Private ruling: Changes to native title agreement -ordinary or statutory income- charitable trust
Date of advice: 1 March 2016
Published: April 2016
Ruling period: 1 July 2015 to 30 June 2016

Ruling: Q1: Will the approval and implementation of variations to the Agreement result in any ordinary or statutory income arising to the XYZ Corporation Pty Ltd, in its capacity as trustee of Trust X? | A1: No.

Relevant facts and circumstances: Summary Trust X is a trust that was created as a result of an Agreement between native title claimants and a relevant company and others to grant tenure for an business project in exchange for compensation payments and other consideration. Over time, changes to native title claim law and to the native title claim groups that were parties to the Agreement have meant that the operation of the arrangement became uncertain. Trust X seeks this ruling to confirm that no ordinary or statutory income would arise if certain proposed changes to this agreement are made. Background Native Title Claim In 19XX a native title determination application was lodged by certain members of the A, B and C language groups with the National Native Title Tribunal under the Native Title Act (Cth). This claim " the Claim " became a registered native title claim on this date. Since the lodgement of the Claim, the claim has been subject to numerous amendments. Over time, claim group members from the A and C language groups withdrew from the Claim to pursue separate language group based native title claims. The Claim then became a native title claim made on behalf of the B people only. The Claim was eventually combined with a number of other native title claims made on behalf of B people. In 20YY, the Federal Court determined that the B people hold native title rights and interests in the claim area. The Agreement The registration of the Claim gave the claimants the right to negotiate in relation to the business project under section 26 of the Native Title Act. In 20ZZ, the claimants entered into an agreement (" the Agreement ") to authorise the grant of tenure for the project, including future tenure, in exchange for compensation payments and other consideration. The parties to the Agreement were: • the relevant company (" X Co" ); as manager and agent for and on behalf of other entities (the "Joint Venturers" ) • the Applicants and Claim Group, and • XYZ Corporation Pty Ltd as trustee of the XYZ Foundation. 'The Claim Group' referred to in the Agreement consists of the A, B and C Peoples on whose behalf the specific Claim was originally made. 'The Applicants' referred to in the Agreement were the individuals who lodged the Claim on behalf of the A, B and C Peoples. Trust X The Agreement provides for the payment of long term compensation payments by the Joint Venturers to the "XYZ Foundation" under clause 7. The "XYZ Foundation" is defined in clause 1.1 of the Agreement as the trust created by a trust deed. The trust deed is dated in 20ZZ for the sole benefit of XYZ Beneficiaries with specified objects and purposes, and with XYZ Corporation Pty Ltd as the trustee. It is also known as "XYZ Foundation No. 1" or "XYZ Charitable Foundation" (" Trust X "). The Trust X Deed was also executed in 20ZZ, with the founder and XYZ Corporation Pty Ltd (a limited liability company) named as trustee. Trust X is a registered charity and has been endorsed by the Commissioner for Taxation as exempt from income tax. Establishment of Trust F Clause 9 of the Agreement permits the establishment of ancillary (additional) trusts (clause 9.4). The XYZ Foundation No. 2 (" Trust F ") Trust Deed was executed in 20VV, with the founder and XYZ Corporation Pty Ltd named as trustee. And undated Deed of Assumption was made between the parties to the Agreement and the XYZ Corporation Pty Ltd as trustee of Trust F and Trust X. It stated that under clause 9.4, Trust F had been established as an Ancillary Trust to which compensation under the Agreement may be paid. Proposed Amendments to the Agreement The Applicants and the Joint Venturers are currently in the final stages of negotiation to incorporate changes to the groupings of native title claimants under the Agreement, and to bring the Agreement into line with the current native title claim context. The proposed changes are as follows: • A percentage of all Compensation Payments will be made to Trust X with X% being paid to designated "Approved Trusts". The Approved Trusts will be nominated by the three different language groups originally represented in the original Claim, and will all qualify as indigenous holding entities. • A transition period during which all future Compensation Payments will be paid to the Approved Trusts, in order to make up payments that were not received by Trust F since the inception of the Agreement due to uncertainties which arose from the changes to the Claim as it was first constituted. • Making provision for the X% of the payments to be paid to the Approved Trusts, to be split between the Approved Trusts and paid to the different language groups in accordance with the principles and proportions outlined in the Trust F Trust Deed: X% to the B People, X% to the A People X% to the C People.

Relevant legislative provisions: Subdivision 50-B of the Income Tax Assessment Act 1997 ("ITAA 1997") Subdivision 50-A of the ITAA 1997

Reasons for decision: Summary: The approval and implementation of variations to the Agreement will not arise in any ordinary or statutory income to the XYZ Corporation Pty Ltd, in its capacity as trustee of Trust X. | Detailed Reasoning - Detailed reasoning: The Trustee for XYZ Foundation No. 1 (also known as Trust X) is a registered charity and is an exempt entity under subdivision 50-A of the ITAA 1997. It has been endorsed by the Commissioner as exempt from income tax in accordance with subdivision 50-B of the ITAA 1997. It follows that any additional statutory or ordinary income that Trust X receives as a result of the changes to the Agreement, should it be implemented, will not be subject to income tax. It will also not be liable for capital gains tax should any capital gains arise out of any transfer of right under the Agreement to another entity or entities.