(1) of the ITAA 1936, The Company does not have an obligation to withhold an amount under section 12-320 of Schedule 1 to the TAA 1953.

Question 2

Summary

The Company is not required to withhold an amount under section 12-320 of Schedule 1 to the TAA 1953 in relation to payments made under Document 2. The payments are considered to be native title benefits as defined in subsection 59-50(5) of the ITAA 1997.

Detailed reasoning

An explanation of the law in relation to the application of the withholding tax provision has been set out in the reasoning to Question 1 of this private ruling.

If the payments under Document 2 are native title benefits, as defined in subsection 59-50(5) of the ITAA 1997, they will be not be a mining payment per subsection 128U(1) of the ITAA 1936 and The Company will not have a withholding obligation under section 12-320 of Schedule 1 to the TAA 1993.

Subsection 59-50(5) of the ITAA 1997 states:

A native title benefit is an amount, or a *non-cash benefit, that:

(a) arises under:

(i) an agreement made under an Act of the Commonwealth, a State or a Territory, or under an instrument made under such an Act; or

(ii) an ancillary agreement to such an agreement;

to the extent that the amount or benefit relates 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

(b) is compensation determined in accordance with Division 5 of Part 2 of the Native Title Act 1993.

Note 1: agreements that can be covered by paragraph (a) include:

(a) indigenous land use agreements (within the meaning of the Native Title Act 1993); and

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

(c) recognition and settlement agreements (within the meaning of the Traditional Owner Settlement Act 2010 (Vic))

Note 2: Paragraph (a) does not require a determination of native title under the Native Title Act 1993.

Are the payments under Document 2 payable under an agreement that satisfies paragraph 59-50(5)(a) of the ITAA 1997?

The terms ‘agreement’ and ‘ancillary agreement’ are not defined in in the taxation law. However, Note 1 to subsection 59-50(5) of the ITAA 1997 states that one type of agreement covered by paragraph 59-50(5)(a) includes indigenous land use agreements (ILUA), within the meaning of the Native Title Act 1993 (NTA).

Paragraph 1.29 of the Explanatory Memorandum to the Taxation Laws Amendment (2012 Measures No. 6) Bill 2012 states that, ‘… [an] ancillary agreement is a subsidiary agreement that is directly connected to a primary agreement and may provide details not contained in the primary agreement’.

Section 24BA of the NTA provides that an agreement meeting the requirements of sections 24BB to 24BE (which is about body corporate agreements) is an ILUA. Subdivision E of Division 3 of Part 2 of the NTA sets out the effect of registration of an ILUA. The Subdivision broadly provides that the agreement, while registered, is, among other things, a contract that is binding on all parties including all native title holders in the area covered by the agreement and whether or not they are a party to the agreement and validates future acts, including invalidly done future acts, covered by the agreement.

The Commissioner notes that the ILUA was registered with the National Native Title Tribunal. Document 2 was executed contemporaneously with the ILUA. The description of the area covered by the ILUA is consistent with the meaning afforded to Document 2 Area.

The Commissioner accepts that the ILUA is an agreement that comes within the terms of paragraph 59-50(5)(a).

The Commissioner accepts that Document 2 is an ancillary agreement for the purposes of subsection 59-50(5) of the ITAA 1997.

Are the payments under Document 2 related to an act that would extinguish native title, or would otherwise be wholly or partly inconsistent with the continued existence, enjoyment or exercise of native title?

Whether a payment relates to an act(s) 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.

Meaning of native title

Subsection 995-1(1) of the ITAA 1997 provides that ‘native title’ has the same meaning as in the NTA.

Subsection 223(1) of the NTA states:

Common law rights and interests

(1) 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.

Subsection 223(2) of the NTA extends the definition in subsection 223(1) to include hunting, gathering or fishing rights. Subject to exceptions provided by subsections 223(3A) (about statutory access rights) and 223(4) (about pastoral leases), subsection 223(3) provides that native title rights and interests defined in subsection 223(1) covers native title rights and interests compulsorily converted into, or replaced by, statutory rights and interests in relation to land or waters that are held by or on behalf of Aboriginal people or Torres Strait Islanders.

‘Act’ that would extinguish or impair native title, etc.

The taxation law does not define the ‘act’ that would extinguish or impair the exercise of native title. The Macquarie Dictionary defines ‘act’ to be, among other things, ‘anything done or performed; a doing; Document 1’.

In the context of acts affecting native title, subsection 226(2) of the NTA broadly, and non-exhaustively, defines ‘act’ to include:

(2) An act includes any of the following acts:

(a) the making, amendment or repeal of any legislation;

(b) the grant, issue, variation, extension, renewal, revocation or suspension of a licence, permit, authority or instrument;

(c) the creation, variation, extension, renewal or extinguishment of any interest in relation to land or waters;

(d) the creation, variation, extension, renewal or extinguishment of any legal or equitable right, whether under legislation, a contract, a trust or otherwise;

(e) the exercise of any executive power of the Crown in any of its capacities, whether or not under legislation;

(f) an act having any effect at common law or in equity.

Given that section 59-50 of the ITAA 1997 is concessionary in nature, treating what would otherwise be an assessable income amount as a non-assessable non-exempt amount, the Commissioner accepts that the term ‘act’ in subsection 59-50(5) should be given a similarly broad interpretation so as to encompass the broadest spectrum of things that may be done that has the effect of extinguishing or impairing native title.

In light of the above, it is the Commissioner’s view that that The Company’s business constitutes an act, or acts, that would extinguish or impair the People’s native title rights; or be inconsistent to any extent on the enjoyment or exercise of the People’s native title rights. Furthermore, it is the Commissioner’s view that the payments under Document 2 are amounts that relate to these acts which either extinguish or impair the People’s native title rights in Document 2 area.

Conclusion:

The Commissioner concludes that the payments under Document 2 constitute native title benefits as defined in subsection 59-50(5) of the ITAA 1997 because they:

(a) are amounts provided under an agreement that is an ancillary agreement to the Initial Indigenous Land Use Agreement - coming within the terms of paragraph 59-50(5)(a) of the ITAA 1997, and

(b) are provided in relation to an act, or acts, that would extinguish native title held by the People, or would be wholly or partly inconsistent with:

(i) the continued existence of the native title held by the People, or

(ii) the ability of the People to enjoy or exercise their native title rights.

Because the payments under Document 2 are native title benefits per subsection 59-50(5) of the ITAA 1997, they are not mining payments as defined in subsection 128U(1) of the ITAA 1936.

Finally, because the payments under Document 2 are not mining payments under subsection 128U(1) of the ITAA 1936, The Company does not have an obligation to withhold an amount under section 12-320 of Schedule 1 to the TAA 1953.