Private ruling: Assessable income - mining compensation - permanent damage/reduction in value
Date of advice: 3 November 2021
Published: January 2022
Ruling period: Years ending 30 June 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the compensation to be received by the Trust A from ABC under the CCA (agreement completion payment, pre-construction, construction and annual compensation) for temporary disruption of the business operations carried on by the Trust be treated as assessable income under 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Will the compensation to be received by Person A from ABC under the CCA (agreement completion payment, pre-construction, construction and annual compensation) for permanent damage to the land be treated as assessable income under 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A2: No. | Q3: Will the compensation to be received from ABC under the CCA (agreement completion payment, pre-construction, construction and annual compensation) for permanent damage to the land be treated as capital proceeds under Division 116 of the ITAA 1997 from any capital gains tax event in Division 104 of the ITAA 1997? | A3: No. | Q4: Will the compensation to be received from ABC under the CCA (agreement completion payment, pre-construction, construction and annual compensation) for permanent damage to the land reduce the cost base of the relevant property for any future capital gain under section 110-40 or section 110-45 of the ITAA 1997? | A4: Yes. | Q5: Will the proceeds received for the water taken from the land be ordinary income and assessable under section 6-5 of the ITAA 1997? | A5: Yes. | Q6: Will the Landholder and the Occupier of the Land (referred to collectively as 'you') incur a goods and services tax (GST) liability on the receipt of compensation amounts from ABC under the Conduct and Compensation Agreements (Agreement)? | A6: No.

Relevant facts and circumstances: This private ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are different from these facts, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Person A owns Property A (The Land). The Land is purchased from Person A's father on XX/XX/XXXX. Person A hold in aggregate around 4,040 hectares of land including 3,400 hectares of improved pasture and 640 hectares of rangeland. The property is used primarily as a cattle grazing property. Company A as trustee for Trust A (the Occupier), carries on the cattle grazing business on the Land, the Trust is registered for GST. On XX/XX/XXXX, Person A as the Landholder and the Trust as the Occupier (collectively referred to as 'you') entered into a Master Conduct and Compensation Agreement (the Agreement) with the ABC for the damage caused by ABC' Petroleum activities. construction of 65 coal seam gas (CSG) wells on the Land. ABC is referred to as the Authority Holder in the Agreement. The Agreement stipulates compensation amounts to you for the impact of all continuing activities and proposed impacts due to the Petroleum Activities. The compensation under the CCA is paid in accordance with the Petroleum Legislation. Amounts shown in this Agreement do not include GST. Petroleum Legislation refers to the Petroleum Act 1923 (Qld), the Petroleum and Gas (Production and Safety) Act 2004 (Qld), the Mineral and Energy Resources (Common Provisions) Act 2014 (Qld) and applicable Regulations. The Agreement: The Petroleum Activities are defined in the activity schedule of clause 3.1 of the Agreement as activities relating to X coal seam gas (CSG) wells, identified in Attachment A of the Agreement. The activities as outlined in the Agreements are as follows: Construction § Pre-construction preparation and investigation activities § Preparation of construction sites § Preparation of well pad areas § Drilling of up to 63 wells identified as production wells § Installation of associated well infrastructure within the well pad area § Mechanical application of dry/powdered drilling materials within the approved infrastructure Right of Way buried underneath the pipe § Construction of underground linear infrastructure within a 20-30 metre wide corridor § Installation of a grid -3m in depth § Construction of incidental infrastructure including a combined total of up to 100 high point vents and low point drains and up to 30 kiosks and/or RMU where required above the underground linear infrastructure corridor. § Construction of access roads including the installation of gates or grids as required. § Use and upgrade of access roads including the installation of gates or grids as required. § Establishing a multipurpose area, including vehicle wash down facility. § Construction and commissioning of a 200-person campsite. § Construction of a Modular Open Water Storage Tank. § Construction of a communications facility. § Geotechnical investigations over the Land working outside of the CSG Infrastructure Zones. § Establishment/Use of a gravel pit. § Rehabilitation activities required post construction of the infrastructure. Ongoing Operations § Operating, monitoring and maintaining the Wells within a fenced well pad area. § Operation and use of associated well infrastructure within the well pad area § Monitoring Wells, underground linear infrastructure and associated infrastructure with unmanned aerial vehicles ( UAVs ). § Use of maintenance rigs as required. § Surface activities and disturbance associated with any workover rig or fracture stimulation. § Surface activities and disturbance associated with any fracture stimulation of the Wells. § Operating, monitoring and maintaining the underground linear infrastructure and associated infrastructure. § Use and maintenance of the multipurpose area(s). § Use and maintenance of roads and tracks and associated infrastructure such as gates on the Land, as reasonably necessary. § Maintenance of any gates/grids constructed as part of the petroleum activities above § Access for operation, monitoring and maintenance of any reasonably necessary or incidental activity not specifically listed in the Petroleum Activities. § Installing, using, accessing, relocating and maintaining the Infrastructure. § Operating and maintaining the MOWST, encompassing the impacts associated with the removal of water from the MOWST. § Operating, maintaining, testing and monitoring any water monitoring equipment in relation to ongoing monitoring of the MOWST. § Operating, monitoring and maintaining the water and air monitoring equipment and telemetry equipment. § Operating, monitoring and maintaining the Communications Facility including future installations of communication equipment including third party colocation. Use of the gravel pit including gravel extraction, stockpiling within the pit area and transportation of material from the pit to areas of requirement associated with Petroleum Activities. § Access to the Land to undertake any associated soil amendments, which may include the application of: o soil improvers, such as fertilisers and gypsum, as appropriate; o water; and o earth, such as residual drill material § Rehabilitation activities associated with the decommissioning of the Infrastructure. The Indemnity clause in the Agreement states: The Authority Holder must indemnify the Landholder and keep the Landholder indemnified from any claims or liabilities made against, or properly Incurred by the Landholder in respect of any injury to, or death of, any person, any loss or damage to a third party's property (Claim) arising out of, caused, or contributed to, by the Authority Holder or its Associates in conducting the Petroleum Activities on the Land, except to the extent that such claim or liability is solely caused by the gross negligence, wilful or malicious act or omission of the Landholder. The Conduct and Compensation Agreements set-out the compensation as follows: The water supply for the livestock and related enterprise activities comes from ground/earth tanks/dams on the property. The water level in those water storage facilities is substantially diminished due to the ongoing drought. The CCA provides that should ABC take water from the dams they will compensate the landholder at the rate of $X per litre. The water from the dams has been captured through overland flow and flows related to XXX Creek. To provide water security to the land there is a water bore on the property and this can be used to supplement livestock drinking needs if the water level in the dams falls too low. Water is available under the following arrangements: § Water required to carry out the Petroleum Activities may be sourced from the Land, subject to the availability, suitability and location of the water for its intended purposes which will be determined by us, acting reasonably. We must preference taking water from the Land, if it is in a suitable location, the quality is suitable and the water is available. We acknowledge that there is a dam in close proximity to the Activities that is a suitable location. § All water used will be compensated at a rate of $X per litre. - Water can be sourced at a location to be advised by the Landholder. § Landholder is to be contacted prior to accessing water. - Water availability is dependent on weather conditions at the time. Gravel is available under arrangements, however the quality of gravel resource on the property is poor and it is not expected to be sold to ABC. Gravel sale is not considered in this private ruling. The level of proposed infrastructure on the land is set out in the Agreement and the infrastructure will include X individual gas wells. You will be paid pre-construction compensation, construction compensation and annual compensation. The compensation amount to be paid are set out in the Activities Schedule of the Agreement, the compensation will be paid throughout the whole term of the Agreement. Clause 1 of the Agreement states that the Agreement will cease when the Petroleum Activities has ceased and your Land has been rehabilitated. Summary Amount Timing for Payment a. Pre-Construction Disturbance $X Payable once within 30 Business Days of all parties executing the Activities Schedule b Construction Disturbance Payment (including Alternative Arrangement) $X Payable within 30 Business Days of the Agreement Date or after the Construction Notice is given c. Annual payment for Year 1 - 5 $X Payable within 30 Business Days of the Review Date after the Initial Period d. Year 6 until end of the Term $X Payable within 30 Business Days of the Review Date e. Other - Stimulation or Cavitation of single well for any subsequent rig cavitation or stimulation undertaken after the initial event originally performed and compensated for, under Pre-Construction Compensation included in the payment schedule listed above. $X each These compensation amounts in Clause 4.1 of the Agreement relate to the Compensatable Effects of carrying out the Petroleum Activity (listed in the Activity Schedule of the Agreement) on your Land. Clause 4.1(b) and Clauses 4.2 and 4.4 of the Agreement further explain the Construction Compensation, Pre-Construction Compensation and Annual Compensation. Clause 5 of the Agreement provides that there is an opportunity for you to request a review of the compensation at the times set out in clause 5.5. Clause 6 of the Agreement provides the scope of the compensation. 6.1 Subject to your rights of review under clauses 4, 5, 5.2 and 7, you release us from any further Compensatable Effects relating to the Petroleum Activities The Compensatable Effect is defined in Clause 24 of the Agreement as: (this is aligned with the definition of compensatable effect under Section 81 of the Mineral and Energy Resources (Common Provisions) Act 2014 (Qld)) a) Deprivation of possession of the surface of the Land' b) Diminution in the value of the Land c) Diminution of the use made, or that may be made, of the Land or any improvement on it; d) Severance of any part of the Land from other parts of the Land or from other land that you own; and e) Any cost or loss arising from the carrying out of the Petroleum Activities under the Petroleum Authority on the Land; f) Accounting, legal or valuation costs you necessarily and reasonably incur to negotiate or prepare this agreement, other than costs of a person facilitating an ADR as that term is defined under the Petroleum Legislation; and g) Consequential damages you incur because of a matter mentioned in (a) to (f) Additionally, you are significantly concerned by the potential biosecurity risk associated with weeds. Clause 7 of the Agreement provides that you may seek further compensation for any loss caused by activities that are not covered by the Agreement. Given that the compensation amounts potentially payable under Clause 7 are not set out in the Agreement and the events giving rise to making a claim under Clause 7 have not occurred, you do not request that the ruling covers these potential compensation amounts. The following table provides a summary of the different categories of land that may be identified as resulting from the proposed CSG activity on the improved farmland/pasturage. Category Number Category of Land 1 No access in the short or long-term. 2 No access in the short term with limited access restored in the long term but productive capacity permanently compromised. 3 Limited access in the short and long term with no productive capacity in the short-term and long-term production permanently compromised. 4 Full access once construction is completed but long-term production is permanently compromised. Category 1 land includes land to which no access can be made in the short or long term and will include land under the access roads, vents and drains, land under a facility (including the land on which a well is placed) and other land that cannot be accessed or used as a result of the CSG activity on the land. This will represent land that the landholders are deprived of the possession of the land's surface and of course the productive capacity of that land will have been reduced to nil and accordingly the market value of this land for agricultural uses is reduced to nil. Category 2 land is land to which no access can be made in a short-term (up to five years) but for which access is expected to be restored at some time in the future or after the construction phase of the CSG activity has concluded but the productive capacity is likely to be permanently compromised due to the activities carried on in the short term. This land includes lay down yards (storage of material and equipment) and temporary work areas. If the degradation caused by the CSG activity is severe then permanent damage will have occurred to this area of land. To develop lay down yards and temporary work areas the surface of the land may be graded in a manner to assist in creating a weather proof surface suitable for vehicle use. Occasionally gravel may be used to create a more durable and weather proof surface to these areas. Crops or pasture may not grow well in the gravel if and when the land is returned to agricultural usage and if the gravel is mixed with the topsoil then the underlying soil will be permanently degraded. In other words, the presence of the lay down area or similar area such as a temporary work area is likely to cause permanent damage to the land. Category 3 lands include land around the well pads to which limited access can be made in the medium and long term and it will be significantly impacted by the CSG activity on the land. The construction of well sites, drilling, testing, operation and ongoing access to the well sites each within a fenced area of up to two hectares, together with any other necessary petroleum engineering operations carried out within the confines of the fenced well sites, including remedial work-overs and fracture stimulation/cavitation. These activities will result in limited assess being available to this land at least in the short-term and also access to this land will be denied intermittently in the long term due to regular work-overs and fracture stimulation. While it is expected that each well site will in the long term be resized to a smaller area in the short term there is denial of access to the land can be up to two hectares for multiple well sites. Therefore, while access to the land around each well is restricted a crop cannot be grown on this land and the land's productive agricultural capacity is diminished during the period of exclusion and in the long term due to the activities that are carried on during the construction phase. Land which access and use can be made once construction is completed include the land associated with water and gas gathering system (seismic or flow lines (water and gas as well as buried power lines and other communication infrastructure) but for which the productive capacity is permanently compromised due to the soil damage during the pipe laying process and the inability to maintain soil structure on a long term basis due to the restriction on deep-ripping of soils and other soil management techniques that could otherwise be employed to aerate the soils and break up impermeable soil pans. In addition, there are likely to be restrictions on how fencing can be erected on the farmland where the gathering system is situated. The placement of posts with warning signage on the gathering system creates a permanent obstruction on the land and inhibits agricultural/pastoral use of the surface of the land. Category 4 land is described as restricted due to the fact that the landholders can undertake only a restricted number of activities on this land. This category of land may include grazing land near roadways as this land's productive capacity is also significantly compromised due to the increased compaction of soils as a result of the road construction in addition to the impact of frequent traffic causing dust and other disruption to people, crops and livestock. The presence of dust on pasture will suppress photosynthesis and crop growth and also diminish the effectiveness of herbicides that may be used to control weeds. The construction disturbance was estimated to result in reduction in the grazing capacity of the land during the construction period of up to 2 years. • The landholder and occupier will keep a record of the actual reduction in the carrying capacity of the land and a record of the additional costs that are incurred to determine an accurate measure of the temporary lost production and additional costs. • The landholder and occupier agree not to make a complaint to any admin authority or government body regarding noise arising as a result of Petroleum Activities (clause lll under Noise in Activities Schedule of the Agreement). An Alternative Arrangement was mentioned in clause iii under Noise in Activities Schedule of the Agreement regarding the noise impact, but without further information. All compensation will be paid to the Occupier's bank account and transfer the part that landholder entitled to the Landholder. Assumption Any valuations in the apportion of the compensation will be done on a reasonable basis.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 Division 104 | Income Tax Assessment Act 1997 section 110-40 | Income Tax Assessment Act 1997 section 110-45 | Income Tax Assessment Act 1997 Division 116 | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-10 | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-10(1) | A New Tax System (Goods and Services Tax) Act 1999 section 9-15 Further issues for you to consider | We have limited our private ruling to the questions raised in your application. There may be related issues that you should consider, including: | • The valuation of the compensation to the Trust relates to the payment of income foregone in the form of loss, and | • The apportion of compensation between the Trust and Person A. | You may apply for another private ruling on these or any other matters.

Reasons for decision: Summary: The compensation received by the Trust under the CCA for temporary disruption of the business operations carried on by the Trust be treated as ordinary income under 6-5 of the Income Tax Assessment Act 1997. It is intended to replace the lost profit from reducing production and increasing cost impacted by the petroleum activities undertaken on the Land for the grazing business carried by the Trust. | Detailed Reasoning - Detailed reasoning: Compensation payment as ordinary income Section 6-5 of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year. Whether a lump sum or other compensation payment constitutes assessable income in the hands of the recipient depends on whether it is a receipt of a capital or income nature which in turn depends upon a consideration of all the circumstances surrounding the payment. It is the character of the receipt in the hands of the recipient that must be determined. For income tax purposes, a compensation amount generally bears the character of that which it intends to replace. Under Clause 24.1(e) of the Agreement, the Trust is entitled to receive the compensation for cost or loss arising from the carrying out of the petroleum activities on the Land, such as the loss profit from temporary disruption of the cattle grazing business operations carried on by the Trust. The compensation was for replacing the lost profit from reducing production and increasing cost for the grazing business impacted by the petroleum activities undertaken on the land by ABC or other authorised entities. The lost profit from reducing production and increasing cost is of income character as ordinary income for the business, therefore the compensation is of an income character and assessable under section 6-5 of the ITAA 1997. | Summary: The compensation payments you will receive under the Agreement for permanent damage to the land do not form part of your assessable income. They are compensation received for the permanent reduction in value and damage relating to the land and will be treated as a reduction in the land's cost base. | Detailed Reasoning - Compensation payment as ordinary income: Section 6-5 of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year. Compensation paid due to loss and damage of a capital asset in the process of a petroleum authority undertaking petroleum activities on a taxpayer's land is an isolated transaction. Whether a profit from an isolated transaction is ordinary assessable income according to ordinary concepts depends on the circumstances of the case. Profit from an isolated transaction is generally ordinary income when both of the following elements are present: (a) the intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain, and (b) the profit was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction (paragraph 6 of Taxation Ruling TR 92/3). Neither of the above elements apply in your situation. The compensation payments were made in accordance to the legislative provisions of the petroleum legislation. Accordingly, the compensation payments paid under the CCA do not give rise to income according to ordinary concepts or to a profit arising from a profit-making undertaking or plan pursuant to section 6-5 of the ITAA 1997. Neither of the above elements apply in your situation. You did not enter into the arrangement to make a profit. Rather, you as a landowner, entered into the arrangement in order to receive compensation for damage that will be caused by the mining activities. It is accepted that the compensation amounts are not income according to ordinary concepts pursuant to section 6-5 of the ITAA 1997. | Detailed Reasoning - Compensation payments and the capital gains tax (CGT) provisions: Under section 6-10 of the ITAA 1997 some amounts that are not 'ordinary income' are included in your assessable income due to another provision of the tax law. These amounts are 'statutory income'. Statutory income may arise from CGT events as consequence of an eligible claimant being entitled to receive compensation for the loss and destruction of a CGT asset. Taxation Ruling TR 95/35 provides the Commissioner's view as to the CGT consequences of receiving a compensation payment. The ruling states that it is necessary to identify the underlying asset to which the payment relates and what has occurred to that asset. The underlying asset is the asset that, using the 'look-through' approach, is disposed of or has suffered permanent damage or has been permanently reduced in value because of some act, happening, transaction, occurrence or event which has resulted in a right to seek compensation from the person or entity causing that damage or loss in value or against any other person or entity. If there is more than one underlying asset, the relevant asset is the asset which leads directly to the payment of the amount of compensation. For example, if a taxpayer receives an amount of compensation for the destruction of his or her truck, the truck is the underlying asset. If an amount of compensation is received by a taxpayer wholly in respect of the disposal of an underlying CGT asset, or part of an underlying CGT asset, of the taxpayer the compensation represents consideration received on the disposal of that asset. In these circumstances, the Commissioner considers that the amount is not consideration for the disposal of any other asset, such as the right to seek compensation. If an amount of compensation is received by a taxpayer wholly in respect of permanent damage suffered to a CGT underlying asset of the taxpayer or for a permanent reduction in the value of a CGT underlying asset of the taxpayer, and there is no disposal of that underlying asset at the time of the receipt, we consider that the amount represents a recoupment of all or part of the total acquisition costs of the asset. Accordingly, the total acquisition costs of the post-CGT asset should be reduced by the amount of the compensation. No capital gain or loss arises in respect of that asset until the taxpayer actually disposes of the underlying asset. If the compensation amount exceeds the total unindexed acquisition costs (including a deemed cost base) of the underlying asset, there are no CGT consequences in respect of the excess compensation amount. The coal seam gas activities will result in permanent damage to, or a permanent reduction in the value of the land. As you did not dispose of all or part of the affected land there are no CGT consequences at the time of entering into the CCA or receiving the compensation payments. As your land is considered as post-GST land, its acquisition cost will be reduced by the compensation payments received in relation to that land. That is, the cost base of the land will be reduced by the compensation payments and any gain or loss will crystallise at a later time when the post-CGT land is disposed of. | Detailed Reasoning - Question 5: Will the proceeds received for the water taken from the land be ordinary income and assessable under section 6-5 of the ITAA 1997? | Summary: Proceeds you receive from the sale of water is ordinary income under section 6-5 of the ITAA 1997 as the selling of water will not affect a permanent reduction in the volume of water available on the property. | Detailed Reasoning - Detailed reasoning: You may receive payments for the volume of water taken from your property. The amount of water taken is dependent on the available level of water on the property which is governed by seasonal conditions. It is considered that any proceeds you receive from the sale of water is ordinary income under section 6-5 of the ITAA 1997. If the proceeds are not ordinary income, they are assessable as a royalty under section 15-20 of the ITAA 1997 as the water is a natural resource that was removed from your land. | Detailed Reasoning - Question 6: Will the Landholder and the Occupier of the Land (referred to collectively as 'you') incur a goods and services tax (GST) liability on the receipt of compensation amounts from ABC under the Conduct and Compensation Agreements (Agreement)? | Summary: The compensation amounts are paid to you by ABC to resolve a damage claim. A claim for damages (or payment that you receive as a consequence of such claim) due to activities conducted by ABC on your Land, does not constitute a supply under section 9-10 of the GST Act. You do not provide ABC with any supply in return for the compensation amounts. As such, the compensation payments made by ABC are not consideration for a supply from you to ABC, and accordingly no taxable supply will be made by you. Therefore, the receipt of the compensation amounts by you from ABC will not give rise to a GST liability. | Detailed Reasoning - Detailed reasoning: Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states: You make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply *is connected with Australia; and (d) you are *registered or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. Supply 'Supply' is defined in subsection 9-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as 'any form of supply whatsoever'. The statutory definition of 'supply' is very broad. Essentially, a supply is something which passes from one entity to another, and may be one of goods, services or something else. Consideration Section 9-15 of the GST Act provides that a payment will be consideration for a supply if the payment is 'in connection with' a supply and 'in response to' or 'for the inducement' of a supply. Thus, there must be a sufficient nexus between a particular supply and a particular payment, which is provided for that supply, for there to be a supply for consideration. Sufficient nexus A sufficient nexus between the compensation amounts and a supply must exist to create the 'supply for consideration' relationship. In the present case, the issue is whether the landholders have provided something to ABC, in return for the compensation amounts that are paid to them. You are giving up your rights in relation to the Land for further compensation upon commencing the Agreement, raises the issue of whether the giving up of your rights would be a separate supply or as termed in Goods and Services Tax Ruling 2001/4: Goods and Services Tax: GST consequences of court orders and out-of-court settlements (GSTR 2001/4) a 'discontinuance supply'. Paragraphs 106 to 109 in GSTR 2001/4 discuss discontinuance supplies as follows: 106. Where the only supply in relation to an out-of-court settlement is a 'discontinuance' supply, it will typically be because the subject of the dispute is a damages claim. In such a case, the payment under the settlement would be in respect of that claim and not have a sufficient nexus with the discontinuance supply. 107. In most instances, a 'discontinuance' supply will not have a separately ascribed value and will merely be an inherent part of the legal machinery to add finality to a dispute which does not give rise to additional payment in its own right. They are in the nature of a term or condition of the settlement, rather than being the subject of the settlement. 108. We do not consider that the inclusion of a 'no liability' clause in a settlement deed alters this position. 'No liability' clauses are commonly included in settlement agreements and we do not consider their inclusion to alter the substance of the original dispute, or the reason payment is made. 109. We consider that a payment made under a settlement deed may have a nexus with a discontinuance supply only if there is overwhelming evidence that the claim which is the subject of the dispute is so lacking in substance that the payment could only have been made for the discontinuance supply. In the process of ABC carrying out its Authorised Activities on the Land, significant damage and adverse effects will impact the landholders, for which ABC must compensate the landholders under the law. Upon receipt of the compensation amounts under the Agreement, you accept that you give up your right to pursue further compensation in relation to the Authorised Activities- Clause 6.1 of the Agreement Applying the principle in paragraphs 106 to 109 in GSTR 2001/4, it is considered your giving up of your right for further compensation is not a separate supply for GST purposes. It is rather considered an inherent part of the legal machinery to bring finality to the amount of compensation that will ultimately be sought by you. We do not consider that the giving up of your rights for further compensation is a separate supply from the you to ABC since it is not the reason for which the compensation amount is paid to you. Damages GSTR 2001/4 states the following in relation to damages, at paragraph 73: The most common form of remedy is a claim for damages arising out of the termination or breach of a contract or for some wrong or injury suffered. This damage, loss or injury, being the substance of the dispute, cannot in itself be characterised as a supply made by the aggrieved party. This is because the damage, loss or injury in itself does not constitute a supply under section 9-10 of the GST Act. Paragraphs 110 and 111 of GSTR 2001/4 further explain: 110. With a dispute over a damages claim, the subject of the dispute does not constitute a supply made by the aggrieved party... 111. If a payment is made under an out-of-court settlement to resolve a damages claim and there is no earlier or current supply, the payment will be treated as payment of the damages claim and will not be consideration for a supply at all, regardless of whether there is an identifiable discontinuance supply under the settlement. Although the above explanation in GSTR 2001/4 is made in respect of court orders and out-of-court settlements, the underlying principles are equally relevant in this case. You received the amounts as a landholder and land occupier under state mining legislation, as compensation for any economic loss, hardship and inconvenience as a result of petroleum activities carried out on your Land by ABC. The payment by ABC to you is compensation in respect of any damage caused or likely to be caused to the Land and any inconvenience suffered by you as a consequence of ABC' Authorised Activities carried out on the Land. In applying the above principles in GSTR 2001/4 to the present circumstances, we consider that the compensation amounts are paid to you to resolve a damages claim. A claim for damages (or payment that you receive as a consequence of such claim) due to activities conducted by ABC on your Land, does not constitute a supply under section 9-10 of the GST Act. You do not provide ABC with any supply in return for the compensation amounts. As such, the compensation payments made by ABC is not consideration for a supply from you to ABC, and accordingly no taxable supply will be made by you. Therefore, the receipt of the compensation amounts by you from ABC will not give rise to a GST liability. Supply of water Subsection 9-30(1) of the GST Act states that a supply is GST-free if: a) it is GST-free under Division 38 or under a provision of another Act, or b) it is a supply of a right to receive a supply that would be GST-free under paragraph (a). A supply of water in section 38-285 of the GST Act refers to the delivery or the making available of water, as goods. A supply of water is GST-free under subsection 38-285(1) of the GST Act. However, a supply of water is not GST-free under subsection 38-285(2) of the GST Act where it is 'supplied in a container', or 'transferred into a container, that has a capacity of less than 100 litres'. Goods and Services Tax Ruling GSTR 2000/25 Goods and service tax: GST-free supplies of water, sewerage and sewerage-like services, storm water draining services and emptying of a septic tank explains the Commissioner's view of what activities are covered by Subdivision 38-I of the GST Act. Paragraphs 25 and 26 of GSTR 2000/25 deal with the application of paragraph 9-30(1)(b) of the GST Act to the supply of water rights and discuss trading 'water rights'. Paragraph 25 provides that a supply of a right to receive a supply of water includes: • a right to receive a supply of a quantity of water; or • a right to receive a supply of water for a specified period; or • a tradeable right to receive a supply of water. As stated above the supply of water is GST-free under subsection 38-285(1) and section 9-30 of the GST Act. Accordingly, the supply of water is GST-free and the consideration for this supply will not be subject to GST. Supply of gravel You advised that the gravel is of poor quality and not expected to be sold to ABC. For completeness, even if you had received money from ABC for the gravel, this is not a supply that is made by the enterprise. Rather, it is a supply made by you as a result of entering into the Agreement with ABC. Therefore, it would have been a supply outside the scope of the GST Act and any amounts received form part of the compensation amounts payable as damages.

Reasons for Decision: These reasons for decision accompany the Notice of private ruling for Person A and the Trust A (the Trust). | This is to explain how we reached our decision. This is not part of the private ruling.