Private ruling: Native title benefits
Published: March 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the payment derived by the trust a 'native title benefit' as that term is defined in subsection 59-50(5) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes | Q2: Is the trust an Indigenous holding entity as that term is defined in subsection 59-50(6) of the ITAA 1997, during the 2013-2014 income year? | A2: Yes

Relevant facts and circumstances: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: • Your private ruling application • Annexure 'A' attached to private ruling application • The Project Agreement (PA) • Deeds of Trust for the relevant entities Initial Native Title Claim The native title claim filed by representatives for and on behalf of the native title claimants ('The People') was accepted for registration in the Federal Court of Australia. The claim was over a parcel of land and sea (claim area). Negotiations and entry into the agreement The State intended to establish a liquefied natural gas precinct (LNG precinct) in the vicinity of the claim area. The State and other entities entered into negotiations and reached broad agreement on the establishment of a mining precinct. The State entered into the Project Agreement (PA). You have enclosed a copy of the agreement (excluding schedules) at Schedule 1. The key aspects of the PA which are relevant to this ruling application are: a) The PA contains a comprehensive framework which acknowledges and finalises the negotiations between the parties, governs the relationship between the parties to the PA and outlines the respective rights and obligations of the parties to the PA in relation to the use of the Claim Area. b) In accordance with the agreement, the Native Title Claim Group consents and agrees not to object to: i) Notified future acts ii) The grant and renewal of title iii) Future ancilliary titles iv) The grant and renewal of approvals relating to the precinct. The essence of on chapter of the agreement is that the Native Title Claim Group consents to the establishment, operation, maintenance and decommissioning of the precinct on the Claim Area. Other chapters of the PA contain details of the benefits to be provided to the Native Title Claim Group and to the entities established to receive the benefits and represent the interests of the People under the PA. The PA was negotiated in good faith (as outlined) and therefore is an agreement of the kind mentioned in paragraph 31(1)(b) of the NTA 1993. Establishment of the entities The PA requires the establishment of an 'Administrative Body' and a 'Corporate Trustee' to represent the People and to manage and distribute benefits provided to the Native Title Claim Group under the PA. It is intended that the Corporate Trustee will act as the trustee of the various trusts required to be established under the PA. Other entities were incorporated by the Native Title Party and ratified as the Administrative Body and Corporate Trustee under the PA. The corporate trustee established the subject Trust (a non-charitable Public Benevolent Fund (PBF)) and another Trust (a charitable PBF), together comprising the X Trust. The deeds of trust establishing the subject Trust and the other Trust name the corporate trustee as the trustee of each trust. Payment to X Trust and discontinuance of the Native Title Claim In accordance with items 2.2 and 2.3 of schedule 5 of the PA, certain payments are required to be made to the trustees of the PBF. The PBF payment due on the commencement date (PBF Payment) plus interest, was paid by the company into the Corporate Trustee's bank account. The Corporate Trustee will allocate the PBF Payment between the subject trust and the PBF and transfer the funds to the appropriate bank account by a set date. After the payment was made, the Native Title Claim was discontinued in the Federal Court of Australia. Subject to specified exceptions of the PPA, the obligations of the State and the Proponents to provide benefits to the Native Title Party cease from date of discontinuance. The Trust and the PBF continue to operate and have an obligation to administer benefits already received in accordance with their respective Trust Purposes. Assumption(s) The term 'Native Title Payments' is not a defined term in the Agreement, and is not a term used in that Agreement. For the purposes of this ruling the term 'Native Title Payment' is taken to mean a PBF Payment.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 128U | Income Tax Assessment Act 1936 subsection 128U(1) | Income Tax Assessment Act 1997 Subsection 59-50(5) | Income Tax Assessment Act 1997 Subsection 59-50(6) | Income Tax Assessment Act 1997 section 960-135 | Income Tax Assessment Act 1997 section 995-1 | Income Tax Assessment Act 1997 subsection 995-1(1) | Native Title Act 1993 section 223(1) | Native Title Act 1993 section 223(2) | Native Title Act 1993 section 223(3)

Reasons for decision: Summary: The Native Title Payments derived by the trust during the 2013-14 income year are native title benefits as that term is defined in subsection 59-50(5) of the ITAA 1997. The trust is an 'Indigenous holding entity' as that term is defined in subsection 59-50(6) of the ITAA 1997 during the 2013-14 income year. | Detailed Reasoning - Meaning of Native Title Benefit: The Explanatory Material to the Native Title Exposure Draft explains at [1.16] that the definition of Native Title Benefit (in section 59-50(5) of the ITAA 1997) covers agreements under Australian legislation that provide payments for an action affecting native title. An action affecting native title is one that extinguishes native title rights and interests or is otherwise wholly or partly inconsistent with their continued existence, enjoyment and exercise. Subsection 59-50(5) of the ITAA 1997 defines the term "native title benefit": A native title benefit is an amount, or 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 to subsection 59-50(5) of the ITAA 1997 states that 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.)). The People have a registered Native Title claim over the Claim Area. The People entered into negotiations regarding a mining venture conducting a Project in the Claim Area. The People and others then entered into the PA. Payments are made to the People pursuant to this Agreement, which is an agreement of the kind mentioned in paragraph 31(1)(b) of the NTA 1993. The Trust was established as part of the relevant structure and is the entity deriving the payments. The Federal Court had not yet made a determination in relation to the Native Title Claim before it was discontinued, however, note 2 to subsection 59-50(5) of the ITAA 1997 specifies that a determination is not required. The PBF payment was made while the claim was still on foot. It is considered that the PA is the type of agreement that is intended to be covered by subsection 59-50(5) of the ITAA 1997. Accordingly it is accepted that the payments derived by The Trust are paid pursuant to an agreement within the requirements of paragraph 59-50(5)(a) of the ITAA 1997. | Detailed Reasoning - Meaning of Native Title: For the purposes of subsection 59-50(5) of the ITAA 1997 the payment must be for actions that affect native title. Section 995-1 of the ITAA 1997 states that the term "native title" has the same meaning as in the NTA. Section 223(1) of the NTA defines "native title or native title rights and interests" as follows: 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. Sections 223(2) and 223(3) of the NTA extend the definition of native title contained in section 223(1) to include hunting, gathering or fishing rights and interests; and certain native title rights that are converted into, or replaced by, statutory rights and interests. | Detailed Reasoning - Are the actions of the mining company actions that affect native title?: Under the Agreement, the People are consenting to and agreeing to support certain acts and matters (referred to as Agreed Acts), relating to the Project business being conducted by the mining company. This business involves activities including producing, storing and shipping the mineral within the Claim Area. The Agreed Acts relate specifically to these activities. The Applicant argues that the Agreed Acts are wholly or partly inconsistent with the continued existence, enjoyment or exercise of the native title rights and interests of the People. There are a number of cases dealing with compensation in relation to the effects of mining operations. For example Barrett v. FC of T (1968) 118 CLR 666; (1968) 15 ATD 149, and Nullaga Pastoral Co Pty Ltd v. FC of T (1978) 35 FLR 8; (1978) 8 ATR 757; 78 ATC 4329 recognise the diminution in the value of land and damage that can arise. There is also now a considerable amount of case law relating to effects on native title of certain acts including granting of mining leases. The authoritative case in this regard is the High Court decision in the State of Western Australia v. Ward (2002) 213 CLR 1; [2002] HCA 28 (Ward) which considers the effects of mining leases under WA mining legislation. It was held by the Court that activities conducted by mining leaseholders pursuant to rights under a mining lease may prevail over but not extinguish native title rights and interests (where competing interests conflict). On the basis of Ward it is not accepted that the Agreed Acts are necessarily wholly inconsistent with native title. However, as a general proposition it is accepted that mining activities can cause diminution in the value of land and damage to the land; and that any rights conferred to the mining company under their mining lease would prevail over any native title rights and interests of the GJJ People. It is considered that the Agreed Acts which all relate to mining activities are acts that could affect the continued existence, enjoyment or exercise of native title rights and interests and would therefore be partially inconsistent with native title. The payments are made under the PA and are related to acts pertaining to mining operations which are considered to be partially inconsistent with the continued existence, enjoyment or exercise of native title. It is concluded that the Native Title Payments derived by the trust during the 2013-14 income year, are native title benefits as that term is defined in section 59-50(5) of the ITAA 1997. | Detailed Reasoning - Definition of Indigenous Holding Entity: Subsection 59-50(6) of the ITAA 1997 defines the term "Indigenous holding entity" as follows: a) a distributing body; or b) a trust, if the beneficiaries of the trust can only be Indigenous persons or distributing bodies; or c) a registered charity. A distributing body is a defined term in section 128U of the Income Tax Assessment Act 1936 (ITAA 1936) as follows: 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 the 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 money for the benefit of Indigenous persons, either directly or indirectly. The Trust cannot satisfy the definition of a distributing body, nor is it a registered charity. Therefore, in order for the trust to constitute an Indigenous holding entity under subsection 59-50(6) of the ITAA 1997 the beneficiaries of the trust must only be "Indigenous persons". The term "Indigenous person" is defined in subsection 995-1(1) of the ITAA 1997 as an individual who is: a) a member of the Aboriginal race of Australia; or b) a descendant of an Indigenous inhabitant of the Torres Strait Islands. c) | Detailed Reasoning - Do the beneficiaries of Jirrajun Trust satisfy the requirements in paragraph 59-50(6)(b)?: Under the Trust Deed the beneficiaries of the trust must satisfy the Trustee that an individual is a member of the Traditional Owner Group. Of the classes of beneficiaries of the Trust, none of the classes allow a person who is not an Indigenous person, or an entity that is not a distributing body to be a beneficiary. Subsection 59-50(6) of the ITAA 1997 expressly requires that a beneficiary can only be an Indigenous person or a distributing body. Accordingly, the Trust qualifies as an Indigenous holding entity for the purposes of subsection 59-50(6) of the ITAA 1997.