AN EVALUATION OF EXISTING INCOME TAX REGIMES
FOR MINING PAYMENTS MADE PURSUANT TO
THE NATIVE TITLE ACT AND THE ABORIGINAL LAND
RIGHTS (NORTHERN TERRITORY) ACT AND OF
FIVE PROPOSALS FOR LEGAL REFORM
Fiona Anne Martin
(Student No 3169705) LLB (Hons) University of Technology, Sydney LLM (Hons) University of Sydney
Submitted in fulfilment of the requirements of the degree of Doctor of Philosophy at the University of New South Wales
FEBRUARY 2013 Originality Statement
I hereby declare that this submission is my own work and to the best of my knowledge it contains no materials previously published or written by another person, or substantial proportions of material which have been accepted for the award of any other degree or diploma at University of New South Wales or any other educational institution, except where due acknowledgment is made in the thesis. Any contribution made to the research by others, with whom I have worked at UNSW or elsewhere, is explicitly acknowledged in the thesis. I also declare that the intellectual content of this thesis is the product of my own work, except to the extent that assistance from others in the project’s design and conception or in style, presentation and linguistic expression is acknowledged.
Fiona Anne Martin
Date
i Acknowledgements
I am indebted in the preparation of this thesis to my supervisors, Professor Michael Walpole and Associate Professor Sean Brennan whose patience and generosity with their time, as well as their academic experience, have been invaluable to me.
I also offer my thanks to all of those who supported me in any respect during the completion of the project. In particular I give my thanks to Marie-Louise Taylor and Debbie Perik for their unfailingly professional assistance in editing and rereading my work. Many academics both known and anonymous read and commented on my work. In particular Professors Ann O’Connell, Matthew Harding, Chris Evans, Dale Pinto and Rick Krever were extremely generous with their time and advice. I am especially grateful for the support and encouragement of my husband and daughter.
Fiona Anne Martin
ii Abstract
The Topic of this thesis is an evaluation of existing income tax regimes for mining payments made pursuant to the Native Title Act 1993 (Cth) (NTA) and the Aboriginal Land Rights (Northern Territory) Act 1976 (Cth) (ALRA), and of five proposals for legal reform.
More specifically my research questions are:
With respect to mining payments made pursuant to the Native Title Act 1993 (Cth) (NTA) and the Aboriginal Land Rights (Northern Territory) Act 1976 (Cth) (ALRA):
(a) When are they and when should they be exempt from income tax under income tax law principles?
(b) Is the imposition of a mining withholding tax (MWT) justified in terms of tax law and the policy canons of simplicity and equity?
(c) As Indigenous Australians currently use charities to receive mining payments and gain income tax exemption should the law relating to charities be amended to overcome legal restrictions that prevent or restrict this use? and
(d) What, if any, alternative not-for-profit income tax exempt entities should be available for use by Indigenous Australians that receive mining payments and wish to use them for community and economic development purposes and maintenance of intergenerational benefits?
iii Table of Contents
Chapter 1: Introduction ...... 1 1.1 Background to Research into the Taxation of Mining Payments in respect of Mining Payments paid to Native Title Groups and Traditional Owners ...... 2 1.2 ‘Mining Payments’ as the Subject of my Analysis ...... 7 1.3 The Justification for Researching the Income Tax implications of Mining Payments under Mining Agreements...... 8 1.4 The Uncertainty and Complexity of the Application of Income Tax Principles to Mining Payments ...... 11 1.5 Research Methodology ...... 12 1.6 Significant Limits and Assumptions ...... 15 1.7 Conclusion ...... 16 Chapter 2: The Application of Income Tax Principles to Mining Payments made pursuant to the Native Title Act 1993 (Cth) ...... 17 2.1 Introduction...... 17 2.1.1 Overview of Native Title ...... 21 2.1.2 Native Title, Prescribed Bodies Corporate under the Native Title Act and Corporations Representing Native Title Groups ...... 26 2.1.3 The Native Title Groups ...... 29 2.1.4 Overview of the Application of the Native Title Act to situations that may involve Mining Payments ...... 30 2.1.5 The Significance of the Prescribed Body Corporate under the Native Title Act ...... 35 2.1.6 Examples of Potential Taxable Income of Native Title Groups and Prescribed Bodies Corporate in respect of Mining ...... 36 2.1.6.1 Payments where Native Title has been or may have been Extinguished: The Comalco ILUA ...... 37 2.1.6.2 Payments in other situations under the Native Title Act ...... 39 2.2 Model Mining Agreements between Mining Companies and Indigenous Australians ...... 42 2.3 The Application of General Income Tax Principles to Mining Payments made to Native Title Groups...... 49 2.3.1 What Type of Taxpayer is the Native Title Group? ...... 55 2.3.2 Income Tax Principles Applied to Model 1 and 2 Agreements ...... 59 2.3.3 Income Tax Principles Applied to Mining Payments that are ‘Royalties’: Models 3, 4 and 5 ...... 65 2.3.3.1 Type 1: Royalties within the ‘Ordinary Meaning’ of Royalty ...... 66 2.3.3.2 Type 2: Royalties within the Statutory Definition of ‘Royalty’in s 6(1) ITAA36 ...... 69 2.3.3.3 Type 3: Royalties that are within the ‘Ordinary Meaning’ of Royalty and are also Capital: s 15-20 ITAA97 ...... 69 iv 2.3.3.4 Type 4: Payments for Royalties that are Capital Gains...... 71 2.3.4 Payments in respect of Mining Agreements that are not Royalties but which may still be Assessable Income ...... 71 2.3.5 Mining Payments made to Shareholders of a Resource Company: Model 6 ...... 77 2.4 The Mining Withholding Tax under Division 11C of the Income Tax Assessment Act ...... 77 2.4.1 Federal Government Statements on the Application of the Mining Withholding Tax to Native Title Interests ...... 80 2.4.2 Statements by Researchers in the Area of Native Title ...... 82 2.4.3 A Comparative Evaluation of Differences and Similarities between Native Title Interests and Aboriginal Land ...... 83 2.4.4 Summary ...... 85 2.5 Capital Gains Tax and Mining Payments ...... 85 2.5.1 Whether Native Title and any Statutory Rights under the NTA or Contractual Rights under ILUAs are Assets for CGT Purposes ...... 88 2.5.2 Capital Gains Tax Event A1: Incorporation of a PBC to hold the Native Title ...... 89 2.5.3 CGT Event E1: The Establishment of the Trust to hold the Native Title under the NTA ...... 93 2.5.4 Roll-over Relief from CGT where an Asset is Transferred to a Corporation ...... 95 2.5.5 CGT Event C2: The Redemption, Cancellation etc of an Intangible Asset ...... 95 2.5.6 CGT Event D1: The Application of this Event to Rights Arising from Native Title ...... 103 2.5.6.1 ILUAs that Grant Easements ...... 104 2.5.6.2 Statutory and Contractual Rights ...... 105 2.5.7 Event H2: Mining Payments in respect of an Act, Transaction or Event in Relation to a CGT Asset that you own ...... 108 2.5.8 Events E2–E9: CGT Events that Relate Specifically to Trusts ...... 114 2.5.9 Event F1: Leases ...... 115 2.5.10 Proposed Amendments to CGT and Native Title ...... 116 2.5.11 Exemption from CGT for the Main Residence ...... 116 2.6 Conclusion ...... 118 Chapter 3: An Analysis of the Application of Income Tax Principles to Mining Payments under the Aboriginal Land Rights (Northern Territory) Act and the Appropriateness of the Mining Withholding Tax as a matter of Income Tax Principles ...... 121 3.1 Introduction...... 121 3.2 Background to Land Rights in the Northern Territory and the Mining Withholding Tax ...... 124 3.2.1 The History of Mining Payments in Respect of Indigenous Land in the Northern Territory ...... 125 v 3.3 Overview of the Operation of the Mining Withholding Tax ...... 130 3.4 Analysis of the Imposition of the Mining Withholding Tax on Royalty Equivalents Distributed from the Aboriginal Benefits Account...... 137 3.5 Inconsistency between General Income Tax Principles and the Mining Withholding Tax in respect of Royalty Equivalents...... 145 3.5.1 Analysis of the Distributions Streams from the ABA from an Income Tax Perspective ...... 145 3.5.1.1 Payments to Cover Land Council Administration: Are Land Councils Taxpayers? ...... 147 3.5.1.2 Whether Distributions to Land Councils under ALRA for their Administration Expenses are Assessable Income ...... 156 3.5.1.3 Distribution of Areas Affected Moneys to Royalty Associations and potentially to Individual Traditional Owners ...... 160 3.5.1.4 Whether Distribution of Areas Affected Moneys to Royalty Associations and through them to Individuals is Assessable Income ...... 164 3.5.1.5 Conclusion ...... 173 3.5.1.6 Analysis of Distribution of Areas Affected Money in accordance with Capital Gains Tax Principles ...... 174 3.5.1.7 Areas Affected Money and CGT Event C2 ...... 176 3.5.1.8 Areas Affected Money and CGT Event D3 ...... 177 3.5.1.9 Areas Affected Money and CGT Event D1 ...... 178 3.5.1.10 Areas Affected Moneys and CGT Event H2 ...... 178 3.5.1.11 Conclusion ...... 180 3.5.1.12 The Application of Income Tax Principles to Beneficial Payments ...... 181 3.6 Application of Income Tax Principles to Non-Royalty Equivalents: The Four Remaining Categories of Mining Payments under Division 11C ...... 186 3.6.1 Northern Land Council ...... 189 3.6.2 Central Land Council ...... 191 3.6.3 Anindilyakwa Land Council and Groote Eylandt and Bickerton Island Enterprises Aboriginal Corporation (GEBIE) ...... 195 3.6.4 Tiwi Land Council ...... 197 3.6.5 Conclusion regarding Mining Payments Other than Statutory Royalty Equivalents ...... 198 3.7 Conclusion ...... 201 Chapter 4: Do the Two Canons of Tax Policy, Simplicity and Equity, support the imposition of the Mining Withholding Tax of 4 per cent on Mining Payments received by Traditional Owners in accordance with the Aboriginal Land Rights (Northern Territory) Act? ...... 203 4.1 Introduction...... 203 4.2 An Analysis of the Mining Withholding Tax in Terms of Tax Simplicity ...... 206
vi 4.3 An Analysis of the Mining Withholding Tax on the Basis of Equity or Fairness ...... 211 4.4 An Evaluation of the MWT from an Equity Perspective in relation to Payments to Land Councils to cover their Administrative Expenses ...... 212 4.5 An Evaluation of the Areas Affected Payments from an Equity Perspective ..... 214 4.6 An Evaluation of the Beneficial Payments from an Equity Perspective ...... 215 4.7 Individual Indigenous Recipients ...... 217 4.8 Reviews of the ALRA and the MWT ...... 228 4.9 Conclusion ...... 229 Chapter 5: An Analysis of the choice to use Charitable Entities by Indigenous Australians in receipt of Mining Payments ...... 230 5.1 Introduction...... 230 5.1.1 Reasons to Use Charities: Feedback from Representatives of Indigenous Groups ...... 232 5.1.2 Differences between the Not-for-Profit (including Charitable), Business and Government Sectors ...... 235 5.1.3 ‘Charities’ as Part of the Not-for-Profit Sector ...... 239 5.1.4 The Fiscal Treatment of Not-for-Profits and Charities in Australia ...... 242 5.1.5 Overview of the Economic and Social Situation of Indigenous Peoples in Australia ...... 244 5.1.6 Employment ...... 245 5.1.7 Income ...... 246 5.1.8 Health ...... 246 5.1.9 Educational attainment ...... 247 5.1.10 Housing ...... 248 5.1.11 Summary of Indigenous Australian Disadvantage ...... 249 5.1.12 The Role of NFPs and Charities in Indigenous Capacity Building and Economic Development ...... 249 5.2 Case Studies of Three Agreements between Indigenous Australians and Mining Companies...... 257 5.2.1 Case Study 1: Western Cape Communities Co-existence Agreement with Comalco over Native Title Land in North Queensland ...... 259 5.2.1.1 Details of the Comalco ILUA ...... 260 5.2.1.2 Financial Arrangements under the Comalco ILUA ...... 263 5.2.1.3 Possible Damage to Native Title and the Physical Land through Mining ...... 265 5.2.1.4 Income Tax Analysis ...... 266 5.2.1.5 The Charity: The Western Cape Communities Trust ...... 269 5.2.2 Case Study 2: Mining Agreement between the Tjurabalan People and Tanami Gold NL over Native Title Interests in the Kimberley Region of Western Australia ...... 273 5.2.2.1 Details of the Native Title Determination ...... 275 5.2.2.2 Tjurabalan Resource Agreement with Tanami Gold NL ...... 277 vii 5.2.2.3 Damage to Land through Gold Mining ...... 280 5.2.2.4 Income Tax Analysis ...... 283 5.2.2.5 The Tjurabalan Charitable Trust and the Kimberley Sustainable Development Charitable Trust ...... 285 5.2.3 Case Study 3: Ranger and Jabiluka Uranium Mining Arrangements with Gundjeihmi ...... 288 5.2.3.1 Payment of Royalties and Royalty Equivalents ...... 291 5.2.3.2 Potential Damage to Land through Uranium Mining ...... 293 5.2.3.3 Application of Income Tax Principles to the Mining Payments to Gundjeihmi ...... 295 5.2.3.4 Gundjeihmi as a Charity and the Use of its Royalty Equivalents ...... 298 5.3 Conclusion ...... 300 Chapter 6: The Limitations to the Establishment of Charitable Entities by Indigenous Australians that receive Mining Payments under the Native Title Act and the Aboriginal Land Rights Act ...... 303 6.1 Introduction...... 303 6.2 Summary of Legal Barriers to the Establishment of Charities by Native Title Groups and Traditional Owners ...... 307 6.2.1 The Legal Meaning of Charity in Australia ...... 308 6.3 Charity Must Include a Public Benefit: A Two Step Approach ...... 315 6.3.1 The Purpose must be of Actual Benefit to the Community: Public Benefit in the First Sense ...... 315 6.3.2 Do NFPs Established for the Benefit of Native Title Groups and Traditional Owners Demonstrate a Charitable Beneficial Purpose in the First Sense? ...... 319 6.3.3 Public Benefit in the Second Sense: The Benefit must be for the Public or a Sufficient Section of the Public ...... 323 6.3.3.1 Number of Beneficiaries ...... 326 6.3.3.2 Potential Beneficiaries ...... 327 6.3.3.3 Type and Activities of the Entity ...... 328 6.3.3.4 The Family Connection between Beneficiaries ...... 329 6.3.3.5 Contractual Relationships between Beneficiaries ...... 332 6.3.4 No Public Benefit Requirement where the Charitable Purpose is the Relief of Poverty ...... 333 6.4 Charitable Purposes that are of particular relevance to Indigenous Australians ...... 336 6.4.1 Relief of Poverty ...... 337 6.4.2 Other Purposes Beneficial to the Community ...... 339 6.4.3 Charitable Purposes: NFPs Established for the Benefit of Native Title Groups and Traditional Owners ...... 343 6.4.4 Defining the Section of the Public Benefited by NFPs established for the Benefit of Native Title Groups and Traditional Owners ...... 348
viii 6.5 Commercial Activity and Charities ...... 354 6.6 Indigenous Community Development as a Charitable Purpose ...... 361 6.7 Accumulation of Funds...... 366 6.8 Conclusion ...... 368 Chapter 7: Five Legal responses to the Barriers identified by the use of Charitable Entities: Their Respective Strengths, Weaknesses and other Implications ...... 374 7.1 Introduction...... 374 7.2 Proposal One: Amendment to the ITAA97 to Exempt from Income Tax Native Title Payments and Mining Payments payable under the ALRA ...... 378 7.3 Proposal Two: Amendment to the ITAA97 to allow a ‘Family Connection’ for Indigenous Charities established to receive Mining Payments ...... 383 7.3.1 The New Zealand Experience: The Income Tax Exemption for New Zealand Charities ...... 384 7.3.1.1 Judicial Criticism of the Public Benefit Test in New Zealand ...... 387 7.3.1.2 The ‘Public Benefit’ Test and Maori land ...... 391 7.3.1.3 New Zealand Legislative Change to the ‘Public Benefit’ Test ...... 395 7.3.1.4 Decisions of the New Zealand Charities Commission relating to the Public Benefit of Family-Based Maori Charities ...... 399 7.3.2 Summary of Proposal ...... 400 7.4 Proposal Three: Indigenous Community/Economic Development Corporation ...... 403 7.4.1 Indigenous Community/Economic Development Corporation ...... 407 7.4.1.1 IED Corporation and Benefitting Indigenous Family Groups ...... 408 7.4.1.2 IED Corporation: Purposes ...... 408 7.4.1.3 Accumulation of Funds ...... 410 7.4.1.4 Provision for Future Generations ...... 411 7.4.1.5 Indigenous Economic and Community Development as opposed to the Term ‘Charity’ ...... 412 7.4.2 Proposal Summary ...... 412 7.5 Proposal Four: Community Service Providers: An Alternative Income Tax Exempt Entity ...... 413 7.5.1 Definition of Community Service Provider ...... 413 7.5.1.1 A Community Service Provider as a Facilitator of Banking in a Remote Community ...... 414 7.5.1.2 Earlier Decisions on the Meaning of ‘Community Service Purposes’ ...... 417 7.5.2 Proposal Summary ...... 418
ix 7.6 Proposal Five: That a MWT be introduced in respect of mining payments arising under the NTA along the lines of the current MWT that applies in respect of ALRA mining payments...... 420 7.6.1 The Arguments For and Against a Withholding Tax ...... 421 7.6.1.1 The Advantage of Tax Simplicity ...... 421 7.6.1.2 Definitional Difficulty ...... 422 7.6.1.3 Equity ...... 424 7.6.2 Public Submissions to the Consultation Paper Native Title, Indigenous Economic Development and Tax ...... 425 7.6.3 Further Disadvantages ...... 426 7.6.4 Summary ...... 426 7.7 Conclusion ...... 427 Chapter 8: Conclusion ...... 430 8.1 Introduction...... 430 8.2 Summary of Research Findings Chapters 2-7 ...... 431 8.3 Evaluation of Five Proposals for Reform ...... 438 8.4 Conclusion ...... 441 Bibliography ...... 443 Books Book Chapters Journal Articles Conference Papers Research Papers/Reports Australian Government Reports/Consultation Papers Submissions to Government Second Reading Speech Government Media Releases Other Australian Government Publications Annual Reports, Financial and Other Reports Australian Legislation Commonwealth States and Territories Australian Tax Office Rulings, Determinations and Other Publications New Zealand Government Publications New Zealand Legislation United Kingdom Government Publications United Kingdom Legislation Canadian Legislation Cases News Reports Miscellaneous x Glossary of Terms
AAT Administrative Appeals Tribunal ABA Aboriginal Benefits Account established in accordance with the Aboriginal Land Rights (Northern Territory) Act 1976 (Cth) ABN Australian Business Number ACNC Australian Charities and Not-for-Profit Commission AIATSIS Australian Institute of Aboriginal and Torres Strait Islander Studies ALRA Aboriginal Land Rights (Northern Territory) Act 1976 (Cth) ATO Australian Taxation Office CATSI Corporations (Aboriginal and T orres Strait Islander) Act 2006 (Cth) CGT Capital Gains Tax Charities Act Charities Act 2005 (NZ) CRA Canada Revenue Agency FaHCSIA Department of Families, Housing, Community Services and Indigenous Affairs FBT Fringe Benefits Tax Act 1987 (Cth) GST A New Tax System (Goods and Services Tax) Act 1999 (Cth) Hapu Maori kin group linked by a common ancestor Henry Review Treasury, Australia's Future Tax System: Report to the Treasurer (2009) IED Indigenous Community/Economic Development Corporation ILUA Indigenous Land Use Agreement in accordance with the Native Title Act 1993 (Cth) Indian Act Indian Act, RSC 1985, c I-5 IRD Inland Revenue Department New Zealand ITAA36 Income Tax Assessment Act 1936 (Cth) ITAA97 Income Tax Assessment Act 1997 (Cth) ITANZ Income Tax Act 2007 (NZ) ITACA Income Tax Act, RSC 1985, c 1 Indigenous Australians Native Title Groups, Traditional Owners and Aboriginal and Torres Strait Islanders Iwi Maori peoples or nations
xi Maori Tax Review Inland Revenue Department, Policy Advice Division, Taxation of Maori Organisations, A Government Discussion Document (August 2001) MCA Minerals Council of Australia MLA Te Ture Whenua Maori Act 1993/Maori Land Act (NZ) MTBA Maori Trust Boards Act 1955 (NZ) MWT Mining Withholding Tax as defined under the ITAA36 Native Title Group Indigenous Australians with a Federal Court determination of their native title interests and those who assert native title rights, whether as formal claimants under the Native Title Act 1993 (Cth) or otherwise NNTC National Native Title Council Not-for-Profit (NFP) Term used to refer to entities that reinvest their surpluses in their objectives and do not distribute them amongst any members NTA Native Title Act 1993 (Cth) ORIC Office of the Registrar of Indigenous Corporations PBC Prescribed Body Corporate under the Native Title Act 1993 (Cth) PBI Public Benevolent Institution RDA Racial Discrimination Act 1975 (Cth) RNTBC Registered Native Title Body Corporate Royalty Associations Corporations and incorporated associations established to represent Traditional Owners and Indigenous residents of areas affected by mining and receive distributions under the ALRA Royalty equivalents Statutory mining royalty equivalents payable out of the ABA under ALRA Sheppard Report Report of the Inquiry into the Definition of Charity and Related Organisations, Ian Sheppard, Robert Fitzgerald and David Gonski, June 2001 SPML Special Purpose Mining Lease Traditional Owners Aboriginal and Torres Strait Islanders who are defined in accordance with s 3 ALRA Tribunal National Native Title Tribunal Whanau Maori family group WA Mining Act Mining Act 1978 (WA)
xii Chapter 1: Introduction
Overview
In this thesis I analyse the income tax implications of mining payments Indigenous land holders under the Native Title Act 1993 (Cth) (NTA) and the Aboriginal Land Rights
(Northern Territory) Act 1976 (Cth) (ALRA). I identify through this analysis several important areas where the application of taxation law is unclear and inconsistent. This uncertainty is one of the reasons that a significant number of Indigenous groups use charities to receive mining payments. I also identify a legal barrier to the use of charities by
Indigenous groups and several limitations to their use by these groups. I then evaluate five proposals for legal reform.
In this thesis I pose the following research questions:
With respect to mining payments made pursuant to the NTA and the ALRA:
(a) When are they and when should they be exempt from income tax under income tax law principles?;
(b) Is the imposition of a mining withholding tax (MWT) justified in terms of tax law and the policy canons of simplicity and equity?
1 (c) As Indigenous Australians1 currently use charities to receive mining payments and gain income tax exemption should the law relating to charities be amended to overcome legal restrictions that prevent or restrict this use?; and
(d) What, if any, alternative not-for-profit (NFP) income tax exempt entities should be available for use by Indigenous Australians who receive mining payments and wish to use them for community and economic development purposes and maintenance of intergenerational benefits?
In Part 1 of this Chapter I provide the background to my primary research question, that is, the income tax implications of mining payments to Indigenous land holders under the NTA and ALRA. In Part 2 I establish the justification for my research question and in Part 3 I provide details of my research methodology. The law and research in this thesis is up to date as at 31 December 2012.
Part 1
1.1 Background to Research into the Taxation of Mining Payments in respect of
Mining Payments paid to Native Title Groups and Traditional Owners
Land rights for Indigenous Australians are recognised in several pieces of legislation however the most significant (in terms of the largest land areas) are two Federal enactments. In 1976 the Federal Parliament enacted the ALRA. In 1993 and as a result of
1 This is the term used in this Chapter and throughout the thesis to refer to Native Title Groups and Traditional Owners and other Aboriginal and Torres Strait Islander Australians generally.
2 the High Court decision of Mabo v Queensland (No 2)2 the Federal Government secured the passage of the NTA.
It has been recognised for a number of years that the liability for income tax (which includes capital gains tax (CGT)) under the Income Tax Assessment Act 1997 (Cth)
(ITAA97) on compensation payments and payments in respect of agreements made pursuant to the NTA is complex, at times uncertain and potentially inequitable.3 In 1994, a senior tax counsel, David Russell stated that ‘where compensation has to be paid to either the traditional owners or to the current owner/lessees where they are obliged to give up their rights, there will be CGT consequences on receipt of the compensation...Urgent questions remain unanswered’.4 The following year the Taxation Institute of Australia submitted to the Federal Government that ‘the receipt of compensation payments relating to
Mabo type claims should be exempted from the operation of Part IIIA [CGT], via a specific
2 (1992) 175 CLR 1. 3 David Russell, ‘The Budget’s Taxing Oversight-Mabo’ (1994) Taxation in Australia 598; Taxation Institute of Australia, ‘Tax Issues Arising out of Native Title Claims’ (1995) Taxation in Australia 318; Tom Middleton, ‘Native Title and Taxation Issues’ (2000) 28 Australian Business Law Review 86; Warren Black, ‘Tax Implications to Native Title Holders of Compensation Payments’ (1999) Journal of Australian Taxation 344; Warren Black, ‘Transferring Native Title to a Body Corporate under the Native Title Act 1993 (Cth)-Can CGT Arise? (2000) Journal of Australian Taxation 155; Lisa Strelein and Tran Tran, ‘Taxation, Trusts and the Distribution of Benefits under Native Title Agreements’ (Native Title Research Report No 1,AIATSIS, 2007) [1.5]; Fiona Martin, ‘Native Title Payments and their Tax Consequences: Is the Federal Government’s Recommendation of a Withholding Tax the Best Approach?’ (2010) 33 University of New South Wales Law Journal 685; Julie Cassidy, ‘Changing Times–Changing the Tax Implications of Native Title’ (Paper presented at the Australasian Tax Teachers Association Conference, Sydney, 20-22 January 2010). 4 David Russell, ‘The Budget’s Taxing Oversight-Mabo’ (1994) Taxation in Australia 598, 598.
3 legislative amendment’.5 This amendment was proposed by the Treasurer in 1998 but never enacted.6
Researchers at the Australian Institute of Aboriginal and Torres Strait Islander Studies
(AIATSIS)7 have reported that native title representative bodies ‘acknowledge that the taxation arrangements for native title agreements were highly uncertain and unsatisfactory’.8
Furthermore, the Federal Government has made several announcements advising that a specific taxation regime was being considered for payments made in respect of native title although no regime has been enacted.9 The most recent announcement is that certain specific native title payments will not be taxable,10 and an exposure draft of the legislation was released for consultation.11 The date for submissions closed on 24 August 201212 and a
5 Taxation Institute of Australia, ‘Tax Issues Arising out of Native Title Claims’ (1995) Taxation in Australia 318, 319. 6 Peter Costello, Treasurer, ‘Taxation Implications of the Native Title Act and Legal Aid for Native Title Matters’ (Media Release, 1998). 7 The Australian Institute of Aboriginal and Torres Strait Islander Studies (AIATSIS) is a Commonwealth statutory authority within the Federal Government Department of Innovation, Industry, Science and Research portfolio. Its main aim is to provide information and research about the cultures and lifestyles of Aboriginal and Torres Strait Islander peoples, past and present. 8 Lisa Strelein and Tran Tran, ‘Taxation, Trusts and the Distribution of Benefits under Native Title Agreements’ (Native Title Research Report No 1, AIATSIS, 2007) [2.7]. 9 Peter Costello, Treasurer, ‘Taxation Implications of the Native Title Act and Legal Aid for Native Title Matters’ (Media Release, 1998); Treasury, Consultation Paper, Native Title, Indigenous Economic Development and Tax, (2010). 10 Nicola Roxon, Attorney-General and Jenny Macklin, Minister for Families, Communities and Indigenous Affairs, ‘The Future of Native Title’ (Joint Media Release, 6 June 2012). 11 David Bradbury, Assistant Treasurer and Nicola Roxon, Attorney-General, ‘Release of Exposure Draft Materials to Provide Clarity on the Tax Treatment of Native Title Benefits’ (Joint Media Release, 27 July 2012). 12 Treasury, Tax Treatment of Native Title Benefits (24 August 2012).
4 revised Bill was introduced into the House of Representatives on 29 November 2012.13 The
Bill was then referred to the House of Representatives, Standing Committee on Economics for inquiry and report.14 Public submissions closed on 20 December 2012.
The complexity and lack of certainty surrounding the application of income tax law to native title payments made pursuant to the NTA has led me to my analysis of these payments from an income tax perspective. I have further refined the definition of payments to be only those that arise under the NTA and which are in respect of mining.
After analysing the application of income tax law principles to mining payments made pursuant to the NTA Chapter 3 of the thesis examines the statutory regime for the taxation of mining payments under the ALRA. This scheme was enacted in 1979 and is found in
Part III, Division 11C of the Income Tax Assessment Act 1936 (Cth) (ITAA36). Although this regime is located within the income tax legislation it is a separate form of income tax defined in the ITAA36 as a MWT. My application of income tax principles to mining payments, as defined in Division 11C, will demonstrate that some of these payments are possibly not ordinary income or statutory income within the CGT regime.
In Chapter 4 I analyse the MWT from a tax policy perspective. It is important that I analyse this regime from a tax policy perspective as the MWT has been the subject of significant criticism on the basis of its inequity from a number of sources including government and
13 Tax Laws Amendment (2012 Measures No 6) Bill 2012 (Cth). 14 Parliament of Australia, House of Representatives, Committees, Standing Committee on Economics, ‘Tax Laws Amendment (2012 Measures No 6) Bill 2012 (Cth)’, 29 November 2012.
5 academic researchers.15 The discussions in Chapters 3 and 4 are significant as in 2010 the
Australian Government sought stakeholder opinion on a native title withholding tax similar to the withholding tax operating in accordance with Division 11C.16
As a result of the wish to optimise the benefits from native title payments and the investment arising from these payments together with the uncertainties and complexities of the application of income tax law to mining payments made to Native Title Groups17 there is widespread use of charitable entities. In the case of mining payments as defined in s
128U, Part III, Division 11C, Traditional Owners18 regularly establish charitable structures to receive these payments and act as a vehicle for community development in an income tax exempt manner. Charity law is a complex area of the law that dates back to the Statute of Charitable Uses Act 1601. The legal scope of ‘charity’ and ‘charitable’ entities poses certain significant legal barriers and limitations when Indigenous Australians that hold land under either the NTA or ALRA attempt to establish such structures to receive mining
15 Commonwealth of Australia, House of Representatives, Standing Committee on Aboriginal and Torres Strait Islander Affairs, Unlocking the Future: The Report of the Inquiry into the Reeves Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (1999) 68; Jon Altman and DP Pollack, ‘Reforming the NT Land Rights Act’s Financial Framework Into a More Logical and More Workable Model’ (Working Paper No 5, CAEPR, 1999) stated ‘Almost all reviewers of the ALRA have recommended that the tax be abolished’ 20; Commonwealth of Australia, Report on the Review of the Aboriginals Benefit Trust Account (and Related Financial Matters) in the Northern Territory Land Rights Legislation (Jon Altman, 1985) 229-234; Commonwealth of Australia, Building on Land Rights for the Next Generation, the Review of the Aboriginal Land Rights (NT) Act 1976, Second Edition Report (1998, John Reeves) 364; Fiona Martin and Binh Tran-Nam, ‘The Mining Withholding Tax under Division 11C of the Income Tax Assessment Act 1936: It may be Simple but is it Equitable?’ (2012) Australian Tax Forum 149. 16 Treasury, Consultation Paper, Native Title, Indigenous Economic Development and Tax (2010) 8, 14. 17 This is the term used in this Chapter to refer to Indigenous Australians with a Federal Court determination of their native title interests and those who assert native title rights, whether as formal claimants under the NTA or otherwise. 18 This is the term used in this Chapter to refer to Traditional Aboriginal Owners defined in ALRA s 3.
6 payments and engage in community development. The use of charities by Indigenous
Australians is demonstrated in Chapter 5 of this thesis and the legal limitations and barriers that Indigenous Australians face in the establishment and use of charities is demonstrated in
Chapter 6.
In Chapter 7 I evaluate five proposals for reform of the taxation of mining payments to
Native Title Groups and Traditional Owners and the law of charity.
1.2 ‘Mining Payments’ as the Subject of my Analysis
My analysis and evaluation of the application of income tax principles to payments made pursuant to the NTA and ALRA is made in respect of mining payments. The NTA does not define mining payments therefore I have undertaken my analysis in respect of the types of payments arising from six model resource agreements identified from extensive studies of commercial practice by Ciaran O’Faircheallaigh.19 For payments made pursuant to the
ALRA I use the existing definition of ‘mining payments’ in Division 11C of the ITAA36. I have chosen to limit the payments that I am analysing to those arising from mining for the following reasons. First, 60 per cent of mining in Australia takes place next to Indigenous communities.20 Mining and payments in respect of mining therefore constitute significant impacts on Indigenous Australians. Second, the choice of the statutory definition of mining
19 Ciaran O’Faircheallaigh, ‘Financial Models for Agreements Between Indigenous Peoples and Mining Companies’ (Aboriginal Politics and Public Sector Management Research Paper No 12, January 2003). O’Faircheallaigh is a Professor at Griffith University. He is also Director of the Griffith University Centre for Governance and Public Policy's Program on Indigenous and environment governance and capacity. O’Faircheallaigh is a leading international expert on agreements between miners and indigenous peoples. 20 Minerals Council of Australia, ‘Indigenous Relations Strategic Framework’ (2004); Treasury, Australia’s Future Tax System Review Panel, Australia’s Future Tax System: Report to the Treasurer (2009) Part C.
7 payments is based on the fact that it is a statutory definition within a regime that specifically taxes these types of payments. Third, as the statutory definition of mining payments was enacted in 1979 it has been in existence for a significant number of years
(without amendment) and is recognised as a definition that captures the types of payments that are made under agreements between mining companies and Indigenous Australians in respect of their land. Finally, in 2010 the Federal Government Department of Treasury issued a consultation paper on the taxation of native title payments which also considered enacting a similar taxation regime to the current system for mining payments under
Division 11C.21 The regime in Division 11C and any definitions within this regime are therefore potentially relevant for the application of income tax principles to payments under the NTA.
Part 2
1.3 The Justification for Researching the Income Tax implications of Mining
Payments under Mining Agreements
There are several major reasons why mining or resource agreements between mining companies and Indigenous Australians that hold or manage land under either the NTA or
ALRA have been chosen as the subject of this thesis. First, as stated above, it is estimated that 60 per cent of mining operations in Australia are adjacent to Indigenous communities.22 Mining therefore constitutes a significant impact on these communities.
Second, in economic terms it is widely recognised that Indigenous land in the Northern
21 Treasury, Consultation Paper, Native Title, Indigenous Economic Development and Tax (2010). 22 Minerals Council of Australia, ‘Indigenous Relations Strategic Framework’ (2004); Minerals Council of Australia,‘2007-2008 Pre-budget Submission to Australian Government’ (2006), 25.
8 Territory and other remote areas of Australia generally has low commercial value in terms of liveability and agriculture. This is due to many factors the main ones being its aridity, remoteness from marketplaces, lack of infrastructure, small populations,23 lack of employment opportunities for residents24 and communal title under which the land is legally inalienable.25 Payments in respect of mining agreements are therefore a source of significant financial gain to Indigenous communities in areas with potential for valuable mineral extraction. Third, mining has the potential to cause serious damage to Indigenous lands and social structures.26 This damage is of further relevance due to the significance of
Indigenous land to Australian Indigenous peoples. Many Indigenous Australians moved back to their homelands in the Northern Territory and other northern parts of Australia during the 1970s due to this connection with land. 27 An important motivating factor for this move was the desire of Indigenous Australians to protect sacred sites.28 Damage to this
23 J C Altman, G J Buchanan and L Larsen, ‘The Environmental Significance of the Indigenous Estate: Natural Resource Management as Economic Development in Remote Australia’ (Discussion Paper No 286, CAEPR, 2007) 17-20; Benedict Scambary, ‘Mining Agreements, Development, Aspiration and Livelihoods’ in Jon Altman and David Martin (eds), Power, Culture, Economy: Indigenous Australians and Mining (Research Monograph No 30, CAEPR, 2009) ch 8; J C Altman, ‘Generating Finance for Indigenous Development: Economic Realities and Innovative Options’ (Working Paper No 15, CAEPR, 2002) 7. 24 J C Altman, M C Gray and R Levitus, ‘Policy Issues for the Community Development Employment Projects in Rural and Remote Australia’ (Discussion Paper No 271, CAEPR, 2005) vii. 25 JC Altman, ‘Generating Finance for Indigenous Development: Economic Realities and Innovative Options’ (Working Paper No 15, CAEPR, 2002) 3. 26 Ciaran O’Faircheallaigh, ‘Indigenous People and Mineral Taxation Regimes’ (1998) 24(4) Resources Policy 187, 189. 27 Jon Altman, Hunter Gatherers Today: An Aboriginal Economy in North Australia (Australian Institute of Aboriginal Studies, 1987); Jon Altman, ‘Fighting Over Mining Moneys: The Ranger Uranium Mine and the Gagudju Association’ in D E Smith and J Finlayson (eds), Fighting over Country; Anthropological Perspectives (Research Monograph No 12, CAEPR, 1997). 28 W J Gray, ‘Decentralisation Trends in Arnhem Land’ in R M Berndt (ed) Aborigines and Change: Australia in the 70s (Australian Institute of Aboriginal Studies, 1977).
9 land, both physically and culturally, is relevant from a taxation law perspective as it is significant in determining whether payments from mining agreements are capital due to the fact that they are in respect of permanent use of or damage to land and potentially not subject to income tax.
In further support I point out that a 2001 analysis of mining agreements with Indigenous
Australians for the Australian Minerals and Energy Environment Foundation found that out of 140 agreements examined the most frequent subjects of these agreements were mining, exploration and cultural heritage.29 Although the majority of agreements covered a range of issues such as mining, infrastructure (eg gas pipelines), employment, education and cultural heritage, agreements involving solely mining or solely exploration accounted for 27 per cent of total agreements.30 Mining and exploration feature in the majority of all agreements analysed and are also the most commonly occurring (at 27 per cent) where agreements have only one subject. In its ‘Indigenous Relationships Strategic Framework’ the mining industries peak lobby group Minerals Council of Australia estimated there are over 300 agreements between mineral companies and Indigenous communities throughout
Australia.31 This snapshot of agreements between mining companies and Indigenous
Australians indicates that mining and exploration are significant aspects of the general mining agreements.
29 Indigenous Support Services, Report to the Australian Minerals and Energy Environment Foundation, ‘Agreements between Mining Companies and Indigenous Communities’ (2001) 15-16. 30 Indigenous Support Services, Report to the Australian Minerals and Energy Environment Foundation, ‘Agreements between Mining Companies and Indigenous Communities’ (2001) 16. 31 Minerals Council of Australia, ‘Indigenous Relationships Strategic Framework’ (2004).
10 1.4 The Uncertainty and Complexity of the Application of Income Tax Principles to
Mining Payments
As raised earlier in this Chapter, researchers and practitioners in both taxation law and native title law argue that the taxation treatment of payments in respect of Indigenous land use agreements with native title holders is complex and uncertain.32 The Federal
Government has recognised the uncertainty of the taxation treatment of native title payments and in 2010 called for submissions regarding this issue in its Department of
Treasury consultation paper Native Title, Indigenous Economic Development and T ax.33
Legal representatives of native title groups are also concerned about the income tax implications of entering into agreements. For example in response to this Treasury consultation paper Native Title Services Victoria made a submission which stated that
‘[t]he tax treatment of the structure and timing of funds which pass to native title holders under resource and native title settlements are subject to significant uncertainties’.34 The submission went on to state that there is a general lack of guidance and clear understanding regarding the taxation of native title payments which poses great difficulties for groups
32 Lisa Strelein and Tran Tran, ‘Taxation, Trusts and the Distribution of Benefits under Native Title Agreements’ (Native Title Research Report No 1, AIATSIS, 2007); Lisa Strelein, ‘Taxation of Native Title Agreements’ ( AIATSIS, 2008). 33 Treasury, Consultation Paper, Native Title, Indigenous Economic Development and Tax, (2010). 34 Native Title Services Victoria Ltd, Submission to Treasury, Native Title, Economic Development and Tax: Consultation Paper, 30 November 2010, 1.
11 entering into agreements.35 The national legal firm Freehills echoed this view in their submission to Treasury.36
The potential amount of tax liability under income tax law relating to mining payments has the ability to add considerably to existing Indigenous disadvantage in remote communities.
This economic disadvantage is compounded by the uncertainty and complexity relating to the application of tax jurisprudence.
Part 3
1.5 Research Methodology
The thesis uses three approaches to research. First, it combines two types of legal research method which were clearly articulated in the Australian context in the Pearce Report.37 In the early chapters in order to contextualise the issues that relate to taxation of mining payments it employs doctrinal research. This approach is the systematic exposition, analysis and critical evaluation of legal rules and their interrelationships. The legal rules that are analysed are centred in the Australian tax regime however they also include native title law, Aboriginal land rights law and charity law as these areas interrelate with the income tax implications for Indigenous entities that receive mining payments. Secondly, in order to understand existing rules the thesis employs theoretical and historical research.
35 Ibid. 36 Freehills, solicitors, Submission to Treasury, Proposed Indigenous Community Fund – Comparison of the Features and other issues, 2010. 37 Dennis Pearce, Enid Campbell and D Harding, ‘Australian Law Schools: A Discipline Assessment for the Commonwealth Tertiary Education Commission’ (1987) [9.14].
12 This is essential to gain an understanding of the conceptual rationale behind the legal rules and principles considered.
A third research approach is based in qualitative analysis. This research approach involves the use of three case studies that are based on public documents and interviews of a small number of representatives of Indigenous entities and representative organisations. The information discovered from these documents and interviews will be used to underpin the legal analysis and support the legal research findings. The information gathered will also provide a benchmark against which I place the research to demonstrate that the legal analysis identifies important issues that form a barrier to a clear understanding of income tax principles and charity law principles for Indigenous entities receiving mining payments.
A qualitative analysis involves a process of examining and interpreting data in order to find the meaning from this data which then leads to understanding and the development of empirical knowledge.38 The data can encompass a wide variety of information or knowledge. In this study the data will involve a combination of technical literature eg details of Indigenous corporations that are registered with the Office of the Registrar of
Indigenous Corporations and information on the Commonwealth Government Australian
Business Number web page, annual reports of Land Councils and recipients of mining payments on behalf of Indigenous Australians, the relevant legal rules that surround
Indigenous entities and the responses of the participants to the interview questions.
I have chosen to undertake qualitative research as part of this study in order to move beyond the legal knowledge world with all its inherent prejudices and biases and enter into
38 J Corbin and A Strauss, Basics of Qualitative Research (3rd ed, 2008) 1.
13 the world of participants in order to look at the situation from their perspective. In doing so
I anticipate that this will contribute to the development of empirical knowledge in an original way. Looking at the information from the viewpoint of the person who is experiencing the issues is one of the main reasons for choosing to do qualitative research.39
Qualitative research is generally accepted as providing a richer understanding of human behaviour. The knowledge claims of qualitative research are socially constructed. In other words, the researcher does not begin with a theory, but inductively builds a theory based on the understandings and meanings of those being interviewed. I asked open ended questions of the interviewees in my case studies outlined in Chapter 5 so that they could express their ideas in their own words. The interviews were conducted in the interviewee’s own setting so that they felt comfortable in their surroundings and were more open and responsive to the interviewer. The open ended aspect also led to other members of the organisation being interviewed which would not necessarily have occurred if interviews were conducted over the telephone.
The advantage of qualitative research is that it allows the nature of a problem to be better understood and thereby facilitates the development of appropriate guides to action. In respect of the three case studies the interviews enabled me to understand the commercial and practical rationales for certain of the decisions which were implemented. Other interviews deepened my understanding of the importance of the taxation consequences to specific Indigenous groups.
39 Ibid 16.
14 1.6 Significant Limits and Assumptions
The thesis has a strongly Australian emphasis as that is the jurisdiction in which it is written. I have grounded the research in the income tax regime that exists in Australia however this system is based on the English taxation model and the principles behind it are replicated in many common law countries. It does attempt a comparative analysis but only where there is a significant common basis in which to ground this comparison and where there has been a divergence of legal rules across the different jurisdictions. This occurs in the context of the exemption from income tax for charities and the application of this exemption to charities for indigenous peoples. The other legal jurisdiction chosen for this limited comparison is New Zealand. The reasons behind this choice are that this jurisdiction has a legal system that has developed from the English common law, both for income tax and charity law. It has a significant population of indigenous or First Nations peoples
(Maori) and it has amended its income tax and charity law to overcome a legal barrier to obtaining charitable status for Indigenous entities that exists at common law and in
Australia.
Although there is a body of law relating to international law and the rights of indigenous peoples the thesis does not include analysis of this body of law. This is a limitation in the thesis however I am looking at the research from the income tax perspective which is based on Australian law and this limitation does not undermine my research.
The thesis is constrained in its analysis by the vast literature that exists on the topics of native title, statutory land rights and charity law. It must be clear however that the research is not designed to further the knowledge in these specific legal areas but to look at them
15 from the perspective of the Australian tax regime and how this system impacts and interacts with these distinct legal domains.
The research is largely based in law and legal theory. Qualitative research is used as a benchmark to establish how these laws and theories are operating. Reference is also made to the work of accountants, economists and other disciplines. The thesis does not however pretend to cover the literature of those disciplines except where it is directly related to the issues considered. The major research focus is legal research method and this can be distinctly different from research methodologies used in other disciplines.
1.7 Conclusion
This Chapter has established the background to the research and the initial justification for the research questions. The questions, the research methods chosen and the process that will be used to answer the research questions have been articulated and the scope and limitations of the thesis also clarified. Chapter 2 now provides the jurisprudential analysis of income tax law principles to mining payments pursuant to the NTA.
16 Chapter 2: The Application of Income Tax Principles to Mining
Payments made pursuant to the Native Title Act 1993 (Cth)
Part 1
2.1 Introduction
In this Chapter and the following Chapter I demonstrate that the application of income tax law principles to payments made by mining companies under resource agreements with specific groups of Indigenous Australians1 is complex and at times uncertain. This analysis is important because there is a significant amount of mining activity occurring in Australia and a large percentage of this activity takes place in central and remote areas of Australia, near Indigenous communities.2 The analysis of these resource agreements is made in respect of mining on two legal forms of Indigenous land: land held in accordance with native title under the Native Title Act 1993 (Cth) (NTA); and land held under the Aboriginal Land Rights (Northern Territory) Act 1976 (Cth)
(ALRA). This Chapter focuses on land held under the NTA and Chapter 3 will analyse the income tax implications of resource agreements in respect of Aboriginal land under the ALRA.
1 This term is used to refer to Native Title Groups and Traditional Owners and other Aboriginal and Torres Strait Islander Australians generally. 2 It is estimated by the Minerals Council of Australia, the peak industry representative of the mining sector, that 60 per cent of mining in Australia takes place next to remote communities where Indigenous Australians live; see Minerals Council of Australia, Submission to Attorney- General’s Department, Proposed Minor Amendments to the Native Title Act, (November 2009); see Marcia Langton and Odette Mazel, ‘Poverty in the Midst of Plenty: Aboriginal People, the “Resource Curse” and Australia’s Mining Boom’ (2008) 26(1) Journal of Energy and Natural Resources Law 31. Non-renewable mineral resources are an important Australian asset; see Treasury, Australia’s Future Tax System: Report to the Treasurer (2009) ch C, C1–1 (The Henry Review).
17 The Chapter has been structured into six parts. In Part 1, I introduce the contents of the
Chapter and explain the concept of native title in order to establish the context for a discussion of the application of income tax principles to payments under resource agreements in respect of this form of interest in land. In Part 2, I have identified from the literature six models of resource agreements between mining companies and
Indigenous Australians and I provide an outline of these agreements. In Part 3, I apply general income tax principles to transactions arising under the NTA and payments in respect of the model mining agreements. In Part 4, I conclude that the mining withholding tax (MWT) imposed under Division 11C of the Income Tax Assessment Act
1936 (Cth) (ITAA36) does not apply to mining payments in respect of native title land.
This tax regime is analysed in detail in Chapter 3. In Part 5, I apply capital gains tax
(CGT) provisions from the Income Tax Assessment Act 1997 (Cth) (ITAA97) to transactions arising under the NTA and payments in respect of the model resource agreements.
I conclude that resource agreements use several different types of mining payments. My analysis in the Chapter indicates that each type of payment leads to specific income tax consequences depending on the form and substance of the agreement. I further demonstrate that many mining agreements reflect commercial arrangements but that when their substance is examined, specific taxation consequences arise that are not clear from the form of the agreement. In many cases I argue that the payments are capital as being for damage to the land and Indigenous culture and not income and that therefore income tax does not apply but CGT may. I further argue that in some of these cases the capital payments relate to the underlying asset (the native title) which was acquired by
18 the native title claimants (the ‘Native Title Group’3) prior to the introduction of CGT in
1985. In Part 6, I provide a summary of what I have demonstrated throughout the
Chapter and suggest that in many cases, if my analysis is accepted there will be a nil tax liability. I further conclude that there are many situations where the income tax liability is unclear.
Finally, I point out that as a result of lobbying of the Federal Government draft legislation relating to the taxation of native title payments was released for comment by the Federal Government in July 2012.4 A Bill was introduced into the House of
Representatives on 29 November 2012 and is, at the time of writing, subject to inquiry by the House of Representatives Standing Committee on Economics.5 Public submissions closed on 20 December 2012. The current Bill provides that native title benefits are in certain circumstances excluded from assessable and exempt income.
Clause 59-50 (5) of the Bill provides that:
(5) 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;
3 This is the term used in this Chapter to refer to Indigenous Australians with a Federal Court determination of their native title interests and those who assert native title rights, whether as formal claimants under the NTA or otherwise. 4 Department of Treasury, Exposure Draft, Tax Laws Amendment Bill 2012: Tax Treatment of Native Title Benefits. 5 On 29 November 2012 Tax Laws Amendment (2012 Measures No 6) Bill 2012 was referred to the House of Representatives Standing Committee on Economics for inquiry and report.
19 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.
Clause 59-50 (5)(a) of the amended Bill states that in order for a benefit to be a ‘native title benefit’ it must be an amount relating to an act that would either extinguish native title or be inconsistent with the continued existence, enjoyment or exercise of native title. The use of the word ‘would’ includes a hypothetical situation, so it covers situations where an agreement is entered into, payment is made and mining is about to occur once everything is agreed upon. The payment is not assessable and not exempt
(NANE) as long as the agreement is of the type set out in sub-clause 59-50 (5) (a)(i) or
(ii).
The proposed legislation marks important progress in the clarification of the taxation of native title payments however there are some significant issues that have still not been addressed. Agreements may not be related to native title from the beginning if there is no native title claim. There may be situations where the native title was extinguished many years ago; eg an Indigenous Land Use Agreement (ILUA) has now been entered into under the NTA with a payment as part of the agreement. The payment may not
‘relate’ to native title as this was extinguished in the past. These agreements are still with Indigenous groups and often arise from the fact that there may have been or may still be native title but the parties do not wish to go through the protracted process of proving this. Furthermore, not all agreements are made in accordance with legislation so
20 payments in respect of these agreements will not be covered. This is demonstrated in
Case Studies 1 and 2 in Chapter 5.
As will be discussed further in Chapter 7, the narrowness of the definition of native title benefit and also the definition of the entities that are eligible to receive payments that are NANE may lead to further complexity and the need for sophisticated and costly legal advice on how to ensure that the agreement satisfies the provisions. As the legislation is, at this stage proposed, and as there are still issues with the definition of native title benefit the following discussion is still significant to the debate of whether or not native title mining payments are subject to income tax.
2.1.1 Overview of Native Title
In 1992 the High Court handed down the landmark decision of Mabo v Queensland
(No 2)6 (‘Mabo Case’), which recognised by a majority of six to one that the Meriam
People (as represented by Eddie Mabo) had native title to Mer (Murray Island), in the eastern Torres Strait. This title was considered to be a combination of their local custom, original native ownership and use and enjoyment of the land (‘usufructuary rights’).7
Justice Brennan provided a summary of his lengthy and complex reasons in the judgment,8 and the relevant passages are reproduced below:
It is desirable to state in summary form what I hold to be the common law of Australia
6 (1992) 175 CLR 1. 7 Ibid 69–70. 8 This summary has been referred to as ‘influential’; see Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009) 288 [6.160].
21 with reference to land titles:
1. The Crown’s acquisition of sovereignty over the several parts of Australia cannot be
challenged in an Australian municipal court.
2. On acquisition of sovereignty over a particular part of Australia, the Crown acquired
a radical title to the land in that part.
3. Native title to land survived the Crown’s acquisition of sovereignty and radical title.
The rights and privileges conferred by native title were unaffected by the Crown’s
acquisition of radical title but the acquisition of sovereignty exposed native title to
extinguishment by a valid exercise of sovereign power inconsistent with the
continued right to enjoy native title.
…
6. Native title to particular land (whether classified by the common law as proprietary, usufructuary or otherwise), its incidents and the persons entitled thereto are ascertained according to the laws and customs of the indigenous people who, by those laws and customs, have a connexion with the land. … 9. If native title to any parcel of the waste lands of the Crown is extinguished, the
Crown becomes the absolute beneficial owner.9
This statement in turn begs the question of what is meant by native title from the perspective of Indigenous Australians. Chris Mantziaris and David Martin have commented that:
Native title is a conclusion of law produced by the Australian legal system, in given
circumstances, for the purpose of granting recognition, within that system, to a selected
range of relations between indigenous people and their physical environment, and to
9 (1992) 175 CLR 1, 69–70.
22 relations between indigenous people. These relations are, in the first instance, defined
and ordered by indigenous systems of traditional law and custom. Both the system of
traditional law and custom, and the relations ordered by it, are ascertained by the
Australian legal system as matters of fact rather than law.10
As a consequence of the Mabo Case the NTA was enacted. The Act commences with a rationale as to why it came into being. It states that the reason for the Act is that:
The people whose descendants are now known as Aboriginal peoples and Torres Strait
Islanders were the inhabitants of Australia before European settlement. They have been
progressively dispossessed of their lands. This dispossession occurred largely without
compensation, and successive governments have failed to reach a lasting and equitable
agreement with Aboriginal peoples and Torres Strait Islanders concerning the use of
their lands.11
The Preamble goes on to recognise the disadvantage of Indigenous Australians that has resulted from this dispossession from land: ‘as a consequence, Aboriginal peoples and
Torres Strait Islanders have become, as a group, the most disadvantaged in Australian society.’12 Land, land ownership and native title are significant for Indigenous
Australians from historical, legal, economic and social perspectives.13 One researcher in
10 Christos Mantziaris and David Martin, Native Title Corporations: A Legal and Anthropological Analysis (Federation Press, 2000) 12. 11 NTA, preamble. 12 NTA, preamble. 13 Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009); Marcia Langton and Angus Frith, ‘Legal Personality and Native Title Corporations: The Problem of Perpetual Succession’ in Lisa Strelein (ed), Dialogue About Land Justice: Papers from the National Native Title Conference (Aboriginal Studies Press, 2010) 170. 23 the area describes native title as ‘an important intergenerational asset connected to culture and identity.’14
The main objectives of the NTA are to express recognition of customary communal title as part of Australian law, to provide protection for that customary title by ensuring that native title cannot be extinguished except in accordance with the Act, to establish a system for determining native title claims15 and to provide a mechanism for the validation of what are termed in the legislation past, intermediate period and future acts in the legislation.16
The NTA defines native title in s 223 as follows:
(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
14 Jessica Weir, ‘Native Title and Governance: The Emerging Corporate Sector Prescribed for Native Title Holders’ (2007) 3(9) Land, Rights, Laws: Issues of Native Title 1, 1
24 (c) the rights and interests are recognised by the common law of Australia.
In 1998 the NTA was amended to ‘confirm’ that certain types of rights granted by the
Crown had extinguished native title.17 Western Australia v Ward (‘Ward’s Case’)18 concerned a claim for native title over an area of approximately 7,000 square kilometres in the Kimberley region of northern Western Australia. Whilst recognising that native title did exist over most of this area, the High Court also held that the provisions of the amended NTA applied to require a finding of full or partial extinguishment of native title over some of the areas subject to the native title claim. For example, permits issued to occupy land and special leases under state Land Acts were held to wholly extinguish native title.19
Native title rights and interests include hunting, gathering and fishing.20 Native title is considered to arise from the laws and customs of the Native Title Group21 and will vary from case to case depending on the proof adduced by the claimants and the impact of settlement, legislative intervention and executive action since the British Crown’s assertion of sovereignty.22 It is considered a unique form of title and does not conform
17 NTA pt 2, div 2B; Patricia Lane, ‘Land Law and Communal Title in Australia’ (Paper presented at Parties and Observers Sudan Peace Conference, Machakos, Kenya, 12 May 2003) 13. 18 (2002) 213 CLR 1. 19 (2002) 213 CLR 1, 211. 20 NTA s 223(2). 21 Mabo v Queensland (No 2) (1992) 175 CLR 1, 70 (Brennan J). 22 Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009) [7.100].
25 to the concept of freehold title under English common law.23 Where there is no actual extinguishment of native title by the Crown, native title may be recognised as a right of exclusive possession.24 This often includes the right to control access and determine the use of the land and waters, together with certain resources arising from the land and waters.25
2.1.2 Native Title, Prescribed Bodies Corporate under the Native Title Act and
Corporations Representing Native Title Groups
Native title is a pre-existing right. It arises from the laws and customs of the Native
Title Group. Determination is merely the formal recognition of native title by the
Western legal system. Because formal recognition can confer significant advantages many Native Title Groups have organised themselves to pursue claims for a native title determination under the NTA.
Once the Court makes a determination that native title exists, the members of the Native
Title Group are required by the NTA to establish a body corporate to represent them as a group and manage their native title rights and interests.26 This body corporate is referred to as a Prescribed Body Corporate (PBC). PBCs nominated by the Group and determined by the Court then become Registered Native Title Bodies Corporate
23 One important respect in which it does not equate with freehold title is that it is inalienable; see Mabo v Queensland (No 2) (1992) 175 CLR 1, 70 (Brennan J); Lisa Strelein, ‘Taxation of Native Title Agreements’ (Research Monograph No 1, AIATSIS, 2008) 6. 24 Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009) [4.40]. 25 Lisa Strelein, ‘Taxation of Native Title Agreements’ (Research Monograph No 1, AIATSIS, 2008) 6. A summary of the rights and interests recognised in each determination is available at AIATSIS, Native Title Research Unit
26 (RNTBC) when they are registered with the National Native Title Tribunal (the
Tribunal) on the Register of Native Title Bodies Corporate.27
The Native Title (Prescribed Bodies Corporate) Regulations 1999 (Cth) (PBC
Regulations) originally provided that all members of the PBC must be the common law holders of the native title however this was amended in 2011 so that the members of the
PBC can be specified Indigenous or non-Indigenous Australians provided that the common law holders consent.28 At the time of the determination, the Native Title Group must also indicate whether the PBC will hold their native title on trust (trust PBC).29 If they do not so advise the native title will be held by the Group,30 in which case the PBC will act as their agent and operate on their instructions (agent PBC).31 The choice between trust and agent PBC will result in different legal relationships between the PBC and the broader Native Title Group.
It is also possible for agreements to be reached prior to a determination where the other parties are satisfied they are dealing with the right people, often referred to in general terms as the ‘traditional owners’. These traditional owners may or may not be registered native title claimant groups. For example, Rio Tinto entered into a large agreement in the Pilbara with four claim groups in June 2011. The report in the newsletter of the
27 Section 253 NTA states that a ‘Registered Native Title Body Corporate means: (a) a prescribed body corporate whose name and address are registered on the National Native Title Register under paragraph 193(2)(e) or subsection 193(4); or (b) a body corporate whose name and address are registered on the National Native Title Register under paragraph 193(2)(f)’. For ease of reference the term PBC will be used to refer to both the PBC and RNTBC phases. 28 PBC Regulations, reg 4(2)(a) and (c). Amended by Native Title (Prescribed Bodies Corporate) Amendment Regulations 2011 (Cth) (No 1) (SLI No 257 of 2011) sch 1. 29 NTA s 56(2)(a). 30 NTA s 56(2)(c) 31 NTA ss 57 and 58
27 Yamatji Marlpa Aboriginal Corporation, the Native Title Representative Body32 about that agreement states that it ‘includes the establishment of four local Aboriginal corporations to manage the agreements for each group and a broader regional corporation to implement seven regional standards relating to Rio’s operations.’33
The NTA however, is more generally concerned with the PBC, its role and responsibilities. The primary functions of a PBC as provided in the NTA are to protect and manage native title interests in accordance with the wishes of the Native Title
Group, and ensure certainty for government and other parties with an interest in accessing or regulating native title lands and waters by providing a legal entity through which to conduct business with the Group.34 The NTA and the PBC Regulations set out the functions to be carried out by a PBC in managing and holding native title. The functions of the PBC established under the NTA and the PBC Regulations include: entering into agreements,35 consulting the Native Title Group regarding these agreements,36 receiving ‘future act notices’37 and exercising procedural rights afforded to Native Title Groups under the NTA.38 Other functions include bringing revised or
32 NTA pt 9, div 2. 33 Yamatji Marlpa Aboriginal Corporation, ‘Pilbara Native Title Groups Reach Agreement with Rio Tinto’ Newsletter, 3 June 2011. 34 Native Title (Prescribed Bodies Corporate) Regulations 1999 (Cth) regs 6, 7; see Australian Government, Department of Families, Housing, Community Services and Indigenous Affairs ‘Native Title Program, Guidelines for Support of Prescribed Bodies Corporate (PBCs)’ (2009) 3; Lisa Strelein and Tran Tran, ‘Native Title Representative Bodies and Prescribed Bodies Corporate: Native Title in a Post Determination Environment’ (Native Title Research Report No 2, AIATSIS, 2007) 1–2 [2]. 35 Native Title (Prescribed Bodies Corporate) Regulations 1999 (Cth) regs 6(2)(b) and 7(2)(b); NTA s 24BD(1), s 24CD(2), s 24DE(1) and (2). 36 Native Title (Prescribed Bodies Corporate) Regulations 1999 (Cth) regs 6(1)(d), 6(1)(e), 8 and 8A. 37 NTA s 29(2). 38 Native Title (Prescribed Bodies Corporate) Regulations 1999 (Cth) regs 6(2)(c) and 7(2)(c). 28 further native title determination applications cases in the Federal Court39 and applications for compensation under s 50(2) to the Federal Court.40
So in this thesis I am considering corporations in both situations, and more specifically a PBC if it is a post-determination agreement.
2.1.3 The Native Title Groups
The groups that make native title claims vary depending on many factors including the extent of the claim and the region in which it is made.41 These groups may be identified through a variety of features including same language group, common ancestors, religious responsibility and participation, and membership of a particular clan.42 The
Native Title Group lodges its claim with the Federal Court. The Court will refer it to the
National Native Title Tribunal Registrar to apply the registration test. Passing the registration test is a pre-condition to obtaining the procedural protection of the future act regime in the pre-determination phase. This registration process provides that:
The Registrar must be satisfied that the factual basis on which it is asserted that the
native title rights and interests claimed exist is sufficient to support the assertion. In
particular, the factual basis must support the following assertions:
(a) that the native title claim group have, and the predecessors of those persons had, an
association with the area; and
39 NTA s 61(1). 40 NTA s 61(1). 41 For a more detailed discussion see Peter Sutton, Native Title in Australia: An Ethnographic Perspective (Cambridge University Press, 2003); Peter Sutton, ‘Aboriginal Country Groups and the Community of Native Title Holders’ (National Native Title Tribunal Occasional Paper Series No 01, 2001); Jocelyn Grace, ‘Claimant Group Descriptions: Beyond the Strictures of the Registration Test’ (1999) 2(2) Land, Rights, Laws: Issues of Native Title 1, 1–2. 42 Peter Sutton, ‘Aboriginal Country Groups and the Community of Native Title Holders’ (National Native Title Tribunal Occasional Paper Series No 01, 2001) 15.
29 (b) that there exist traditional laws acknowledged by, and traditional customs observed
by, the native title claim group that give rise to the claim to native title rights and
interests; and
(c) that the native title claim group have continued to hold the native title in accordance
with those traditional laws and customs.43
This section indicates membership of the Native Title Group could be defined through descent from a common ancestor who had an association with the area together with fulfilling the other criteria of the provision. Native Title Groups will usually have social boundaries and may be defined in different ways when considering them from different perspectives. The authors in Indigenous Legal Issues: Commentary and Materials state that this point is reinforced by the way that successful Native Title Groups have defined themselves and that ‘…sociologically, there may be legitimately different ways for groups of people to present themselves as ‘native title holders’.’44 Informal guidelines produced by the Tribunal in 1998 suggest that establishment of a Native Title Group could be satisfied by reference to biological descent or the adherence to a particular set of traditional laws and customs.45
2.1.4 Overview of the Application of the Native Title Act to situations that may involve Mining Payments
Part 2 of the NTA deals with the validity of various acts over native title land, which includes the grant of mining tenements and other acts associated with resource projects.
43 NTA s 190B(5). 44 Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009) 342. 45 Jocelyn Grace, ‘Claimant Group Descriptions: Beyond the Strictures of the Registration Test’ (1999) 2(2) Land, Rights, Laws: Issues of Native Title 1, 1–2.
30 It defines the consequences for native title of such acts (eg extinguishment), the compensation entitlements for native title groups and also includes mechanisms for reaching agreements about such actions.
One such form of agreement is provided for under a process known as the ‘right to negotiate’. This thesis will particularly focus on another significant category of agreements spelt out in the NTA: ILUAs. It is common for the creation or proposed creation of a resource project over land to result in an ILUA dealing more or less comprehensively with the consequences for native title and for the traditional owners.
Frequently such agreements will involve payments of money which could at least potentially attract taxation liability. To understand where agreement-making fits into the native title system and then what taxation liabilities might attach to payments made under ILUAs and other native title agreements, a brief summary of Part 2 is necessary.
Part 2, Division 2 establishes a regime to provide validation and compensation for past acts (ie relevant acts that took place before 1 January 1994). Division 2A of Part 2 establishes a similar regime for acts that occurred on or after 1 January 1994 but on or before 23 December 1996. These acts are referred to as intermediate period acts.
The regime in Part 2 Division 3 of the NTA in general defines the scope of government and third party action that can, since 1 January 1994, validly take place on native title land and waters. These activities are referred to as future acts46 and potentially include the grant of mining leases, renewal of pastoral leases, constructions of roads, the
46 NTA s 233.
31 passage of state water legislation and the compulsory acquisition of interests in a given land area.47
Division 3 enables relevant governments to allow for developments that are usually undertaken pursuant to state and territory law which could otherwise conflict with the protection given to native title by the NTA and/or the Racial Discrimination Act 1975
(Cth) (RDA).
Division 3 of Part 2 provides a framework for entering into ILUAs and for the doing of future acts such as the grant of mining leases. Division 3, subdivisions B, C and D set out the procedures and requirements for entering into ILUAs. There are three types of
ILUAs, body corporate agreements which are covered by subdivision B, area agreements covered by subdivision C and alternative procedure agreements covered by subdivision D. Body corporate ILUAs must relate to at least one of the matters set out in s 24BB. These include specific future acts, extinguishment of native title by surrender to the government and compensation for any past, intermediate period or future act. This type of ILUA can only be entered into where there are PBCs that are RNTBCs in relation to all of the subject area.48 The subject matter for area agreements is found in s
24CB. The matters are similar to those for body corporate agreements however these types of ILUAs must not be made if there are RNTBCs in relation to all of the area.49
The subject matter of alternative procedure agreements is set out in s 24DB. Unlike the other two types of ILUAs alternative procedure agreements must not provide for
47 Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009) 379 [7.600]. 48 NTA s 24BC. 49 NTA s 24CC.
32 extinguishment of native title.50 Furthermore, alternative procedure agreements cannot be made if there are RNTBCs in relation to all of the area51 but there must be at least one RNTBC or representative body (a regional land council or similar organisation recognised under the NTA).52
All three types of ILUAs may be made for consideration. This can include freehold grants or any other interests in land.53 In order for the future acts to be valid, details of the ILUA must be on the Register of Indigenous Land Use Agreements,54 except in some exceptional circumstances.55
Separately, a right to negotiate is established in accordance with Subdivision P of
Division 3 of Part 2 where a future act such as the grant of a mining tenement56 is proposed. The Subdivision also applies to some renewals of the right to mine.57
Furthermore, the right to negotiate applies in respect of compulsory acquisition of land by the Crown to transfer to a third party.58
Section 29 provides that the government party must give notice of the future act in accordance with the section. The recipients of the notice include the grantee party (the
50 NTA s 24DC. 51 NTA s 24DD(1). 52 NTA s 24DD(2). 53 NTA s 24BE, s24CE and s 24DF. 54 NTA s 24AA(3). 55 NTA s 24AA(4). 56 NTA s 25(1)(a) specifically provides that subdiv P applies to the conferral of certain mining rights. 57 NTA s 26 and s 26D. 58 NTA ss 25 and 26.
33 mining company applicant), relevant PBCs and ‘native title parties’.59 The negotiating procedures are set out in s 31.
In negotiation it is lawful for the parties to discuss the question of whether or not payments will be made by the developer in respect of any minerals that are extracted from the land.60 Section 33 specifically refers to the amount of payment being calculated by reference to the profits, income or production of the developer/mining company. Such amounts are usually referred to as ‘mining royalties’61 or ‘mineral rent’.62 Section 33 states that:
(1) Without limiting the scope of any negotiations, they may, if relevant, include the
possibility of including a condition that has the effect that native title parties are to be
entitled to payments worked out by reference to:
(a) the amount of profits made; or
(b) any income derived; or
(c) any things produced;
by any grantee party as a result of doing anything in relation to the land or waters
concerned after the act is done.
Other issues that are often dealt with during this process are capacity building for the local community of Indigenous peoples, employment opportunities, training and
59 Defined in NTA s 29(2)(a) and (b) and s 30. 60 NTA s 33. 61 Ciaran O’Faircheallaigh, ‘Financial Models for Agreements Between Indigenous Peoples and Mining Companies’ (Aboriginal Politics and Public Sector Management Research Paper No 12, January 2003); Jon Altman, ‘Reforming Financial Aspects of the Native Title Act 1993: An Economics Perspective’ (Discussion Paper No 105, CAEPR, 1996). 62 Jon Altman ‘Reforming Financial Aspects of the Native Title Act 1993: An Economics Perspective’ (Discussion Paper No 105, CAEPR, 1996) 3.
34 contracting opportunities.63 If the matter goes to arbitration the NTA provides that the
Tribunal can act as an arbitrator on the question of whether the proposed development should go ahead and on what conditions.64 The Tribunal does not however have power to impose a mineral royalty as a condition of approval of the grant,65 and there is no room for the Tribunal to make a commercial deal between the parties.
There are provisions for the payment of compensation in respect of an act under
Divisions 2, 2A, 2B, 3 and 4 of Part 2. For example, s 17 provides that the native title holders are entitled to compensation from the Commonwealth in respect of certain specified past acts attributable to the Commonwealth. Division 5 of Part 2 deals with the determination of these compensation entitlements.
2.1.5 The Significance of the Prescribed Body Corporate under the Native Title Act
As already mentioned in this Chapter, once a native title claim is determined by the
Federal Court the Native Title Group is required to establish a body corporate to hold the native title, the PBC.66 From a taxation perspective, as the PBC is a company it is a taxpayer for Federal income tax purposes.67
Many researchers now consider that, with the increase of successful determinations of native title across Australia, PBCs are emerging as an essential element within the
63 Patricia Lane, ‘Land Law and Communal Title in Australia’ (Paper presented at Parties and Observers Sudan Peace Conference, Machakos, Kenya, 12 May 2003) 18. 64 NTA ss 35, 38 and 75. 65 NTA s 38(2). 66 NTA ss 55, 56, 57. 67 Companies and unincorporated associations (by virtue of being treated as companies under s 995-1) are taxpayers under s 4-1 ITAA97; trustees are taxpayers under ITAA36 div 6.
35 native title system.68 It has been said that PBCs ‘have the most important long-term responsibility in the entire native title system – the holding and management of the rights themselves.’69 According to recent statistics of the Native Title Research Unit of the Australian Institute of Aboriginal and Torres Strait Islander Studies (AIATSIS) 70 there are 93 PBCs.71
2.1.6 Examples of Potential Taxable Income of Native Title Groups and Prescribed
Bodies Corporate in respect of Mining
It is widely acknowledged that the application of income tax law, which includes CGT, under the ITAA97 for payments made to Native Title Groups or a PBC under the NTA, is highly uncertain, complex and often incomprehensible.72 The following discussion
68 Lisa Strelein and Tran Tran, ‘Native Title Representative Bodies and Prescribed Bodies Corporate: Native Title in a Post Determination Environment’ (Native Title Research Report No 2, AIATSIS, 2007) 1 [2]; Toni Bauman and Tran Tran, ‘First National Prescribed Bodies Corporate Meeting: Issues and Outcomes’ (Native Title Research Report No 3, AIATSIS, 2007) xii [33]; David Ritter, Contesting Native Title (Allen & Unwin, 2009) 26; Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009) 378 [7.560]. 69 Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009) 378 [7.560]. 70 The Australian Institute of Aboriginal and Torres Strait Islander Studies (AIATSIS) is a Commonwealth statutory authority within the Federal Government Department of Innovation, Industry, Science and Research portfolio. Its main aim is to provide information and research about the cultures and lifestyles of Aboriginal and Torres Strait Islander peoples, past and present. 71 AIATSIS, Native Title Research Unit, RNTBC Summary
2.1.6.1 Payments where Native Title has been or may have been Extinguished: The
Comalco ILUA
The NTA provides that native title cannot be extinguished contrary to the Act.73 Such extinguishment can occur but only in very specific situations as detailed in the NTA.74
The NTA provides for the payment of compensation if native title is extinguished as a result of the operation of the Act.75 The author’s research and that of others in this area indicate that the most common practice in native title negotiations, where payments are involved, is the making of payments according to commercial frameworks under an
ILUA.76 An example of an ILUA that involves or at least potentially involves the extinguishment of native title is the Western Cape Communities Co-existence
Agreement with Comalco over Native Title Land in North Queensland which is commonly referred to as the Comalco ILUA.77 This ILUA will be discussed as a Case
Study in detail in Chapter 5. It was registered as an ILUA under the NTA with the
Aboriginal/Native Title’ (2010) 25 Australian Tax Forum 397; Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper (May 2010). 73 NTA s 11. 74 NTA s 11 and pt 2, divs 2B and 3. 75 NTA div 5. 76 John Litchfield, ‘Compensation for Loss or Impairment of Native Title Rights and Interests: An Analysis of Suggested Approaches (Part II)’ (2000) 19 Australian Mining and Petroleum Law Journal 44, 46. 77 National Native Title Tribunal Registered ILUA Summary, Comalco ILUA http://www.nntt.gov.au/Indigenous-Land-Use-Agreements/Search-Registered- ILUAs/Pages/Comalco_ILUA_QIA2001002.aspx.
37 Tribunal on 24 August 2001.78 Although full details of the Comalco ILUA are not publicly available there is an executive summary available on the relevant webpage of the Tribunal. The summary of the ILUA provides that the parties agree to validate any acts that are defined in the ILUA as part of the ‘Comalco’ and ‘Other’ interests and activities in the area. These interests are various types of mining leases.79
The ILUA also provides that native title is extinguished by the Other interests and new
Special Purpose Mining Leases (SPMLs) and any surviving native title rights are surrendered with the intention that they are extinguished. It is specifically agreed in the
ILUA that the right to negotiate does not apply to any of the activities covered by the agreement.80 Without this ILUA, the mining acts consented to in the ILUA might have been subject to the future and past act provisions of the NTA, which require a right to negotiate process to be followed for all future activities that may affect native title and payments in respect of past acts.
The Comalco ILUA provides for annual payments from the mining company and the
Queensland Government into a charitable trust. The payments are linked to mining production and the consumer price index.81 In return the eleven Native Title Groups affected agreed to certain future acts by the mining company and Queensland
78 National Native Title Tribunal Registered ILUA Summary, Comalco ILUA http://www.nntt.gov.au/Indigenous-Land-Use-Agreements/Search-Registered- ILUAs/Pages/Comalco_ILUA_QIA2001002.aspx. 79 National Native Title Tribunal Registered ILUA Summary, Comalco ILUA http://www.nntt.gov.au/Indigenous-Land-Use-Agreements/Search-Registered- ILUAs/Pages/Comalco_ILUA_QIA2001002.aspx 80 National Native Title Tribunal Registered ILUA Summary, Comalco ILUA http://www.nntt.gov.au/Indigenous-Land-Use-Agreements/Search-Registered- ILUAs/Pages/Comalco_ILUA_QIA2001002.aspx; AIATSIS, Agreements, Treaties and Negotiated Settlements Project, Comalco Indigenous Land Use Agreement. 81 National Native Title Tribunal Registered ILUA Summary, Comalco ILUA http://www.nntt.gov.au/Indigenous-Land-Use-Agreements/Search-Registered- ILUAs/Pages/Comalco_ILUA_QIA2001002.aspx.
38 Government, agreed that native title is extinguished in respect of certain areas and surrendered their right to negotiate in respect of future acts in the remaining areas.82
There are few other examples in the case law and literature of explicit payments of compensation under the NTA or under ILUAs. An early example of an agreement to a future act although not in the mining context is that of the Dunghutti People of northern
New South Wales. These People negotiated compensation, including a final instalment of approximately $6.1 m, as settlement of a native title claim that validated the New
South Wales Government’s appropriation of the land for the purpose of creating a housing development.83 Native title had not been formally recognised over this land prior to the agreement, so there was no PBC and compensation was agreed on the basis of the market value of the land, as freehold, plus 50 per cent for loss of special attachment to the land.84
2.1.6.2 Payments in other situations under the Native Title Act
There are only a handful of court or tribunal cases pursuant to s 33 of the NTA dealing with agreements under the ‘right to negotiate’ provisions and the author’s research could not locate any where a mineral royalty as a form of compensation had been granted to the Native Title Group.85 In 2003 the Tribunal determined the case of
82 National Native Title Tribunal Registered ILUA Summary, Comalco ILUA http://www.nntt.gov.au/Indigenous-Land-Use-Agreements/Search-Registered- ILUAs/Pages/Comalco_ILUA_QIA2001002.aspx. 83 Agreement between Mary-Lou Buck on behalf of the Dunghutti People and the Minister for Lands, New South Wales reported in National Native Title Tribunal ‘Dunghutti People Celebrate Native Title Milestone’ News and Publications, 19 February 2010; Buck v New South Wales [1997] FCA 1624. 84 Chris Humphrey, ‘Compensation for Native Title: The Theory and the Reality’ (1998) 5(1) Murdoch University Electronic Journal of Law [19]. 85 The Comalco ILUA discussed above contains agreement that the right to negotiate is not to apply to any of the acts agreed to or supported in the ILUA. So the payments made in respect of this agreement are not in accordance with s 33.
39 Townson Holdings Pty Ltd v Joseph Frank et al on behalf of the Wongatha People and
Western Australia (‘Townson Holdings’).86 The matter came before the Tribunal because negotiations regarding certain proposed mining leases (the future acts) had broken down. The Tribunal held that the mining leases could be granted and in the course of its decision provided an insight into the negotiations over compensation under s 33 that had taken place. Townson Holdings had proposed that payments to the Native
Title Group were to be calculated by reference to the disturbance to the land that would result from the mining payments rather than on the value of any gold extracted. On this basis, the company rejected the counter proposals of either a lump sum or mining royalties and proposed that it pay amounts based on the rental payable to the government in respect of mining leases under the Mining Act 1978 (WA) (the WA
Mining Act) and which is statutorily set under this Act. But the case only deals with the grant of the mining leases and does not provide details of any ultimate payment agreement.
White Mining (NSW) Pty Ltd v Scott Frank (Plains Clans of the Wonnarua People) and
New South Wales (‘White Mining Case’)87 is a 2011 case that involved a breakdown of negotiations over a proposed mining lease. It provides more recent insight into the agreement making process. Prior to the case the State Government had given notice of its intention under s 29 of the NTA to grant a mining lease to White Mining. During the course of negotiations the company proposed that it pay the Wonnarua People an amount of $70,000 on signing the agreement, and annual payments of $100,000 for the following seven years. It required that these payments be made into a charitable trust.88
86 [2003] NNTTA 82. 87 (2011) 257 FLR 75. 88 Ibid [80].
40 The Wonnarua People on the other hand preferred a mineral royalty and no charitable trust. White Mining rejected the counter proposal on the basis that royalties would mean that the Wonnarua would have access to their financial statements, which was something the company did not wish.89 No financial arrangement was agreed to at this stage however the Tribunal held that the grantee party had fulfilled its obligation to negotiate in good faith as required by s 31(1)(b) and that the Tribunal had power to conduct an inquiry and make a determination pursuant to s 38.90
In Jax Coal Pty Ltd v Grace Smallwood on behalf of the Birri People and the State of
Queensland 91 (‘Jax Coal’), the Queensland Government issued a notice under s 29 of its intention to grant a mining lease to Jax Coal Pty Ltd. This mining lease lay within the native title determination of the Birri People. Jax Coal agreed to pay the Birri People
$100,000 for their agreement to the lease. The Tribunal made the order for the mining tenement on this basis.92 The Tribunal also stated that the amount was not compensation.93
As can be seen from the discussions above, ILUAs are regularly entered into and as at
25 October 2012 there were 679 registered ILUAs many of which relate to resource projects.94 Several researchers in the native title area argue that commercial arrangements are usually favoured by non-native title parties because they provide
89 Ibid [83]. 90 Ibid [120]. 91 [2011] NNTTA 46. 92 Ibid [89]. 93 Ibid [54], [88]. 94 Federal Government, National Native Title Tribunal, Register of Indigenous Land Use Agreements, 25 October 2012.
41 autonomy from the compensatory constraints of the NTA and are a way of obtaining a speedier outcome.95
Part 2
2.2 Model Mining Agreements between Mining Companies and Indigenous
Australians
One researcher in the area of mining agreements between mining companies and
Indigenous Australians, Ciaran O’Faircheallaigh, has analysed a number of the agreements that relate to the mining-resource sector and has identified six different types of arrangements that are made between mining companies and Indigenous
Australian communities.96 Although many of the agreements will be as a result of native title negotiations or agreements over mining on Aboriginal land under the ALRA, his analysis is not limited to payments arising as a consequence of either legislation. I have used the examples in his research because they represent exemplars of the types of agreements that are commercially undertaken and therefore provide an appropriate framework for my discussion of the income tax implications of mining payments made pursuant to the NTA. In Chapter 5 of this thesis I provide case studies of two agreements pursuant to the NTA which demonstrate aspects of several of the models identified by O’Faircheallaigh’s research.
95 John Litchfield, ‘Compensation for Loss or Impairment of Native Title Rights and Interests: An Analysis of Suggested Approaches (Part II)’ (2000) 19 Australian Mining and Petroleum Law Journal 44, 46; K D MacDonald, ‘Commercial Implications of Native Title for Mining and Resources’ in Bryan Horrigan and Simon Young (eds), Commercial Implications of Native Title (Federation Press, 1997) 114, 122–123; Hal Wootten, ‘Mediating Between Aboriginal Communities and Industry’ in Gary Myers (ed), Implementing the Native Title Act: The Next Step: Facilitating Negotiated Agreements (National Native Title Tribunal, Perth, 1996) 179. 96 Ciaran O’Faircheallaigh, ‘Financial Models for Agreements Between Indigenous Peoples and Mining Companies’ (Aboriginal Politics and Public Sector Management Research Paper No 12, January 2003).
42 The following is a summary of the types of agreements and payments.
Model 1: Single Up-front Payment
This is the simplest financial model and involves a single payment by a resource company to the Indigenous Community-entity at the start of a project. No further payments are made between this time and the end of a project. An example given by
O’Faircheallaigh is the Eastern Gas Pipeline Agreement. This agreement is between seven claimant groups in Victoria and New South Wales and the developer of a 700 kilometre pipeline between Sale in Victoria and Sydney in New South Wales. A single payment was made before construction started and no further payments will be made during the rest of the project’s life.97 A 2011 example is the Jax Coal Case where Jax
Coal paid a single payment of $100,000 to a company representing the Birri People in return for their support in the granting of a mining tenement.98
The taxation ramifications will be discussed in detail later in this Chapter; however, generally speaking the one-off payment found in the Eastern Gas Pipeline Agreement may be subject to income tax if it represents compensation for lost income such as profits that could have been made by the native title claimants if they had, for example, built the pipeline themselves. It is more likely that there is a combination of income and capital gains in the Eastern Gas Pipeline Agreement. Some portion of the amount will be either for access to the land or to replace potential lost profits and be income; and another portion will relate to a capital gain arising from some form of deprivation of use of the land or long-term damage to the land or extinguishment of native title. The capital
97 Agreements, Treaties and Negotiated Settlements Project, Eastern Gas Pipeline Agreement (2002) Agreements, Treaties and Negotiated Settlements Project http://www.atns.net.au/agreement.asp?EntityID=478 at 14 May 2012. 98 Jax Coal Pty Ltd v Smallwood on behalf of the Birri People and the State of Queensland [2011] NNTTA 46 [89].
43 component may be assessable under the CGT provisions of the ITAA97, although this is not clear as it is arguable that the land or rights in respect of the land such as native title are pre-CGT (before 1985) and therefore excluded from CGT. Even in this very simple arrangement, the tax ramifications are complex and uncertain.
Model 2: Fixed Annual Payments
A second approach identified by O’Faircheallaigh involves the use of payments made on an annual basis. The amount of the payment for each year is set when the agreement is made. The amount may be identical for every year of the agreement, or a particular amount may be paid for some years (for instance the first five years) and a different amount for the remaining years. This approach is the financial model used in the agreement for the Century Mine in the Gulf of Carpentaria,99 the 2004 Argyle Diamond
Mine ILUA,100 and was proposed by White Mining in the White Mining Case discussed earlier in this Chapter.
Under this type of agreement payments may commence in the year the agreement is signed and continue until decommissioning is complete, or commence in the year production starts and cease when production finishes. In some cases annual payments are tied to specific uses, programs or activities, including expenditure on employment and training, on community infrastructure or on promotion or protection of Indigenous cultural heritage.
99 Ciaran O’Faircheallaigh, ‘Financial Models for Agreements Between Indigenous Peoples and Mining Companies’ (Aboriginal Politics and Public Sector Management Research Paper No 12, January 2003) 10. 100 Kim Doohan, Marcia Langton and Odette Mazel, ‘From Paternalism to Partnership: The Good Neighbour Agreement and the Argyle Diamond Mine Indigenous Land Use Agreement in Western Australia’ in Marcia Langton and Judy Longbottom (eds), Community Futures, Legal Architecture: Foundations for Indigenous Peoples in the Global Mining Boom (Routledge, 2012) 243, although in the Argyle Diamond Mine ILUA there is also provision for a proportion of mine profits to be deposited into charitable and other trusts.
44 Payments made on an annual basis are more likely than a one-off payment under Model
1 to be considered income because they are regular and periodic, which is a characteristic of income.101 This does however depend on the facts of the case and the terms of the agreement. Just v Federal Commissioner of Taxation102 dealt with the transfer of land via a series of payments over 50 years. In this case the High Court held that the amounts were income; however, in coming to this conclusion the Court considered it significant that no purchase price was indicated in the relevant documents.103
On the other hand a series of annual payments may be capital if they are clearly related to either extinguishment or some form of permanent damage to the land or to long-term suspension of native title. If this is the case there may be CGT ramifications and the application of possible exemption provisions is then relevant.
Model 2 agreements therefore potentially result in income tax consequences unless they are for the extinguishment of native title or permanent damage to the land or some form of tax exempt entity is used to derive the income.
Model 3: Royalties Based on Output
This style of agreement involves the use of royalties based on the application of a flat charge for each unit of mineral produced. The payment is usually calculated on the basis of x cents per pound or x dollars per tonne. This arrangement is referred to as ‘unit royalties’, and under this approach payments to Indigenous communities will increase or decrease as the volume of minerals produced moves up and down.
101 Just v Federal Commissioner of Taxation (1949) 8 ATD 419; Federal Coke Co Pty Ltd v Federal Commissioner of Taxation 77 ATC 4255. 102 (1949) 8 ATD 419. 103 Ibid 422.
45 These payments are clearly linked to sale of minerals and are within the concept of
‘royalties’, which are assessable as ordinary income and statutory income under s 15-20
ITAA97.104 This tax perspective does not however take into account that the mining will have a long-term physical impact on the land to the detriment of the landowners and native title to that land.105 Some proportion of the payments is likely to be for damage to a pre-CGT asset or compensation for loss of enjoyment of the land, homes, culture and livelihood and so on, even though it is not calculated by reference to this. Under income tax law principles a number of factors are taken into consideration in coming to a conclusion about whether or not an amount is income. There include the facts and circumstances surrounding the agreement or source of payments, the terms of the agreement, the legal relations that result from an agreement and the objective purpose behind the agreement.106 In Townson Holdings discussed earlier in this Chapter the mining company had proposed that payments to the Native Title Group were to be calculated by reference to the disturbance to the land that would result from the mining rather than on the value of any gold extracted. It was clearly of the view that any payments to the Native Title Group were for damage to the land.
Model 4: Royalties Based on the Value of Mineral Output
A fourth approach involves the application of a fixed, percentage royalty referrable to the value of minerals extracted. This is often referred to as an ad valorem royalty. In this case revenue is determined by a number of factors. These factors are the royalty rate
(which is calculated by a percentage), the volume or quantity of output and the price
104 McCauley v Federal Commissioner of Taxation (1944) 69 CLR 235. 105 Ciaran O’Faircheallaigh, ‘Financial Models for Agreements Between Indigenous Peoples and Mining Companies’ (Aboriginal Politics and Public Sector Management Research Paper No 12, January 2003) 9, 11. 106 Eg Hochstrasser v Mayes [1960] AC 376 discussed later in this part.
46 received by the company for each unit of output. An increase in either the royalty rate, the amount produced or the unit price will mean higher payments and a decrease in one or more of these will result in lower payments.
The case law suggests that these payments are income because they are payable by reference to the amount of minerals removed from the land.107 On the other hand, there is inevitably long-term damage to the underlying land and native title rights and possibly the wider Indigenous community.108 Also there will potentially be cultural and community damage due to the imposition of mining on a remote community.109
Model 5: Profit Based Royalties
Profit based royalties are charged on the amount of money a company has left from its revenue after it has met its costs of production, including the cost of borrowing money from banks and the cost of replacing capital invested in a project. Profit is affected by changes in the volume of output, in the price of minerals and in production costs. Profit is usually described as ‘before tax’ or ‘after tax’, depending on whether or not revenue payments to government have been deducted.
107 McAuley v Federal Commissioner of Taxation (1944) 69 CLR 235. 108 For example, the iron ore mining of the Mt Goldsworthy area in Western Australia has damaged the land to such an extent that after 16 years of mining the mountain was transformed into a pit 135 metres below sea level; see Brown, on behalf of the Ngarla People v State of Western Australia (No 2) (2010) 268 ALR 149 [19]–[20]. 109 Jessica Weir, ‘Native Title and Governance: The Emerging Corporate Sector Prescribed for Native Title Holders’ (2007) 3(9) Land, Rights, Laws: Issues of Native Title 1; Chris Humphrey, ‘Compensation for Native Title: The Theory and the Reality’ (1998) 5(1) Murdoch University Electronic Journal of Law [17]–[21]. For example, the Argyle diamond mine in Western Australia destroyed or damaged several sacred sites including a site cared for and celebrated solely by senior women associated with the sacred narrative of the Barramundi Woman; see Kim Doohan, Marcia Langton and Odette Mazel, ‘From Paternalism to Partnership: The Good Neighbour Agreement and the Argyle Diamond Mine Indigenous Land Use Agreement in Western Australia’ in Marcia Langton and Judy Longbottom (eds), Community Futures, Legal Architecture: Foundations for Indigenous Peoples in the Global Mining Boom (Routledge, 2012) 231, 231.
47 For example, a mine commences operations and has gross revenue of $50 m a year.
Expenses include such things as operating costs (these include staff costs, repairs to equipment, petrol, electricity and so on), interest on borrowed moneys and depreciation on capital equipment used to operate the mine. After deducting all expenses the net profit for the mine is $20 m a year before tax. Tax on this amount is 30 per cent, which equals $6 m. The net amount of profit to the company is $14 m.
If the royalty is 10 per cent then the royalty will be $1.4 m a year. Of course if the company does not make any net profit then no royalty will be paid.
An example of this type of agreement is found in the original mining leases held by
Cape Flattery Silica Mines Pty Ltd in the case of Cape Flattery Silica Mines Pty Ltd v
Federal Commissioner of Taxation (‘Cape Flattery Case’).110 The company held four mining leases for mineral sands on land at Cape Flattery. When those mining leases were first granted they contained special conditions. One of the special conditions which applied to each of the leases was a requirement that 3 per cent of its annual net profit in each year be paid to the Department of Aboriginal and Islander Affairs
(subsequently called the Department of Community Services). This amount was for the benefit of the Aboriginal inhabitants of the Hope Vale Reserve who were represented by the Hope Vale Aboriginal Council.
Model 6: Equity Participation or Shareholding
This sixth approach involves Indigenous Australians taking shares in a company that operates a project on their land. The relevant groups own a part of the company involved and so own a share of the project that is established on their land. To be
110 97 ATC 4552.
48 regarded as a ‘financial model’ constituting part of an agreement between Indigenous
Australians and a mining company, equity must be provided by the company either free of charge or on a concessional basis. If this is not the case, what is involved is a commercial transaction no different to any other on the share market.
As what is now taking place is the ownership of shares in a company, the shareholders
(whether it is a PBC established under the NTA, some other company or individual
Indigenous Australians) will have a tax liability for any dividends they receive.111 If they sell the shares there will be CGT consequences.
Part 3
2.3 The Application of General Income Tax Principles to Mining Payments made to Native Title Groups
In order to analyse mining payments in a comprehensive income tax context it is essential that I provide an overview of what is meant by income. Section 6-5 of the
ITAA97 tells us that a taxpayer’s assessable income includes ‘income according to ordinary concepts’. In determining if this provision applies, the courts have established that whether or not an amount is income is determined in accordance with the ordinary principles and usages of humankind and that these usages may vary with changes in society.112 All the relevant circumstances of the situation should be examined and it is an objective test.113 The cases have also established some relevant principles that
111 ITAA36 s 44(1) provides that dividends received by Australian shareholders are part of assessable income. There will also be capital gains tax consequences if the shares are sold. 112 Scott v Federal Commissioner of Taxation (1935) 35 SR (NSW) 212, 219 (Jordan CJ); Federal Commissioner of Taxation v Whitfords Beach (1982) 150 CLR 355; Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199. 113 Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47, 55.
49 indicate whether or not a receipt is income. These principles have over the years been expressed in many ways,114 but can be summarised through the expression of four positive characteristics. First, income is a gain; second, income is a flow that comes in to a taxpayer; third, there is a difference between circulating and fixed capital; and finally, the source of the activity generating the payment is relevant in determining whether or not an amount is income. A negative proposition that is relevant for the purposes of this discussion is that a capital gain does not have an income character.115
In respect to the source of the income generating activity, the courts have looked at the terms of the relevant agreement as well as the actions of the parties. By this I mean the provisions of the agreement between the parties and the circumstances that generate the agreement and payment.116 In Hochstrasser v Mayes117 an employee received the difference between the purchase and sale price of his house. The payment was made under the employer's housing scheme relating to employees transferred from one part of the country to another. Under the scheme a transferred employee was reimbursed any loss he sustained on selling his house but he had first of all to offer to sell the house to his employer at market value. It was held that the payment was not a profit from his employment.
The source of the payment was the housing scheme not the employment. In Laidler v
Perry, Lord Hodson said that the decision in Hochstrasser v Mayes:
114 Ross Parsons, Income Taxation in Australia (Law Book Company Limited, 1985) developed 15 propositions of income in Chapter 2; Robin Woellner et al, Australian Taxation Law (22nd ed, CCH, 2012) [3-150]–[3-400]. 115 Ross Parsons, Income Taxation in Australia (Law Book Company Limited, 1985) 69. 116 Glenboig Union Fireclay Co Ltd v Inland Revenue Commissioner (1922) 12 TC 427. 117 [1960] AC 376.
50 [D]epended on its own peculiar facts, there being a collateral agreement between
employer and employee quite outside their contracts of service to compensate the
employees for any loss they might incur on selling their houses on transfer from one
part to another.118
Economists traditionally refer to income as being a financial ‘gain’.119 They determine a person’s income for a period of time by reference to their change in wealth over that period plus their consumption during the same period.120 However, the Australian courts take a narrower view and only include as income realised gains.
The leading case on this point is Hochstrasser v Mayes.121 As stated above in this case the taxpayer was employed by a company that paid compensation to employees for any loss on the sale of their home when they were transferred from one place of business to another. The taxpayer was transferred and made a loss on the sale of his house for which he was paid compensation. Lord Denning held that the amount received was not income as the taxpayer did not make a gain. This principle was applied in Australia in
Lees & Leech Pty Ltd v Federal Commissioner of Taxation122 where the taxpayer was paid $40,000 by its landlord as part reimbursement of the costs incurred to fit out the premises it leased. The work did not result in any gain to the taxpayer because the value of the fit out to the taxpayer at the end of the lease would be no more than scrap value, so the $40,000 was not assessable income.
118 42 TC 351, 366. 119 Robert Haig, ‘The Concept of Income-Economic and Legal Aspects’ in Robert Murray Haig (ed), The Federal Income Tax (Columbia University Press, 1921) 1; Henry Simons, Personal Income Taxation: The Definition of Income as a Problem of Fiscal Policy (University of Chicago Press, 1938). 120 Ibid. 121 [1960] AC 376. 122 (1997) 73 FCR 136.
51 The second principle is that income is a flow. The essence of the flow concept is found in the metaphor of the fruit and the tree from the early United States Supreme Court case Eisner v Macomber.123 The fruit is the income as it flows from the tree, which is the capital or income producing asset. Payments in return for the exploitation of a capital asset (such as interest on money lent or rental from property) are income,124 but the proceeds of the sale of the rental property itself will be capital and not ordinary income.125 Something is considered capital under income tax laws where it has an enduring or long-term benefit. This distinction is illustrated in the mining situation by the case of Barrett v Federal Commissioner of Taxation (‘Barrett’).126 In this case the taxpayer owned property on which mineral deposits existed and entered into an agreement to receive payments for deposits removed from the property. The High Court held that these payments were not royalties (which would have made them income) because the minerals (soapstone) belonged to the mining company, not the taxpayer.
The Court then concluded that the payments were not income in return for granting a licence to mine the land but were compensation for damage to the land (the taxpayer’s capital asset) and were therefore capital and not income.127
We must also judge the quality of a payment in the hands of the recipient. This principle is illustrated by the case of Federal Coke Co Pty Ltd v Federal Commissioner of
Taxation.128 In this case Le Nickel agreed to pay Bellambi an amount as consideration
123 (1920) 252 US 189. 124 Federal Commissioner of Taxation v Citibank 93 ATC 4691. 125 Scottish Australian Mining Company Ltd v Federal Commissioner of Taxation (1950) 81 CLR 188. 126 (1968) 118 CLR 666. 127 Ibid. 128 77 ATC 4255; also approved by the High Court in the subsequent case of Commissioner of Taxation v McNeil [2007] HCA 5 [20].
52 for Bellambi releasing Le Nickel from a long-term supply contract. The amount was stated to be compensation for Federal Coke closing down its coking works as a result of the supply agreement being cancelled. The release agreement was then renegotiated so that it was between Le Nickel and Federal Coke and the compensation amount was instead paid by Le Nickel to Federal Coke, which was a wholly owned subsidiary of
Bellambi. There was never any legal relationship between Le Nickel and Federal Coke and Le Nickel did not undertake any business activity that could be the source of the payment.
The Court rejected the argument by the Commissioner that if the amount had been derived by Bellambi it would have been income and therefore it retained this character in the hands of its subsidiary, Federal Coke. The amount was derived by Federal Coke and in its hands it had the character of capital, being a gift and not income.129 As Bowen
CJ stated ‘[w]hen one is considering the character of an amount received by a taxpayer, the enquiry must start with the question: what is the character of the receipt in the hands of the taxpayer?’130
The third principle is that fixed capital will not be income although circulating capital is. In other words the proceeds of sale of business assets by a business, such as trading stock, are income, but the proceeds of sale of the business infrastructure are capital.131 A taxpayer who operates a shop will earn income through the sale of their products, but if they sell the shop premises the proceeds will not be income. Capital in this sense relates to the structural part of the business and is ‘a conclusion that the realisation of the asset
129 The court did, however, indicate that the Commissioner could have relied on the doctrine of constructive receipt to argue that the compensation was actually received by Bellambi; see ITAA97 s 6-5(4) and s 6-10(3). 130 77 ATC 4255, 4264. 131 Federal Wharf Co Ltd v Deputy Commissioner of Taxation (1930) 44 CLR 24.
53 was not an aspect of the carrying on of the business.’132 Finally, the source of the activity generating the payment will be relevant.
The product of a business activity133 or payment for services134 is generally income and a common feature is that it is paid regularly and periodically.135 However, even an infrequent gain may be so intimately connected with the business as to be an incident of the business and therefore ordinary income.136 As the majority of the High Court in
Federal Commissioner of Taxation v Montgomery said, ‘income is often (but not always) a product of exploitation of capital; income is often (but not always) recurrent or periodical; receipts from carrying on a business are mostly (but not always) income.’137
The general tax principle regarding lump sum damages, or a lump sum out-of-court settlement, is that if it represents compensation for losses of an income nature only, it will be assessable as income under the income substitution principle.138 If the compensation is part income and part capital and can be dissected into these parts then the income component will be assessable as income unless excluded by some specific provision in the ITAA36 or ITAA97.139 Where lump sum damages are paid in
132 Ross Parsons, Income Taxation in Australia (Law Book Company Limited, 1985) [2.168]. 133 GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation (1990) 170 CLR 124. 134 Brent v Federal Commissioner of Taxation (1971) 125 CLR 418; Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540. 135 GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation (1990) 170 CLR 124. 136 Federal Commissioner of Taxation v Cooling 90 ATC 4472. 137 (1999) 198 CLR 639, 663 (Gaudron, Gummow, Kirby and Hayne JJ). 138 Commissioner of Taxation (NSW) v Meeks (1915) 19 CLR 568, 580 (Griffiths CJ); Robin Woellner et al, Australian Taxation Law (22nd ed, CCH, 2012) 318 [6-800]. 139 For example, post-judgement interest on compensation for personal injury, which is exempt under ITAA97 s 51-57.
54 settlement of a claim and it is not possible to determine which component represents loss of income and which is capital, then at common law the entire amount is treated as capital.140
The legislation requires that we first consider whether or not an amount is income; if it is, we must determine if it is assessable to taxation as income rather than under CGT.141
If the amount is not income, it may still be a capital gain subject to CGT.
2.3.1 What Type of Taxpayer is the Native Title Group?
The ITAA97 envisages taxing either individuals or companies. The authority for this is contained in s 3-5(1), which states that income tax is payable each year by individuals and companies. The ITAA97 also provides that an unincorporated association is treated as a company for income tax purposes.142 The CGT provisions that are contained in the
ITAA97, however, refer to an entity that for tax purposes includes individuals and companies, and s 960-100 extends this definition to cover ‘groups of legal persons, and other things, that in practice are treated as having a separate identity in the same way as a legal person does.’143 The type of taxpayer will determine the rate of tax that is potentially payable because individuals are subject to progressive tax rates and companies and unincorporated associations are taxed at a flat income tax rate of 30 per cent. It is also relevant for CGT purposes because there is deferral of CGT liability under roll-over provisions where an asset is transferred from one type of incorporated
140 McLaurin v Federal Commissioner of Taxation (1961) 104 CLR 381; Allsop v Federal Commissioner of Taxation (1965) 113 CLR 341; Federal Commissioner of Taxation v CSR Ltd 2000 ATC 4710. 141 ITAA97 s 118-20. 142 s 995-1. 143 ITAA97 s 960-100, note.
55 entity to a company.144 A deferral is also available when individuals establish a company and this will be discussed in Part 5 of the Chapter. This point is relevant once a native title claim is determined because the NTA requires that a body corporate is established to hold the native title.
It has been suggested by one author that the Native Title Group is really an unincorporated association and can be treated this way for tax purposes.145 Once a native title determination is made, however, a PBC is required to be incorporated.
ILUAs can be made prior to the determination of the claim and at this stage the mining company may be contracting with the Native Title Group or a company that is acting on the Group’s behalf.146
To determine whether the individual group members are taxable as individuals or as an unincorporated association (and therefore a company) I need to determine exactly what an unincorporated association is at common law. An unincorporated association has no existence in law, being neither a natural person nor an artificial entity (company). 147
Horsley suggests that unincorporated associations have a number of characteristics in common. They have a membership that belongs collectively to the association. The members enjoy a common interest and purpose; they elect committee members and officer bearers and conduct themselves democratically. They are usually not-for-profit
144 ITAA97 subdiv 124-1. 145 Warren Black, ‘Transferring Native Title to a Body Corporate under the Native Title Act 1993 (Cth) – Can CGT Arise?’ (2000) 3(2) Journal of Australian Taxation 155 [2.2]. 146 In the case of Jax Coal Pty Ltd v Smallwood on behalf of the Birri People v the State of Queensland [2011] NNTTA 46, [89] the National Native Title Tribunal required that the Birri People establish either a company or a trust to receive the payment once the case had been heard. 147 Kibby v Registrar of Titles [1991] 1 VR 861; Mervyn Horsley, The Law and Administration of Associations in Australia (Butterworths, 1976).
56 bodies.148 Horsley also states that unincorporated associations include bodies formed for religious, educational, benevolent, patriotic, recreational and amusement purposes.149 He states that the crucial justification for unincorporated associations is their particular specific purpose. This is the purpose that brings the members together.150
In Conservative and Unionist Central Office v Burrell151 the English Court of Appeal defined unincorporated associations for the purpose of taxation law as ‘two or more persons bound together for one or more common purposes, not being business purposes.’152 The Australian case of Kibby v Registrar of Titles153 held that the essential characteristics of an unincorporated association are that its members have come together voluntarily for a mutual purpose.
Black argues that a Native Title Group operating according to their traditional laws and customs in relation to land will constitute an unincorporated association at common law.154 He bases his argument on the fact that cultural, religious or similar associations established with mutual undertakings will constitute an unincorporated association at common law and that this is similar to the Native Title Group. This argument seems problematic because the members of the Native Title Group are brought together through common ancestry, birthplace, customs and religious responsibilities155 not a common purpose that they have entered into voluntarily. Also it is recognised by s
148 Horsley, above n 144, 1. 149 Horsley, above n 144, 4. 150 Horsley, above n 144, 1. 151 [1982] 2 All ER 1. 152 [1982] 2 All ER 1, 1. 153 [1991] 1 VR 861. 154 Warren Black, ‘Transferring Native Title to a Body Corporate under the Native Title Act 1993 (Cth) – Can CGT Arise?’ (2000) 3(2) Journal of Australian Taxation 155 [2.2]. 155 Peter Sutton, Native Title in Australia: An Ethnographic Perspective (Cambridge University Press, 2003) 56.
57 223(1) of the NTA that native title may be held by a single individual. This is contrary to an unincorporated association. The section states that native title means ‘the communal, group or individual rights…’
Christos Mantziaris and David Martin are clear that the membership of the Native Title
Group is not generally voluntary as it results from a number of attributes such as descent from a common ancestor that are not matters of individual choice.156 In Briggs, on Behalf of the Gumbangirri People v Minister for Land for NSW 157 the court held (in a different context) that the limits or conditions imposed by an unincorporated association, such as how to become and remain a member, were alien to the idea of a group having a sole defining characteristic of sharing, having or enjoying native title.158
I therefore argue that on the basis that membership of the Native Title Group is involuntary, its members are not brought together with a common purpose and native title can be held by an individual who is not an unincorporated association. Unless the
Native Title Group incorporates a company to act on their behalf (as is required if they establish native title), the individual members will therefore be the taxpayers. Being taxed as individuals rather than as a company means that they are subject to progressive tax rates, are able to access an income tax free threshold of $6,000 (increasing to
$18,200 for the financial year ended 30 June 2013 onwards) and where they earn a low income, the low income tax offset. Furthermore, if they live in a remote area of
Australia they will also be eligible for the zone rebate. How this impacts on individual
156 Christos Mantziaris and David Martin, Native Title Corporations: A Legal and Anthropological Analysis (Federation Press, 2000) 174. 157 (2004) 141 FCR 17. 158 Ibid [29].
58 Indigenous Australians in receipt of mining payments will be discussed in more detail in
Chapter 4.
2.3.2 Income Tax Principles Applied to Model 1 and 2 Agreements
The Model 1 arrangement identified by O’Faircheallaigh is potentially a payment for compensation for the giving up of an asset being either the native title or the exclusive possession or use of the land. In the Jax Coal Case the one-off payment of $100,000 was not compensation under the NTA but the price for the agreement of the Birri People to agree to mining on their native title land.159 As stated earlier in this Chapter this is an example of a Model 1 agreement. Nullaga Pastoral Co Pty Ltd v Commissioner of
Taxation160 (‘Nullaga’) which will be discussed later in this Part is an example of both a
Model 1 and Model 2 agreement as there were a series of payments agreed to although only two had been paid at the time of the case.
I argue that there is an implicit assumption in the NTA that both exploration and mining can impair native title.161 This is supported by the terms of s 51(1) which establishes the criteria for compensation under the NTA. Section 51(1) states that:
Subject to subsection (3), the entitlement to compensation under Division 2, 2A, 2B, 3
or 4 is an entitlement on just terms to compensate the native title holders for any loss,
diminution, impairment or other effect of the act on their native title rights and interests.
In addition, compensation for total extinguishment of all native title in respect of particular land and waters is capped at the equivalent of the compensation that would
159 [2011] NNTTA 46, [49], [54]. 160 78 ATC 4329. 161 NTA s 48 and s 51.
59 have been payable for acquisition of the freehold to the land and waters.162 These provisions indicate that the compensation is for the capital asset being the native title interests in the land and waters or exclusive right to use the land and waters.
A significant case on the issue of whether payment in return for giving up rights or the ability to use an asset is income or capital is Glenboig Union Fireclay Co Ltd v Inland
Revenue Commissioner (‘Glenboig Case’).163 In the Glenboig Case a railway company paid compensation to the taxpayer based on the value of unworked minerals. This was because the railway company had exercised its statutory rights to stop the taxpayer mining on its land. It is ironic that this case actually dealt with the complete opposite of compensation payments to a PBC. In this case the mining company (Glenboig) owned the land and was receiving money for giving up its rights in the land to the company that had access rights over it.
The House of Lords held that the payment was capital in nature and therefore not assessable income. Lord Buckmaster summarised the Court’s view when he said,
‘[w]hat we must consider is not the measure by which the amount of compensation was arrived at but what it was truly paid for.’164 On the facts, as the compensation was paid for the sterilisation or extinguishment of a capital asset, it was not assessable income. It was in effect a payment for the replacement of capital even though the compensation was calculated by referring to lost profits.165 The case demonstrates that it is essential to look at the right or asset acquired and the substance of the agreement rather than the form of payment. It supports the proposition that whether or not a one-off payment is
162 NTA s 51A. 163 (1922) 12 TC 427. 164 (1922) 12 TC 427, 456. 165 (1922) 12 TC 427, 456.
60 income will depend on whether it has the characteristics of income in the hands of its recipient.166
Although the ATO has not published any public ruling on this issue, it has released several private rulings all of which state that payments made in respect of mining projects and works over native title lands are capital and not income.167 This is despite the fact that at the time of making the rulings the native title had not been granted in any of the situations and that the payments (more than one, indicating a Model 2 agreement) were to be made periodically. The rulings do not provide details of the facts of the situation so definite conclusions are not able to be drawn. In the explanation to the ruling the ATO does however refer to two cases that deal with mining in Australia. The first case, which is similar factually to either a Model 1 or Model 2 agreement, is
Nullaga Pastoral Co Pty Ltd v Federal Commissioner of Taxation (‘Nullaga’).168 In this case Nullaga owned a property that it had farmed for several years. Two other companies (the joint venturers) approached Nullaga to enter into an agreement to explore the property for bauxite. The joint venturers were entitled to explore the property under a permit pursuant to s 146 of the WA Mining Act.169 Nullaga and the joint venturers entered into an agreement in accordance with certain provisions of the
WA Mining Act170 under which Nullaga was to be paid $10,000 a year for a period of
166 Northumberland Development Co Pty Ltd v Commissioner of Taxation [1994] FCA 1425; Federal Coke Co Pty Ltd v Federal Commissioner of Taxation 77 ATC 4255. 167 Australian Taxation Office, Private Binding Ruling 83511, 21 July 2008; Australian Taxation Office, Private Binding Ruling 77829, 17 December 2007 and Australian Taxation Office, Private Binding Ruling 53360, 5 August 2005. 168 78 ATC 4329. 169 WA Mining Act s 3, minerals belong to the Crown. 170 WA Mining Act s 167 provided that the applicant for a mining lease or claim may agree with the owner or occupier as to the amount of any compensation to be paid for the right to occupy, and that no such agreement shall be valid unless it is in writing and signed and filed in the Mines Department. Section 168 provided that the compensation was for the owner or occupier 61 five years. This was expressed to be for compensation for deprivation of possession of the land and for interference in its farming activities. During this period there were limits on the nature of the exploration and the joint venturers could at any time give notice that they intended to commence mining. If they did this the annual instalments were to cease. If the joint venture ceased altogether then the full $50,000 remained payable. If mining operations commenced, the joint venturers agreed that they would pay Nullaga 5 cents per ton of ore removed; however, the first 1 million tons were not brought to account resulting in the first $50,000 being accounted in the total amount payable. The total payable under the agreement was not to exceed $400,000. At the time of the case only two instalments ($20,000) had been received by the taxpayer. The
Commissioner of Taxation did not argue that the payments were royalties but that the periodic nature of the payments was enough to cause them to be analogous to payments for a lease or licence and therefore income as rent.171
The case came before Wickham J of the Supreme Court of Western Australia. His
Honour carefully considered the terms of the agreement in reaching his decision. He noted that the agreement had very little in common with a lease and was more a kind of licence. He held that the money was paid and received as consideration for the deprivation of part of a capital asset and in order to replace that capital asset. He stated:
‘I think that these payments were patently paid and received as compensation to the taxpayer for interference with and damage to the land and diminution in its value
being deprived of the possession of the surface of the land or any part thereof and for damage to it, and any improvements thereon, which might arise from mining operations, and also for the severance of the land from other land, for rights of way, and consequential damage. 171 78 ATC 4329, 4331.
62 resulting from operations carried on or proposed to be carried on.’172 The payments were therefore capital and not income.
Justice Wickham applied the earlier decision of Owen J of the High Court in Barrett’s
Case which is also applied in the private rulings and which was discussed briefly earlier in this Chapter. In this case Barrett was the owner of property that contained mineral deposits. Barrett entered into an agreement with a company to reserve mineral rights in the property to the company and received amounts from the company for mineral deposits removed from this property. The High Court held that the payments were not for royalties as the deposits removed belonged to the company and not Barrett. Nor were the payments income in return for the grant of a licence to use the land for a mining purpose. The amounts were in reality for damage to the land and therefore capital and not income.
If any compensation received under the NTA or an ILUA is for the extinguishment or impairment of native title then the principle established in the Glenboig Case and again applied in Nullaga and Barrett indicates that it is not income but capital. This view is supported by researchers in the area who state that compensation for extinguishment of native title clearly falls within the Glenboig situation and will be for loss of a capital asset and therefore not assessable as ordinary income.173
172 78 ATC 4329, 4331. 173 Warren Black, ‘Tax Implications to Native Title Holders of Compensation Payments’ (1999) Journal of Australian Taxation 344 [3.1.1]; Tom Middleton, ‘Native Title and Taxation Issues’ (2000) 28 Australian Business Law Review 86, 87–88. The Australian Taxation Office advises that the extinguishment of native title is not a supply for the purposes of the goods and services tax, and that ‘The compensation relates to the loss suffered by the claimants on the extinguishment of their interest in the land’; see Australian Taxation Office, Goods and Services Tax: Supplies, GSTR 2006/9, [85]–[89].
63 In Jax Coal (discussed earlier in this Chapter) the payment was not for extinguishment of native title but to ensure that the Native Title Group would not oppose the mining tenement or obstruct the grant of the future act in any way. The facts of the commercial agreement are confidential and therefore not publicly available, but the decision of the
Tribunal was that the grant of the lease should proceed on the basis of certain conditions. The Tribunal stated that:
The representatives of the grantee party conceded that as a good corporate citizen it
wished to maintain good relations, inter alia, with members of the claim group. It also
conceded that there were other matters that were the subject of negotiations apart from
native title, including cultural heritage.174
Some comments of the Tribunal indicate that the payment relates to impeding the initial grant of the mining tenement. From a tax perspective this may be a CGT event such as
H2 and will be discussed later in this Chapter. If the Birri have given up their right to use the native title area that is the subject of the mining tenement the Nullaga and
Barrett Cases support the argument that the payment is in return for a capital asset.
In further support of the capital argument is the fact that the Birri People are not in the business of mining (or any other business) so that the payment is not an amount received in the ordinary course of business. The counter argument is that the amount is potentially paid in return for services and that this makes it income; however, there are no facts in the case to indicate that the Birri People were paid the $100,000 to undertake any services such as identification of sacred sites, preparation of heritage reports and so on.
174 [2011] NNTTA 46 [49].
64 The argument that payments are often in respect of damage to the native title also accords with the approaches of some mining companies. In Townson Holdings
(discussed earlier in this Chapter) the Tribunal permitted the grant of certain mining leases over native title land. The mining company proposed that payments were to be calculated by reference to the disturbance to the land that would result from the mining rather than on the value of any gold extracted175 and rejected the idea of paying a royalty or a lump sum.
2.3.3 Income Tax Principles Applied to Mining Payments that are ‘Royalties’:
Models 3, 4 and 5
In his discussion of model agreements O’Faircheallaigh uses the word ‘royalty’ because this is the term used in the agreements he describes. Models 3, 4 and 5 all involve some type of ‘royalty’ and unless it is made clear in the agreement that part of these payments are some form of compensation for the giving up of a capital asset or its damage then it is arguable they are assessable under the current income tax regime as royalties. In order to determine if this result is appropriate, it is important to understand what a royalty is under income tax law.
The taxation legislation envisages four types of royalties. First, royalties within the ordinary meaning of royalty and which are also ordinary income. These payments are assessable as income under s 6-5 ITAA97. Second, amounts that are not ordinary royalties although they are within the statutory definition of royalty in s 6(1) ITAA36 and are also ordinary income. These payments are also assessable as income under s 6-5
ITAA97. Third, payments for royalties within the ordinary sense of the word but which are capital are caught by s 15-20 and assessable as statutory income. Finally, royalties
175 [2003] NNTTA 82 [29].
65 that are within the extended statutory definition of royalty but which are also capital (so not caught by s 15-20) may be included in the calculation of a capital gain.
2.3.3.1 Type 1: Royalties within the ‘Ordinary Meaning’ of Royalty
My starting point is therefore the ordinary meaning of the word ‘royalty’. The
Macquarie Dictionary defines a royalty as including ‘a royal right, as over minerals, granted by a sovereign to a person or company…[or] the payment made for such a right.’176
The authors of one leading Australian text on taxation law state that the meaning of
‘royalty’ is ‘an amount paid for the use or exploitation of another person’s property.’177
The Australian Industry Commission defines royalties as ‘payments to owners of minerals for the right to mine them.’178 They are not a tax but analogous to payments for
‘gifts of nature’ such as payments for fishing quotas representing a right to take a certain quantity of fish or broadcasting licence fees for the right to use the broadcasting spectrum.179 Royalties in the context of minerals are often described as payments for the exploitation of real property and calculated by reference to the rate of exploitation.180 In other words the consideration payable is determined on the basis of the amount of use made of the right acquired, such as a payment of x cents per tonne or per item manufactured or sold. The royalty will usually be paid as and when the right acquired is
176 Macquarie Dictionary On-Line
66 exercised181 although a lump sum payment may also be a royalty where it is a pre- estimate or post-event recognition of the amount of use made of the right acquired.182
Royalties are also generally payments made to the person who owns the right to confer that beneficial privilege or right. 183
Royalties were originally limited to rights granted by the Crown (hence the term
‘royalty’); however, the scope of the term has now expanded to a much broader concept.
The High Court stated in Stanton v Federal Commissioner of Taxation that ‘in the case of things taken from the land the essential notion seems to be that the payment is made in respect of the taking of something which otherwise might be considered to belong to the owner of the land in virtue of his ownership.’184
Disputes have arisen where amounts appear to be royalties but are not determined on the basis of the amount of use made of the right acquired (even indirectly).185 In Federal
Commissioner of Taxation v Sherritt Gordon Mines Ltd,186 Mason J referred approvingly to the observations of Dixon CJ, Williams, Webb, Fullagar and Kitto JJ in
Stanton v Federal Commissioner of Taxation187 where their Honours said of the word
‘royalty’:
In other words it is inherent in the conception expressed by the word that the payments
should be made in respect of the particular exercise of the right to take the substance
181 Stanton v Federal Commissioner of Taxation (1955) 92 CLR 630. 182 Inland Revenue Commissioners v Longmans Green & Co Ltd (1932) 17 TC 272; Mills v Jones (1929) 14 TC 769; Constantinesco v R (1927) 11 TC 730. 183 Barrett v Federal Commissioner of Taxation (1968) 118 CLR 666. 184 (1955) 92 CLR 630, 642. 185 Stanton v Federal Commissioner of Taxation (1955) 92 CLR 630. 186 (1977) 137 CLR 612. 187 (1955) 92 CLR 630.
67 and therefore should be calculated either in respect of the quantity or value taken or the
occasions upon which the right is exercised.188
Mason J said of this passage:
the passage already quoted [makes] it clear that it is of the essence of a royalty that the
payments should be made in consideration of the grant of a right, that they should be
made in respect of particular exercises of the right and therefore should be calculated in
the manner stated.189
In Barrett’s Case discussed earlier the High Court held that the payments were not made in consideration of the grant of rights with respect to the mineral soapstone removed from the land but were capital as being for damage to the land. The payments were therefore not assessable income (there being no CGT at this time).
In summary, the cases support the view that a common law royalty is a payment made for the right to utilise the property of another, where the payments vary according to the extent to which the right is exercised.190 In the case of minerals in Australia, these are generally owned by the states or territories under respective state or territory legislation.191 The High Court in Ward’s Case stated that native title in Western
Australia did not include ownership of minerals.192 The Native Title Group and the PBC representing it therefore cannot receive royalties within the meaning given to this word
188 (1955) 92 CLR 630, 642. 189 (1977) 137 CLR 612, 626. 190 McCauley v Federal Commissioner of Taxation (1944) 69 CLR 235; Stanton v Federal Commissioner of Taxation (1955) 92 CLR 630. 191 For example, Western Australia: s 9 Mining Act 1978 (WA); Northern Territory: s 3 Minerals Acquisition Act (NT); Queensland: s 8 Mineral Resources Act 1989 (Qld); In respect of uranium s 35 of the Atomic Energy Act 1953 (Cth) provides that the Commonwealth owns all uranium in any Commonwealth territory. 192 (2002) 213 CLR 1, 185 and 393.
68 in the cases discussed. However, as is seen from model agreements 3, 4 and 5, commercial agreements calculate payments in terms of ‘royalties’ as if the group did own the minerals. This may bring these payments within the concept of income, not as royalties but as rent or a licence payment. This is discussed below.
2.3.3.2 Type 2: Royalties within the Statutory Definition of ‘Royalty’ in s 6(1)
ITAA36
The statutory definition of ‘royalty’ in s 6(1) ITAA36 provides a list of items that may not be covered by the ordinary meaning of royalty and includes them as assessable income under s 6-5. In order to be assessable under s 6-5 these amounts must also be ordinary income. The s 6(1) definition includes any amounts paid for the use of any copyright or design or for the supply of commercial knowledge or information. The definition does not include payments in respect of mining although the provision of information about mining would be included and, if ordinary income, would be assessable. There is also a specific section, s 15-40 ITAA97, which provides that an amount received for providing mining, quarrying or prospecting information is assessable provided that the taxpayer continues to retain economic ownership of the information.
2.3.3.3 Type 3: Royalties that are within the ‘Ordinary Meaning’ of Royalty and are also Capital: s 15-20 ITAA97
Section 15-20 expressly states that where there are payments that are royalties within the ordinary meaning of the word but which are not ordinary income (in other words they are capital payments) then they are assessable under s15-20. One case that
69 discussed the application of the predecessor to s 15-20 (s 26(f)) is Case U33.193 In this case the taxpayer was a member of a partnership that owned the patent for a particular type of lawn edger. The partnership granted a US company an exclusive licence to manufacture and sell the lawn edgers. Under the licence agreement, the partnership was to receive royalties for each edger made and sold in the United States and a lump sum payment as a non-refundable advance against royalties. The licensee in fact never manufactured the edgers, although the partnership was still entitled to receive the lump sum advance.
The Administrative Appeals Tribunal (AAT) held that the lump sum was not assessable under s 26(f) because it did not fall within the meaning of royalty at common law as it was not in respect of the exercise of a grant of a right. Nor was it calculated by reference to the occasions on which the right was exercised. The payment did fall within the definition of royalty in s 6(1) because it was consideration for the right to use a patent; however, this payment was considered to be capital and therefore not assessable.
The payment was of a capital nature because it was for the grant of an exclusive licence
(therefore a capital asset as it has an enduring benefit) and it remained payable irrespective of whether there was any user under the licence.194 It was therefore not assessable and, as the case dealt with a pre-CGT situation, the CGT provisions were not applicable.
The authors of Australian Taxation Law state that it is difficult to determine from the cases how a royalty that is within the ordinary meaning of this word but which is not income might exist as there are no actual decisions that have held this.195 There is
193 87 ATC 250. 194 87 ATC 250, 253–254. 195 Robin Woellner et al, Australian Taxation Law (CCH, 22nd ed, 2012) [5-515]. 70 speculation in some case law that such a payment could be within the ordinary meaning of royalty albeit capital instead of ordinary income; however, this has not been translated into a final decision.196
2.3.3.4 Type 4: Payments for Royalties that are Capital Gains
If a payment is a royalty within the extended statutory definition but is not ordinary income so not caught by s 6-5, it may still be caught by the CGT provisions. The CGT provisions that potentially apply to mining payments in respect of native title are discussed in Part 5 of this Chapter.
2.3.4 Payments in respect of Mining Agreements that are not Royalties but which may still be Assessable Income
A payment that is not a ‘royalty’ may still however be income and, as previously discussed, this will depend on the application of income tax law to the substance of the agreement. The Cape Flattery Case197 dealt with whether or not certain payments in respect of mining were deductible, so the comments on whether or not these payments were income are obiter; still it is useful to consider the case. It is also a case dealing with land held in accordance with the Aboriginal Land Act 1991 (Qld), which provides that when there is mining on Aboriginal land a certain percentage of the royalty is payable to the relevant Aboriginal Council.198 So the legal context of the payments is different to the NTA. In this case the land was within the Hope Vale Aboriginal
Reserve.199 The minerals (the sand) were owned by the Crown.200 Initially Cape Flattery
196 First Provincial Building Society Ltd v Federal Commissioner of Taxation (1995) 56 FCR 320. 197 97 ATC 4552. 198 Aboriginal Land Act 1991 (Qld) s 203. 199 In 1986 a Deed in Grant of Trust (DOGIT) was created over this land. 71 Silica held four mining leases for mineral sands, each of which covered land within the
Hope Vale Aboriginal Reserve at Cape Flattery. Under these leases, the company was required to pay 3 per cent of its annual net profit each year to the Department of
Community Services for the benefit of the Aboriginal people living at the Hope Vale
Reserve.
In 1990, Cape Flattery Silica applied for the grant of a new lease and also sought to renew an existing lease. The Hope Vale Aboriginal Council (HVAC), an incorporated body that represented the Aboriginal people at Hope Vale Reserve, initially opposed the applications. However, following litigation between the company and HVAC, deeds were entered into between the parties which, among other things, provided that: (1)
HVAC would consent to the grant of the new lease and cease its court proceedings challenging the renewal of a lease; (2) the company would surrender one lease and withdraw an application for the renewal of another; (3) the company would continue to pay 3 per cent of its annual pre-tax profit under two leases to the Department of
Community Services; and (4) it would pay to HVAC a total of 3 per cent of its gross sales proceeds attributable to three leases.
In the 1993 and 1994 income years, the taxpayer made payments totalling just over $1m to HVAC pursuant to the two deeds. In the year ended 30 June 1992, the company also incurred legal fees of almost $50,000 in negotiating the compensation package and renewing one of its existing leases. The ATO disallowed the claims for deductions for these amounts on the basis that they were of a capital nature.
200 Cape Flattery Silica Mines Pty Ltd v Federal Commissioner of Taxation 97 ATC 4552.
72 The payments in respect of mining sand were not considered by the Court to be royalties in the precise sense of that word.201 They were instead considered to be the equivalent of rental payments for use of the land rather than the diminution of the land and the obiter comments of Spender J indicate that he considered them income.202 His
Honour said:
It is the taxpayer's contention, nonetheless, that the payments are in the nature of a rent
or royalty. The sand is owned by the Crown; and the land, apart from the sand, is owned
by HVAC [Hope Vale Aboriginal Council]. In effect, the payments are for the right to
occupy the land to work on the sand and are in the nature of a rental, being for the
exclusive possession of the land so as to remove sand which is the property of the
Crown.203
The payments described in Models 3, 4 and 5 are analogous to the Cape Flattery situation and are certainly calculated in respect of the quantity or value taken, which makes them similar to royalties. Although, as I have stated earlier, in Australia the
Crown is considered the owner of subsurface minerals so these types of payments are not precisely royalties.204 The payments could also be for the use of exclusive possession of the land which would make them rent within Spender J’s reasoning. This is particularly where they are a series of recurrent payments as was the situation in the
Cape Flattery Case.
201 97 ATC 4552, 4559. 202 As the case concerned the deductibility of the payments made by the mining company from its assessable income, the decision did not involve a determination of whether or not these payments were income to the Queensland Government or the Aboriginal Council. 203 97 ATC 4552, 4559. 204 Mineral Resources Act 1989 (Qld) s 8; Mining Act 1978 (WA) s 3; Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs) ‘Performance Audit of the Aboriginals Benefit Account’ (November 2008).
73 If the Native Title Group is actually carrying on a business of mining or prospecting on the land with the mining company then receipt of royalty-like payments is arguably so intertwined with this activity that the payments will be considered to represent the proceeds of carrying on a business205 and will be income. Where payments are interlinked with the production of income this close connection suggests an income characteristic. If the payments are regular and periodic then this gives them an income characteristic.206 Alternatively, if they are in return for the use of the land over a period of time this is similar to an ordinary rental situation. The payments in this situation will be rent which is also income.207
The alternative view is that mining in many cases will mean that the land cannot be used by the Native Title Group for many years.208 Mining often has a long-term or even permanent physical impact on the land to the detriment of the native title.209 For example, mining near the town of Weipa in Far North Queensland was established in
1957. In 1965 the Queensland Government granted a mining lease covering 5500 square kilometres and, although this has reduced to 2500 square kilometres, the lease has a
205 GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation 90 ATC 4413. 206 Dixon v Federal Commissioner of Taxation (1952) 86 CLR 540. 207 Federal Commissioner of Taxation v Kowal 84 ATC 4001. 208 For example, in Jax Coal Pty Ltd v Smallwood on behalf of the Birri People [2011] NNTTA 46 [2], [23]-[24] the mining lease was for 21 years and the mine was estimated to have a production life of 18 years. The Argyle mine in the Kimberley region of Western Australia commenced in 1979 and has a decommission date of 2018, therefore lasting 39 years; Kim Doohan, Marcia Langton and Odette Mazel, ‘From Paternalism to Partnership: The Good Neighbour Agreement and the Argyle Diamond Mine Indigenous Land Use Agreement in Western Australia’ in Marcia Langton (ed), Community Futures, Legal Architecture: Foundations for Indigenous Peoples in the Global Mining Boom (Routledge, 2012) 231, 233, 244. 209 Ciaran O’Faircheallaigh, ‘Financial Models for Agreements Between Indigenous Peoples and Mining Companies’ (Aboriginal Politics and Public Sector Management Research Paper No 12, January 2003) 11; Chris Humphrey, ‘Compensation for Native Title: The Theory and the Reality’ (1998) 5(1) Murdoch University Electronic Journal of Law.
74 term extending until 2041 with a right to a further extension of 21 years.210 Thus mining in Weipa may last over 80 years. This mine is the subject of the Comalco ILUA which was referred to earlier in this Chapter and which is discussed in more detail in Chapter
5. For the purposes of this discussion it can be seen that this is a significant length of time during which the Native Title Groups are not able to access the area being mined.
Furthermore, they cannot access, for traditional and cultural practices, the land on which the township of Weipa (which was purpose built to enable the mining) is built and probably a substantial area surrounding the town and mine.211
The iron ore mining of the Mt Goldsworthy area in Western Australia was conducted using open pit mining and commenced in 1966. That process involved significant excavation by drilling and blasting to such an extent that before operations commenced
Mt Goldsworthy was a peak with a height of approximately 132 metres above sea level and by the time mining stopped in 1982, 16 years later, it had been transformed into a pit 135 metres below sea level.212
There may also be cultural and community damage due to loss of or damage to traditional lands and to the imposition of mining on a remote community.213 For example, the Argyle diamond mining in the Kimberley destroyed or damaged several
210 Peter Crooke, Bruce Harvey and Marcia Langton, ‘Implementing and Monitoring Indigenous Land Use Agreements in the Minerals Industry: The Western Cape Communities Co-existence Agreement’ in Marcia Langton et al (eds), Settling with Indigenous People (Federation Press, 2006) 95, 97. 211 Ibid. 212 Brown, on behalf of the Ngarla People v State of Western Australia (No 2) (2010) 268 ALR 149 [19]–[20]. 213 Jessica Weir, ‘Native Title and Governance: The Emerging Corporate Sector Prescribed for Native Title Holders’ (2007) 3(9) Land, Rights, Laws: Issues of Native Title 1; Chris Humphrey, ‘Compensation for Native Title: The Theory and the Reality’ (1998) 5(1) Murdoch University Electronic Journal of Law.
75 sacred sites including a site cared for and celebrated solely by senior women associated with the sacred narrative of the Barramundi Woman.214
My analysis of the judicial narrative regarding payment of royalties makes it clear that where the payments are calculated by reference to the taking away of minerals or other exploitation of the land, these payments are potentially within the ordinary meaning of royalty and prima facie income. Even if not income as royalties, where payments are for the use of the land and it is not considered that there will be long-term damage (as in the
Cape Flattery Case discussed earlier in this Chapter) then it is likely that the payments are income as rental or licence payments.
However, I argue that there are situations where payments are in substance for damage to native title or damage to the land or loss of use of the land for a significant length of time (rather than a rental situation, which may only be months or a few years) or cultural and social upheaval. In these situations, even if payments are expressed in terms of ‘royalties’ or regular payments, the case law established in Barrett’s Case and followed in Nullaga supports the argument that these payments are capital.
The submission that mining causes damage to land and some payments in respect of mining are arguably capital as compensation for this damage is supported by the provisions of the WA Mining Act. Section 123(1) and (2) of the Act states that the owner and occupier of land are not entitled to any royalty or rent in respect of mining, but they are entitled to compensation for loss and damage suffered because of mining.
Section 123(4) outlines the rationale for the compensation and states that it includes
214 Kim Doohan, Marcia Langton and Odette Mazel, ‘From Paternalism to Partnership: The Good Neighbour Agreement and the Argyle Diamond Mine Indigenous Land Use Agreement in Western Australia’ in Marcia Langton (ed), Community Futures, Legal Architecture: Foundations for Indigenous Peoples in the Global Mining Boom (Routledge, 2012) 231.
76 compensation for deprivation of possession or use of the land, damage and loss of any right (such as right of way or easement) and social disruption.
The situations outlined in s 123(4) are for damage or loss, which indicates a capital nature to the payment. If the payments are not income then the issue of CGT arises; this will be discussed in Part 5 of this Chapter.
2.3.5 Mining Payments made to Shareholders of a Resource Company: Model 6
Under this type of arrangement, the PBC or individual Indigenous Australians as share owners will be assessable to tax for any dividends that they receive.215
Part 4
2.4 The Mining Withholding Tax under Division 11C of the Income Tax
Assessment Act
Division 11C of the ITAA36 provides that income tax in the form of a MWT at the rate of 4 per cent is payable in respect of certain types of mining payments. It has been suggested by the ATO in several private rulings that once a determination of native title is made, the MWT also applies in respect of mining payments paid pursuant to the NTA or in respect of native title land.216 Mining payments referred to in Division 11C are only those in respect of ‘Aboriginal land’. Aboriginal land is defined in s 128U of
Division 11C as any estate or interest in land that is held for the use or benefit of
Indigenous people under Commonwealth, state or territory legislation.
215 ITAA36 s 44(1) provides that dividends received by Australian shareholders are part of assessable income. There will also be capital gains tax consequences if the shares are sold because this is the change in ownership of an asset and therefore a CGT event A1 under ITAA97. 216 Australian Taxation Office, Private Binding Ruling 1011355966185, 1 January 2001; Australian Taxation Office, Private Binding Ruling 1011356170176, 1 January 2001.
77 As stated in Part 1 of this Chapter, at common law native title interests in land are considered to be a combination of Indigenous Australians’ local custom, original native ownership and use and enjoyment of the land (‘…usufructuary rights’217). Section 223 of the NTA defines native title as the communal, group or individual rights and interests of Aboriginal peoples or Torres Strait Islanders in relation to land or waters, where these rights and interests are possessed under the traditional laws acknowledged, and the traditional customs observed, by Indigenous Australians, who have a connection with the land or waters by those laws and customs and the rights and interests are recognised by the common law of Australia.218 In Ward’s Case the High Court confirmed that since the enactment of the NTA native title rights are defined in the legislation.219 The Court conceptualised native title as a ‘bundle of rights’ that could be individually severed or extinguished.220 The High Court in Mabo stated that native title is inalienable.221 These characteristics distinguish native title from the common law (English) concept of title to land, which provides security of tenure and the ability to buy, sell and steal. The High
Court stated that native title was not analogous to a fee simple estate in land.222
Certainly the inalienable nature of native title would suggest that it is sui generis or different.223
217 Mabo v Queensland (No 2) (1992) 175 CLR 1, 69–70. 218 The High Court in Ward’s Case confirmed that since the enactment of the NTA native title rights are defined in the Act (2002) 213 CLR 1, 65-66. 219 (2002) 213 CLR 1, 65–66. 220 Ibid 89 and 95. 221 Mabo v Queensland (No 2) (1992) 175 CLR 1, 70 (Brennan J). 222 (2002) 213 CLR 1, 91. 223 That native title is inalienable was confirmed by the High Court in Mabo v Queensland (No 2) (1992) 175 CLR 1, 70 (Brennan J).
78 In the subsequent case of Yorta Yorta Aboriginal Community v Victoria (‘Yorta
Yorta’)224 the majority of the High Court held that native title is what is defined and described by the NTA and that native title is not a creature of the common law.225
However the nature and incidents of native title must be ascertained as a matter of fact by reference to the traditional laws, customs and practices of the particular Indigenous community.226 Furthermore, native title is ‘recognised and protected’ by the NTA.227
The MWT applies only to mining payments made in respect of Aboriginal land, which is defined as any estate or interest in land that is held for the use or benefit of
Indigenous people under Australian legislation. The judicial statements of the High
Court in Ward’s Case (discussed earlier in this Chapter) and Yorta Yorta referred to above do not support the view that native title is an estate or interest ‘in land’ held under legislation (as required by the s 128U definition), but something different to this.228
Support for this view is found in the wording of the NTA, which was enacted after
ALRA and the MWT. The NTA distinguishes native title land from Aboriginal land because it specifically defines Aboriginal land or waters as being ‘held by or for the benefit of Aboriginal peoples or Torres Strait Islanders under: (a) any of the following laws of the Commonwealth…(iii) the Aboriginal Land Rights (Northern Territory) Act
1976.’229 In addition to this, s 210 NTA envisages that native title is different to land
224 (2002) 214 CLR 422. 225 Ibid 453. 226 Ibid. 227 Ibid. 228 M Mansell, ‘The Court Gives an Inch but Takes Another Mile’ (1992) 2 (57) Aboriginal Law Bulletin 4, 6; Lisa Strelein, ‘Taxation of Native Title Agreements’ (Research Monograph No 1, AIATSIS, 2008) 55; Peter Sutton, Native Title in Australia: An Ethnographic Perspective (Cambridge University Press, 2003) 111–118. 229 NTA s 253.
79 rights under ALRA because it states that nothing in the NTA ‘affects the rights or interest of any person under’ the ALRA. As the NTA was enacted in 1993, many years after ALRA and s 128U, its drafters would have been aware of the earlier provisions and so it seems there was no intention to define native title as equivalent to Aboriginal land.
2.4.1 Federal Government Statements on the Application of the Mining
Withholding Tax to Native Title Interests
There is some inconsistency in documentation coming from the Australian Government as to whether or not it considers that the MWT also applies to native title land. In the late 1990s the then Federal Coalition Government expressed the intention of applying a regime similar to the MWT to native title payments, although this proposal did not proceed.230 This statement implies that this Government did not consider that the 1979
MWT applied to mining payments in respect of native title. In 2008 the Federal
Treasurer and Assistant Treasurer issued a media release announcing that they were considering establishing a system of withholding tax on payments made to Native Title
Groups similar to the MWT.231 In 2010 Treasury issued a consultation paper proposing the enactment of a MWT in respect of native title payments similar to the one in
230 Peter Costello, Treasurer, and Daryl Williams, Attorney-General, ‘Taxation Implications of the Native Title Act and Legal Aid for Native Title Matters’ (Commonwealth Government Media Release, 13 February 1998). 231 Wayne Swan, Treasurer, and Chris Bowen, Assistant Treasurer, ‘The Way Forward on Tax Measures Announced but not Enacted, by the Previous Government’ (Joint Press Release, 13 May 2008)
80 existence under Division 11C, ITAA36.232 These statements imply that Division 11C does not apply to payments in respect of native title.
Contrary to this, in 2001 the ATO issued two private binding rulings stating that once a determination of native title is made, the land in question falls within the definition of
Aboriginal land and is subject to the MWT.233 One reason given was that once a determination of native title interests is made, the interests arise under a Commonwealth law because the determination takes the interest in land outside the common law and brings it under the NTA. The rulings also advise that prior to the determination, the native title interest is not within the definition of Aboriginal land for MWT purposes; this only occurs once a determination of native title is made.234
This view is problematic because it is contrary to other statements of the Federal
Government. It is also difficult to reconcile with the provisions of the NTA and judicial statements concerning what native title is. I argue that even once a determination of native title is made, this is not enough to make the native title interest an ‘estate or interest in land’ because this phrase is indicative of some form of English law property rights such as fee simple. Furthermore, in order for the definition to apply the native title interest would also need to be held under a C ommonwealth law (my emphasis).
The High Court in Ward’s Case states that the NTA recognises native title. No court has stated that the native title is held under an enactment.
232 Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper (2010). 233 Australian Taxation Office, Private Binding Ruling 1011355966185, 1 January 2001; Australian Taxation Office, Private Binding Ruling 1011356170176, 1 January 2001. 234 Australian Taxation Office, Private Binding Ruling 1011355966185, 1 January 2001; Australian Taxation Office, Private Binding Ruling 1011356170176, 1 January 2001.
81 2.4.2 Statements by Researchers in the Area of Native Title
I argue that the NTA as the starting point for the analysis of the law on native title does not mean that the interests are held under the NTA. Native title barrister Greg McIntyre
SC submits on the basis of the wording in s 223 that there can be no native title usufructuary interest unless it arises from a communal title based in possession, and that this communal title is a native title because the possession is under traditional laws and customs.235 These concepts appear contrary to an estate or interest in land that is held under legislation.
A researcher with AIATSIS, Lisa Strelein, argues that native title is not the same or similar to Aboriginal land. She considers that native title is recognised and protected by the NTA but not actually granted by it. She also argues that, as native title is a communal right it is not a title ‘held for the use or benefit’ of Aboriginal and Torres
Strait Islanders as the s 128U definition of Aboriginal land requires.236 I have also made these arguments in previously published work to suggest that native title is different to
Aboriginal Land and that the MWT therefore does not apply to it.237
235 Greg McIntyre, ‘Native Title is Property’ in Lisa Strelein (ed), Dialogue About Land Justice Papers from the National Native Title Conference (Aboriginal Studies Press, 2010) 52, 54. 236 Lisa Strelein, ‘Taxation of Native Title Agreements’ (Research Monograph No 1, AIATSIS, 2008) 55. That native title can be communal title was stated by the Federal Court in Northern Territory v Alyawarr, Kaytetye, Warumungu, Wakaya Native Title Claim Group (2005) 145 FCR 442 and De Rose v South Australia (No 2) (2005) 145 FCR 290, 301–301 (Wilcox, Sackville and Merkel JJ). Section 223 NTA also states that native title can be communal. 237 Fiona Martin, ‘Native Title Payments and their Tax Consequences: Is the Federal Government’s Recommendation of a Withholding Tax the Best Approach?’ (2010) 33(3) University of New South Wales Law Journal 685.
82 2.4.3 A Comparative Evaluation of Differences and Similarities between Native
Title Interests and Aboriginal Land
A further way of comparing native title with Aboriginal land is to examine the differences and similarities of land under the ALRA (which is Aboriginal land) and under the NTA. The following table sets out the legal differences and similarities:
Table 1
Characteristic ALRA NTA Definition of the Section 3 ALRA defines Ward and Yorta Yorta say interest is interest Aboriginal land as: (a) land held by defined in s 223 NTA. Arises from a Land Trust for an estate in fee law and customs of the Native Title simple; or (b) land the subject of a Group. deed of grant held in escrow by a Land Council. Type of legal Inalienable freehold or similar.238 Not freehold. Entitlement depends on title to land the laws and customs of the Native Title Group, which may equate to exclusive possession but not necessarily.239 Can’t co-exist with freehold title.240 Native title is sui generis and has been described as akin to bundle of rights rather than property interest.241 Inalienable242 but can be extinguished in accordance with the NTA. Holder of title to Land Trusts243 administered by Prescribed Body Corporate, which is land/interest Land Councils244 on behalf of the a private company that acts as trustee Traditional Aboriginal Owners.245 or agent.246 Trustee or agent status decided by Native Title Group.247
238 ALRA ss 4, 10 and 12. 239 NTA s 223. 240 Western Australia v Ward (2002) 213 CLR 1, 211. 241 Western Australia v Ward (2002) 213 CLR 1, 91. 242 Mabo v Queensland (No 2) (1992) 175 CLR 1, 70. 243 ALRA s 4. 244 ALRA s 5(2)(a). 245 ALRA s 3 defines traditional aboriginal owners. 246 NTA ss 56 and 57.
83 Characteristic ALRA NTA Is land able to be Interests in land can be granted to No.249 Native title can be sold? specifically defined entities.248 extinguished, but only in accordance with NTA.250 Veto of mining Yes – Traditional Aboriginal No – in some circumstances there is a over land Owners have this right.251 right to negotiate.252
I argue that the creation of the statutory bodies, the Land Trusts to hold legal title and the Land Councils to undertake negotiations in respect of Aboriginal land is a very different manner of holding legal title compared to native title rights. If I extrapolate out that ‘Aboriginal land’ under Division 11C must have the characteristics of ALRA land
(or at least the majority of them) then I draw the logical conclusion that native title which does not have any relevant characteristics in common with ALRA Aboriginal land does not fall within Aboriginal land for the purposes of Division 11C.
In some cases land subject to native title may also be Aboriginal land under s 128U. In other words they can co-exist. At common law native title will be found on Crown land that hasn’t been used such as a national park, where this use is not inconsistent with the ongoing enjoyment of native title.253 The NTA states that native title may be recognised over land that is held by or for the benefit of Aboriginal or Torres Strait Islander peoples.254
247 NTA ss 56 and 57. The default situation is agent. 248 ALRA s 19, s19A and s 20. 249 Mabo v Queensland (No 2) (1992) 175 CLR 1, 70. 250 NTA s 11. 251 ALRA Part IV, s 45. 252 NTA s 25. 253 Mabo v Queensland (No 2) (1992) 175 CLR 1, 70 (Brennan J). 254 NTA s 223; see Lisa Strelein, ‘Taxation of Native Title Agreements’ (Research Monograph No 1, AIATSIS, 2008) 56. 84 2.4.4 Summary
I argue that Aboriginal land as defined in s 128U of the ITAA36 is not the same as land that is subject to a determination under the NTA, even when a determination is made.
The wording of the s 128U definition of Aboriginal land is that it is land that ‘…under provisions of a law of the Commonwealth…is held for the use or benefit of
Aboriginals.’ The wording of the NTA discussed above, together with the statements from the cases and arguments of Strelein, indicate that native title is recognised, defined and protected by the NTA but this is not the same as being held under this legislation.
Part 5
2.5 Capital Gains Tax and Mining Payments
In this Part, I analyse the application of CGT provisions in the ITAA97 to the five255 model agreements arising under the NTA discussed in Part 2. I do however concede that there are many different variations of resource agreements. However, my research question (for the purposes of this Chapter) is limited to payments that arise in respect of the NTA and also that are in respect of mining. In Chapter 5, I discuss three case studies of existing commercial agreements in order to set my analysis within real world arrangements. The case studies also demonstrate that the model agreements or combinations of these agreements are commonly entered into by mining companies and
Indigenous Australians.
255 I am not considering Model 6 Agreements as in this situation the Native Title Group are shareholders in a mining company and the income from the shares is assessable income as dividends under s 44 ITAA36. CGT would arise if the shares are sold.
85 With the introduction of CGT in 1985,256 the distinction between income and capital became less significant from a tax perspective because capital gains arising after 19
September 1985 will generally be included in assessable income.257 CGT is not a separate taxing regime and is part of the ITAA97. The provisions setting out what amounts are caught by CGT are found in Chapter 3, Part 3-1 ITAA97. Although a capital gain or loss is calculated quite differently to an amount of ordinary income,258 once a net capital gain for an income year is calculated it is included with other assessable income of the taxpayer for that year and the tax payable calculated on the total amount.259 CGT arises where what is termed in the legislation a CGT event takes place.260 If there is no relevant event then there is no capital gain or loss as s 100-20(1) states that ‘[y]ou make a capital gain or loss only if a CGT event happens.’
Therefore, the first step in determining a CGT liability is to determine if such a CGT event has occurred. The most common CGT event occurs where there is a change of beneficial ownership from one person to another of a CGT asset (CGT event A1);261 however, there are many other situations where a CGT event occurs.262 As already stated in this Chapter, if an amount is assessable as income then it is not included as a
256 The current CGT provisions are found in pts 3-1 and 3-3 ITAA97. 257 ITAA97 s 102-1. 258 ITAA97 s 100-35. The net capital gain is calculated by reducing the capital proceeds by certain expenses referred to as the cost base: ss 100-35, 100-40 and 100-45. Capital proceeds and cost base are statutorily defined. A capital gain is also reduced by certain previous year capital losses but not income losses. Capital losses do not reduce assessable income they only reduce capital gains: s 100-10(2). 259 ITAA97 s 100-10(1). 260 ITAA97 s 100-20(1); Division 104 lists all the CGT events. 261 ITAA97 s 104-10. 262 ITAA s 104-5 lists all CGT events. For a comprehensive discussion see Gordon Cooper and Chris Evans, Cooper & Evans on CGT (Thomson Reuters Australia, 2009) 30 [2 030].
86 capital gain.263 A further important point to remember in the native title context is that the majority of CGT events, including A1, require that there is a CGT asset264 and that this asset was acquired by the taxpayer on or after 20 September 1985.265
In some cases more than one CGT event can apply to a situation; for example, the grant of a lease may be a disposal of the CGT asset in the form of rights under the lease agreement (event A1) and may also be covered by event F1, grant of a lease. The legislation provides that where more than one CGT event can apply to a situation, the taxpayer is to apply the more specific event.266 A final important general point in the context of native title is that a CGT event still happens even if it does not result in a capital gain or loss.267 So, for example, if I sell an asset that was acquired prior to 20
September 1985, CGT event A1, a disposal of a CGT asset has occurred but in view of the fact that the asset was acquired prior to 20 September 1985 any gain that I make is statutorily exempt so there is no CGT.268 No other CGT event can then be applied to this transaction.
Before I discuss specific CGT events I need to identify the asset that is the subject of any potential CGT in the native title context. This is important because, as stated earlier,
263 ITAA97 s 118-20. 264 ITAA97 s 108-10. 265 ITAA97 Div 104. Div 104 lists all the CGT events. 266 ITAA97 s 102-25(1) with two main exceptions, events D1 and H2. The wording of the section is: ‘(1) Work out if a *CGT event (except *CGT events D1 and H2) applies to your situation. If more than one event can apply, the one you use is the one that is the most specific to your situation.’ This is also a logical extension of the application of the literal and purposive rules of statutory interpretation; see Australian Taxation Office, What is a Capital Gains Tax Event?
87 many events require an asset. It is also important because there may be more than one
CGT asset and therefore potentially more than one CGT event.
2.5.1 Whether Native Title and any Statutory Rights under the NTA or
Contractual Rights under ILUAs are Assets for CGT Purposes
As stated above, most CGT events require the existence of a CGT asset. The definition of an asset for CGT purposes (from 1992 when the definition was rewritten) includes a legal or equitable right that is not property.269 This definition is broad enough to include the asset that is native title,270 even though this title is not freehold property in the sense understood by the English common law as discussed earlier.271 The extension of the definition of CGT asset to include non-proprietary rights means that the CGT regime now applies to any right that a court of law or equity would uphold.272 It is therefore clear that native title will be an asset for CGT purposes because it is considered a bundle of rights recognised by the common law.273
269 ITAA97 s 108-5. I should point out that prior to 26 June 1992 rights such as ‘the right to sue under a contract’ were not considered property for CGT purposes and therefore did not fall within the CGT regime. This was a result of the High Court decision in Hepples v Federal Commissioner of Taxation (1991–1992) 173 CLR 492. The legislation was subsequently amended to, amongst other things, specifically include in the definition of an asset legal or equitable rights that are not property; see Tax Law Improvement Act (No 1) 1998 (Cth) sch 1. 270 Warren Black, ‘Transferring Native Title to a Body Corporate under the Native Title Act 1993 (Cth) – Can CGT Arise? (2000) Journal of Australian Taxation 155 [3.1.2]; Tom Middleton, ‘Native Title and Taxation Issues’ (2000) 28 Australian Business Law Review 86, 88–89; Julie Cassidy, ‘Black Fella Land – White Fella Tax: Changing the CGT Implications of Aboriginal/Native Title’ (2010) 25 Australian Tax Forum 397. 271 Native title is a unique interest and does not confer full beneficial interest in the land; see Mabo v Queensland (No 2) (1992) 175 CLR 1, 88–89 (Deane and Gaudron JJ); Western Australia v Ward (2002) 213 CLR 1, 91–92. 272 Commissioner of Taxation v Orica 194 CLR 500 in which the High Court held that contractual rights were an asset for CGT purposes; see Robin Woellner et al, Australian Taxation Law (CCH, 22nd ed, 2012) 391 [7-510]. 273 Western Australia v Ward (2002) 213 CLR 1, 91–92 ; Warren Black, ‘Transferring Native Title to a Body Corporate under the Native Title Act 1993 (Cth) – Can CGT Arise? (2000) 88 The right to sue is also considered a CGT asset.274 A statutory right to seek compensation under the NTA would clearly fall within the definition of asset.275 The
CGT provisions may consequently apply to the right to compensation arising from an injury or other event.276 Certainly the right to compensation granted by the NTA is also a CGT asset.277 Therefore there is at least one asset for CGT purposes, the native title, and potentially other CGT assets that arise from the operation of the NTA. The latter
CGT assets include the right to compensation for extinguishment or suppression of the native title under the NTA and other statutory rights arising under the NTA such as other rights to compensation. Contractual rights will also arise when ILUAs are entered into and these are also CGT assets.
2.5.2 Capital Gains Tax Event A1: Incorporation of a PBC to hold the Native Title
As already stated, the application of CGT relies on whether or not there has been a CGT event and that where two or more events can apply to the one situation, you apply the most specific event. When native title is determined and a PBC incorporated to hold the native title, it is possible that CGT event A1 has occurred. Event A1 occurs if you (the
Native Title Group) dispose of a CGT asset (the native title).278 The section requires that the taxpayer (the Group) disposes of the asset if a change of ownership occurs from
Journal of Australian Taxation 155; Tom Middleton, ‘Native Title and Taxation Issues’ (2000) 28 Australian Business Law Review 86, 88–89. 274 Gerard Cassegrain & Co Pty Ltd v Commissioner of Taxation (2007) 66 ATR 198; see Australian Taxation Office, Income Tax: Capital Gains: Treatment of Compensation Receipts, TR 95/35, 29 November 2006, [69]. 275 Naval, Military and Airforce Club of South Australia v Federal Commissioner of Taxation (1994) 122 ALR 201. 276 Robin Woellner et al, Australian Taxation Law (CCH, 22nd ed, 2012) 391 [7-510]. 277 Warren Black, ‘Tax Implications to Native Title Holders of Compensation Payments’ (1999) Journal of Australian Taxation 344 [3.1.2.d]; Rob O’Connor and J J Hockley, ‘Native Title Payments: Tax Implications Part 2 – Assessability’ (1997) 24 (11) Brief 14; Tom Middleton, ‘Native Title and Taxation Issues’ (2000) 28 Australian Business Law Review 86, 87–88. 278 ITAA97 s 104-10 (1).
89 them to another entity, whether because of some act or event or by operation of law.
Section 109-5(1) states that you acquire a CGT asset when you become its owner.
Section 109-5(2) sets out specific rules for acquiring a CGT asset depending on which
CGT event takes place.279 In the case of CGT event A1, you acquire the asset when another entity disposes of it to you. It is arguable that on the incorporation of the PBC, the PBC acquires the asset (the native title) that is disposed of by the Native Title Group by operation of law, the NTA. The PBC clearly becomes its legal owner so arguably acquires the native title and an A1 event has occurred.280
Native title at common law exists (at least) from the time of European settlement,281 which makes disposal of the native title asset from the Group to the PBC exempt from
CGT as it was acquired before 20 September 1985.282 However, the incorporation of a
PBC to hold the native title results in the asset being acquired on or after 20 September
1985 and therefore falling within the CGT regime if it is subsequently disposed of or
279 For a general discussion of how the CGT provisions operate see Gordon Cooper and Chris Evans, Cooper & Evans on CGT (Thomson Reuters Australia, 2009); Robin Woellner et al, Australian Taxation Law (CCH, 22nd ed, 2012) ch 7. 280 This argument was made in respect of the previous CGT provisions by Warren Black, ‘Transferring Native Title to a Body Corporate under the Native Title Act 1993 (Cth) – Can CGT Arise? (2000) Journal of Australian Taxation 155; Warren Black, ‘Tax Implications to Native Title Holders of Compensation Payments’ (1999) Journal of Australian Taxation 344; Rob O’Connor and J J Hockley ‘Native Title Payments: Tax Implications Part 2 – Assessability’ (1997) 24 (11) Brief 14; Tom Middleton, ‘Native Title and Taxation Issues’ (2000) 28 Australian Business Law Review 86. 281 European settlement officially dates from 1788 in eastern Australia and 1829 in western Australia; see Mabo v Queensland (No 2) (1992) 175 CLR 1. 282 CGT does not generally apply to assets acquired before 20 September 1985, for example ITAA97 s 104-10(5) (event A1) specifically states that a capital gain or loss is disregarded if the taxpayer acquired the asset prior to 20 September 1985. There are two exceptions, first CGT event D1 which creates the asset at the time of disposal. This provision applies where the taxpayers creates a contractual or other legal right in another entity but does not apply if another CGT event would also apply, s 104-35 ITAA97. The other exception is CGT event H2 which applies where an act, transaction or event occurs in relation to a CGT asset that the taxpayer owns. It appears that the asset can be pre-CGT.
90 dealt with in some way that triggers a CGT event.283 If, as I have submitted, the Native
Title Group is made up of a number of natural person taxpayers then at this stage CGT event A1 has potentially occurred in that there is a change in ownership of the native title from the Group to the PBC. The PBC has at this stage ‘become its owner’.284
There is a proviso to the section in that ‘a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner.’285
Assuming that the Native Title Group of legal entities choose that the PBC holds the native title on trust then arguably they retain beneficial ownership although the PBC is the trustee of the native title and therefore the legal owner. Against this argument is the stamp duty case of DKLR Holding Co (No 2) Pty Limited v Commissioner of Stamp
Duties (NSW),286 which suggests that on the creation of a trust the entire ownership including beneficial ownership is in fact transferred to the trustee even though the property is immediately impressed with a trust in favour of the transferor.
In the alternative scenario where the PBC is acting as agent, it has been suggested that it is still holding the native title on a constructive statutory trust,287 although I argue that
283 Warren Black, ‘Transferring Native Title to a Body Corporate under the Native Title Act 1993 (Cth) – Can CGT Arise? (2000) Journal of Australian Taxation 155. 284 ITAA97 s 109-5(1). 285 ITAA97 s 104-10(2). 286 (1982) 149 CLR 431. 287 Alexandra Richards QC made the argument at an AIATSIS workshop that ‘even PBCs who elect to be agents for native title holders are constructive statutory trustees’; see Lisa Strelein and Tran Tran, ‘Taxation, Trusts and the Distribution of Benefits under Native Title Agreements’ (Native Title Research Report No 1, AIATSIS, 2007) [2.3], footnote 12; see also Maclean Shire Council v Nungera Co-operative Society Ltd (1994) 84 LGERA 139 for comments about when traditional land may be held on constructive trust. It is, however, difficult to reconcile the European common law and statutory concepts of acquisition and disposal with the collective right that is native title and sui generis. For a general discussion see Marcia Langton and Angus Frith, ‘Legal Personality and Native Title Corporations: The Problem of Perpetual Succession’ in Lisa Strelein (ed), Dialogue About Land Justice: Papers from the National Native Title Conference (Aboriginal Studies Press, 2010) 170.
91 the situation is far from clear. The PBC holds the native title as agent and the law of agency states that it is acting as the legal representative of the Native Title Group. The cases establish that an agent is an entity who is authorised, either expressly or implicitly, by a principal to act for that principal so as to create or affect legal relations between the principal and third parties.288 It is possible that in the agent situation s 104-10(2) applies and that although the Group have ceased to be the legal owners of the native title, they are still the beneficial owners. As such there has been no change in ownership and the native title retains its pre-CGT status. Any CGT events that take place in relation to the native title pre-CGT asset will therefore not give rise to taxation consequences.
However, with no case law on this issue it is far from clear. The point has also been considered in the draft legislation discussed in Part I of this Chapter. It is discussed in detail in Chapter 7.
If we assume for the purposes of my discussion that the PBC is a trustee of the native title and event A1 has now taken place, there has been a disposal of the native title to the PBC and an acquisition by the PBC. The PBC has now acquired the native title and this acquisition occurred after 19 September 1985 because the NTA came into effect in
1994. At this stage there is no CGT liability because the asset was acquired by the
Native Title Group prior to 20 September 1985,289 although it makes the native title a post-CGT asset in the hands of the PBC.290 The CGT provisions ensure that this asset is deemed to have been acquired at market value where the taxpayer (the PBC) did not
288 International Harvester Company of Australia Proprietary Limited v Carrigan’s Hazeldene Pastoral Company (1958) 100 CLR 644. 289 ITAA97 s 104-10(5)(a). 290 As a company the PBC is a separate legal entity to the native title holders; see Saloman v Saloman [1897] AC 22. The PBC is a separate legal entity established to protect and manage the native title interests; see Marcia Langton and Angus Frith, ‘Legal Personality and Native Title Corporations: The Problem of Perpetual Succession’ in Lisa Strelein (ed), Dialogue About Land Justice: Papers from the National Native Title Conference (Aboriginal Studies Press, 2010) 170, 171.
92 incur any expenditure to acquire it.291 If the PBC then ‘disposes’ of the native title through, for example, agreeing to accept freehold land in return for the native title then the difference between the market value of the freehold land at the time of the agreement and the market value of the native title at the time of incorporation will be a capital gain or loss.292 If these transactions occur fairly close together then it will be easy to argue that the market value of the native title and the freehold title are equivalent and in this case there will be no capital gain. If the money and/or property paid for the native title is higher than its market value at the time of the PBC’s incorporation, this will result in a capital gain and if lower a capital loss. It seems likely that attracting mining exploration or activity over an area that has had a native title determination in place for several years would result in an increase in the market value of the native title and lead to a capital gain if it is disposed of.
Alternatively, it is arguable that A1 does not apply as it is not possible to dispose of the native title. Section 104-10(2) states that a taxpayer disposes of a CGT asset if a ‘change in ownership occurs from you to another entity, whether because of some act or event or by operation of law.’ The extinguishment of native title does not result in a change in ownership to another entity but rather the cessation of the native title.
2.5.3 CGT Event E1: The Establishment of the Trust to hold the Native Title under the NTA
Before I continue the application of CGT to payments in accordance with the model resource agreements, it is important to determine whether or not the specific CGT event that arises on the creation of a trust applies to the holding of the native title on trust by
291 ITAA97 s 112-20(1). 292 ITAA97 s 100-15, s 100-45.
93 the PBC. As discussed earlier, once native title is determined a PBC is required to be incorporated. If the Native Title Group chooses, this PBC can hold the native title on trust. Most Native Title Groups choose a trust; as at 11 January 2011 (the most recently available statistics) there were 49 trustee PBCs and 30 PBCs as agents.293
The specific wording of CGT event E1 is that ‘event E1 happens if you create a trust over a CGT asset by declaration or settlement.’294 A capital gain is made if the capital proceeds from the creation are more than the asset’s cost base and a capital loss if the capital proceeds are less than the asset’s reduced cost base.295 The first element of the cost base is the market value of the asset (the native title) when the trust is created.296
As demonstrated earlier in this Part, native title is a CGT asset. However, I argue that event E1 does not apply to the holding of the native title on trust by the PBC because the wording of the first part of the section says ‘CGT event E1 happens if you create a trust over a CGT asset…’ Under the NTA it is the Federal Court that creates the trust. In a 2009 Interpretative Decision (although not dealing with native title) the ATO has said that CGT event E1 has no application where the trust is created by order of a court, rather than by the actions of the owners of the asset.297 If I apply this reasoning, event
E1 does not apply to the incorporation of a PBC and declaration that it holds the native title on trust.
293 AIATSIS Native Title Research Unit ‘Registered Native Title Bodies Corporate Summary’ 11 January 2011. 294 ITAA97 s 104-55(1). 295 ITAA97 s 105-55(3). 296 ITAA97 s 105-55(4) unless a beneficiary is absolutely entitled to the asset against the trustee. 297 Australian Taxation Office, Income Tax: Capital Gains Tax: Land Vested in a Statutory Trustee for Sale – CGT Event A1, ID 2009/129, 26 October 2009.
94 2.5.4 Roll-over Relief from CGT where an Asset is Transferred to a Corporation
One way of deferring any CGT issues arising when a PBC is incorporated would be to use the individual-to-company roll-over provisions. Subdivision 122-A of the ITAA97 provides that an individual can choose to obtain what is termed roll-over relief when they dispose of a CGT asset to a company (the PBC). The benefit of this relief is that, where the asset was acquired before 20 September 1985 the PBC is deemed to have acquired it before that day as well, making it remain pre-CGT so that any subsequent dealing in the asset is not subject to CGT.298 For this provision to apply the members of the Native Title Group must own all the shares in the PBC;299 the shares must be non- redeemable300 and the PBC must not be an exempt entity.301 As PBCs are required to register in accordance with the Corporations (Aboriginal and Torres Strait Islander)
Act 2006 (Cth) which does not have shareholders only members302 the rollover provisions are not available.
2.5.5 CGT Event C2: The Redemption, Cancellation etc of an Intangible Asset
CGT event C2 happens if a taxpayer’s ownership of an intangible CGT asset ends because it is redeemed, cancelled, released, discharged, satisfied, abandoned, surrendered, forfeited or expired.303 Where the asset is a right under the NTA (or a contractual right) arguably it is satisfied or discharged when an amount is received or receivable in respect of this right. The CGT asset in this situation is the statutory or
298 ITAA97 s 122-40(3). 299 ITAA s 122-25(1). 300 ITAA97 s 122-20(2). 301 ITAA97 s 122-25(5). 302 Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) ss 6-5 and 689-1, note. 303 ITAA97 s 104-25(1). The common scenarios that this CGT event applies to are the cancellation or redemption of shares.
95 contractual right and, as this was created under the NTA which is after 20 September
1985, it is potentially subject to CGT.304 The event occurs at the time the contract is entered into or if no contract when the asset ends305 and the capital proceeds are the money received or receivable at this time.306
There is no direct case law on the ability of an entity to ‘own’ a statutory right to compensation in a taxation law context. In Minister of State for the Army v Dalziel
Latham CJ commented in respect of the term ‘property’ and ‘ownership’ as it is applied to land that:
[I]t may mean the land itself in relation to which rights of ownership exist, or it may
refer to the rights of ownership which exist in relation to the land...In the former sense a
man may say that his property consists of land. In the latter sense a man’s property
would consist not of land, but of rights in respect of land which were rights of
ownership.307
If property is a 'bundle of rights' as these comments indicate, I suggest that these types of rights have legal boundaries established by the relationship between the subject matter and the person who has the right. They also depend on whether or not the right is tangible or intangible. A statutory right to compensation is an intangible asset and may be ‘owned’ by a taxpayer once such a right is recognised. This would occur when eg a court awards damages or there is some legal recognition of the right, but arguably not before this.
304 ITAA97 s 104-25(5)(a); Federal Commissioner of Taxation v Orica 194 CLR 500. 305 ITAA97 s104-25(2). 306 ITAA97 s 116-20(1). 307 (1944) 68 CLR 261, 276.
96 No court case has applied C2, although a 2011 decision of the AAT does illustrate the application of C2 in relation to water licences. In Carberry v Commissioner of
Taxation,308 the applicant, Mr Carberry, and his brother held bore water licences under the Water Act 1912 (NSW) that were pre-CGT assets. The licences were used on an irrigation and farming property known as Cardale, located in the lower Namoi Valley in
New South Wales. The Carberrys received a payment of $97,893 from the New South
Wales Government as part of a program to assist them with adjusting to changes in groundwater access. The applicant’s licences (under the Water Act) were replaced with licences under the Water Management Act 2000 (NSW) on 1 November 2006. The AAT held that the amount received by Mr Carberry was not income but that C2 applied when the 2006 licences were replaced in the following income year. The AAT also held that as C2 applied it was not necessary to consider event H2.
For ease of discussion I will deal with where a determination has been made and a PBC has been incorporated to hold the native title; however, the principles discussed will also apply to rights under ILUAs. If there is a lump sum payment from the mining company to the PBC, and this is all that it receives, the PBC is not carrying on the business of mining and the payment is not in return for some form of services then prima facie the payment is not income. It is not business income and it does not have the regular and periodic character of income. It is also not income as a royalty because it is not calculated in respect of the right to use the minerals, which are in any event not the
PBC’s asset. Furthermore, it does not come within any of the other meanings of royalty discussed earlier in this Chapter. It is arguably a payment for damage to the land on the same rationale as the Barrett and Nullaga Cases. The issue now is whether or not this amount is assessable to the PBC as a capital gain.
308 [2011] AATA 303.
97 For the application of C2 it is crucial to identify the relevant rights (the CGT asset). As argued earlier in this Part, even if native title is determined and a PBC has acquired the native title, it is possible to retain the native title’s pre-CGT status. However the rights arising under the NTA and any agreements made in accordance with this Act are post-
CGT. As discussed at the beginning of this Chapter the NTA grants Native Title Groups many rights which include a right to compensation,309 and the ability to enter into
ILUAs which may contain rights to financial payments.310 At this stage however my research could not locate any reported cases ordering the payment of compensation to a
Native Title Group or PBC under the NTA.
An example of an agreement that involved a one-off payment is found in the Jax Coal
Case, discussed earlier in this Chapter. The case involved a notice under s 29 of the
NTA by the Queensland Government of its intention to grant a mining lease to Jax Coal
(the grantee). This mining lease lay within the native title area of the Birri People and the company agreed to pay the Birri People $100,000 for their agreement to the lease.
The Tribunal held that the payment could ‘not be characterised as compensation’.311 But the Tribunal did make a conditional determination of the grant of the lease in the following terms:
The determination of the Tribunal is that the grant of Mining Lease 10346 to Jax Coal
Pty Ltd may be done subject to the following conditions:
Financial Benefit
309 NTA s 17. 310 NTA pt 2, div 3, subdivs B, C and D. 311 [2011] NNTTA 46 [88].
98 (a) Within 10 Business Days of the grant of Mining Lease 10346, the grantee party pay
$100,000 to an entity nominated in writing to the grantee party by the native title party
to receive the money on behalf of the native title party, provided the entity is either:
(i) an incorporated body...
(A) whose membership or shareholding is restricted by its constitution to
members of the Birri People native title claim group...
(ii) a trust created at law:
(A) whose beneficiaries are restricted by the terms of the trust deed to members
of the Birri People native title claim group.312
It is possible although not clear from the facts of the case due to the commercial in confidence nature of the negotiations that Birri have surrendered rights that they have under the NTA in return for the payment of $100,000. If this is correct then C2 potentially applies.
If CGT event C2 applies, the ATO states in Taxation Ruling, TR 95/35 that where there is an underlying asset the compensation will be treated as a recoupment of the original cost of the asset.313 In addition, there will be no disposal of the asset at that time. The result is that any CGT is deferred and eliminates the problem that a ‘right to sue’ or a
‘right to compensation’ is a CGT asset that would otherwise trigger CGT on its disposal.314 Furthermore, CGT event C2 will apply in priority to an A1 event because
312 Ibid [89]. 313 Australian Taxation Office, Income Tax: Capital Gains: Treatment of Compensation Receipts, TR 95/35, 29 November 2006, [4]–[5]. 314 Gordon Cooper and Chris Evans, Cooper & Evans on CGT (Thomson Reuters Australia, 2009) 310 [11 240].
99 the Act specifically states that the event to use is the one most specific to the situation.315
An example of the application of C2 to a pre-CGT asset as given in TR 95/35 is:316
Example 2
264. Avery Landowner owns a large tract of land at Burn Creek, which he acquired in
1962. In July 1991, the Commonwealth compulsorily acquired 32 hectares of the land
under the Lands Acquisition Act 1989. In accordance with the Act, Avery was entitled
to receive compensation for the compulsory acquisition. The Commonwealth valued the
land at $600,000, 90% of which was advanced to Avery at the time of the acquisition,
pending final determination of the value.
265.
Relevant asset: The pre-CGT land
Acquired: 1962
Cost base: Irrelevant
Disposed of: July 1991
Consideration: $600,000
There is no capital gain or loss. Even though the right to receive compensation for the compulsory acquisition of the CGT consequences: land arose post-CGT, the most relevant asset is the underlying land, which is a pre-CGT asset.
This situation is analogous to the situation of damage to native title under the NTA or long-term suspension of the native title rights (bearing in mind that a mine often lasts
315 ITAA97 s 102-25(2). 316 Australian Taxation Office, Income Tax: Capital Gains: Treatment of Compensation Receipts, TR 95/35, 29 November 2006, [264]–[265].
100 for twenty or more years)317 in return for compensation payable under the NTA. In
Avery’s example the asset is a pre-CGT asset because it was acquired in 1962 (before
20 September 1985) just as native title is an asset that was acquired by the Native Title
Group and their ancestors before 1985. The Commonwealth acquired the asset (Avery’s land) under an Act enacted after 1985 (that is the 1989 Lands Acquisition Act). Avery’s entitlement to receive compensation was in accordance with the Act. In the same way, the entitlement of the Native Title Group to receive compensation is in accordance with the NTA. As the NTA came into effect in 1994, it is after CGT. The most relevant asset in the case of native title is the actual native title, just as in Avery’s case the most relevant asset is the land. It is therefore arguable that there should be no CGT consequences for compensation for extinguishment under the NTA.
If, however, the incorporation of the PBC results in the acquisition of the native title asset (the underlying asset in the above scenario) after 19 September 1985 then this aspect of the ruling will not apply. The native title is now a post-CGT asset being any kind of property or a legal or equitable right that is not property. Furthermore, the definition of CGT asset also includes part of, or an interest in, property or a legal or equitable right that is not property.318 If part of the native title is damaged and an amount is paid as compensation for this, then I argue that the ATO will still apply the
317 For example, bauxite mining at Weipa in Far North Queensland has been in existence for 45 years and is still continuing with an estimated closing date of 2050; see Veronica Klimenko and Robin Evans, ‘Bauxite Mining Operations at Weipa, Cape York: A Case Study’ Chapter 29 in Northern Australia Land and Water Science Review Full Report (2009); The Argyle diamond mine in the Kimberley region of Western Australia commenced in 1979 and has a decommission date of 2018, therefore lasting 39 years; see Kim Doohan, Marcia Langton and Odette Mazel, ‘From Paternalism to Partnership: The Good Neighbour Agreement and the Argyle Diamond Mine Indigenous Land Use Agreement in Western Australia’ in Marcia Langton and Judy Longbottom (eds), Community Futures, Legal Architecture: Foundations for Indigenous Peoples in the Global Mining Boom (Routledge, 2012) 231, 233, 244. In the Jax Coal Case [2011] NNTTA 46 [2], [23]-[24] the mining lease was for 21 years with an option to renew for a further 21 years and the mine was estimated to have a production life of 18 years. 318 ITAA97 s 108-5(2).
101 ‘look through’ approach established in the ruling but in a different manner. How this works is set out in the following example:319
Example 6
273. Ken owns a rental property, which he bought in May 1988 for $100,000. In July
1992 Dave, an employee of the Roads Authority (RA), was being trained in the use and
operation of a steamroller. Dave, being a conscientious and diligent employee, decided
to try out a few of his newly learned manoeuvres. Unfortunately, this took him past and
through Ken’s house. This resulted in severe damage to two of the front rooms of the
house, and a partial collapse of the roof. Ken's tenants escaped without harm, by diving
out of bed and out of the house. Ken is not insured against the damage.
274. In March 1993, Ken was awarded $50,000 in damages for his claim against the RA
for negligence (the amount awarded to Ken related solely to the damage actually
incurred). In April 1993, he spent $50,000 in repairing the damage to his house.
275.
Relevant asset: The rental property
Acquired: May 1988
Cost base: $100,000 ($50,000 indexed from May 1988, and $50,000 indexed from April 1993)
Disposed of: Not yet disposed of by Ken
Consideration: $50,000 (applied to the total acquisition costs of $100,000)
CGT consequences: There is no capital gain or loss at the time of the receipt of the compensation. At that time the total acquisition costs of the property were $100,000. This is reduced by the compensation, then later increased by the expenditure on the property.
319 Australian Taxation Office, Income Tax: Capital Gains: Treatment of Compensation Receipts, TR 95/35, 29 November 2006, [273]–[275].
102 The ATO has not issued any public ruling regarding native title; however, there are three private rulings that specifically relate to mining agreements and native title.320 In the scenarios underpinning the rulings, which involve a series of payments in return for the giving up of rights under the NTA (although limited details are provided), the ATO states that C2 and the reasoning in Taxation Ruling 95/35321 apply so that there is no
CGT liability. This is in accordance with arguments I have previously published322 together with those of several other researchers when applying the previous CGT provisions.323
2.5.6 CGT Event D1: The Application of this Event to Rights Arising from Native
Title
CGT event D1 happens if the taxpayer creates a contractual or other legal or equitable right in another entity.324 The example given in the legislation is of a restrictive covenant.325 The asset in question is the ‘right’ under the restrictive covenant and it is entered into now so is clearly post-CGT.326 The capital proceeds is the amount payable for the restrictive covenant and the net capital gain is calculated by deducting the
320 Australian Taxation Office, Private Binding Ruling 83511, 21 July 2008; Australian Taxation Office, Private Binding Ruling 77829, 17 December 2007 and Australian Taxation Office, Private Binding Ruling 53360, 5 August 2005. 321 Australian Taxation Office, Income Tax: Capital Gains: Treatment of Compensation Receipts, TR 95/35, 29 November 2006, [264]–[265] 322 Fiona Martin, ‘Native Title Payments and their Tax Consequences: Is the Federal Government’s Recommendation of a Withholding Tax the Best Approach? (2010) 33(3) University of New South Wales Law Journal 685. 323 Rob O’Connor and J J Hockley, ‘Native Title Payments: Tax Implications Part 2 – Assessability’ (1997) 24 (11) Brief 14; Warren Black, ‘Tax Implications to Native Title Holders of Compensation Payments’ (1999) Journal of Australian Taxation 344; Warren Black, ‘Transferring Native Title to a Body Corporate under the Native Title Act 1993 (Cth) – Can CGT Arise? (2000) Journal of Australian Taxation 155. 324 ITAA97 s 104-35(1). 325 Also see Tuite v Exelby 93 ATC 4293 [9] where the Court considered that the asset in question could be the benefit of a restraint of trade covenant (Shepherdson J). 326 ITAA97 s 104-35(2).
103 expenses incurred in creating the right (such as legal expenses) away from the capital proceeds.327
This event will not however apply if another CGT event will.328 For example, a taxpayer enters into a contract for the sale of a painting. The taxpayer has created a contractual right in the purchaser to enforce completion of the sale. If the sale of the painting proceeds then this is CGT event A1 (disposal of an asset) and this means that CGT event D1 does not happen. However, if the contract does not proceed then the rights created in the contract, for example for damages for breach of contract, will fall within a
D1 event.329 If damages are payable then they are the capital proceeds for the event.
2.5.6.1 ILUAs that Grant Easements
Prior to 1989 the ATO considered that the grant of an easement by a landowner was a part disposal of the land (the underlying asset) so that no CGT liability arose if the land was acquired before 20 September 1985. After the decision of the Full Federal Court in
Gray v Federal Commissioner of Taxation (‘Gray’s Case’),330 the ATO issued a new ruling, IT 2561, which states that, in accordance with obiter comments in this decision it now considers that an easement or profit a prendre, like a licence or lease, is an asset created at the time it is granted.331 This means that where the grant of the easement occurs on or after 20 September 1985, the CGT provisions will apply on the disposal of
327 ITAA97 s 104-35(3). 328 ITAA97 s 104-35(5)(b), s 102-25(3). 329 ITAA97 s 102-25(1), (3). 330 89 ATC 649. 331 Australian Taxation Office, Income Tax: Capital Gains: Grants of Easements, Profits a Prendre and Licences, IT 2561, 21 September 1989, [5]-[18].
104 that new asset notwithstanding that the land itself may have been acquired prior to 20
September 1985.332
Subsequently, Tax Determination TD 93/235 was issued, which states that in the case of easements granted after June 1992 the grant constitutes the creation of the right, which is the easement, and that this is a D1 event.333 Where D1 applies, the capital gain is the amount paid for the grant of the easement less any expenses in creating it such as legal expenses.334 The capital gain would therefore be the payment made to the PBC under the ILUA less any legal expenses. It should be noted that the capital proceeds for a D1 event must be actual money or the market value of property received or receivable in respect of the D1 event happening.335 The market value substitution rule does not apply to the capital proceeds for a D1 event,336 so that if no payment is made for the easement the ATO cannot substitute a market value or if payment is made but the parties are dealing at arm’s length then market value is not substituted.337
2.5.6.2 Statutory and Contractual Rights
The legislation defining a D1 event is that the taxpayer creates ‘a contractual or other legal or equitable right in another entity.’ Black argues that the statutory rights under the
NTA are created by the legislature and not by the PBC or the Native Title Group.338
332 Australian Taxation Office, Income Tax: Capital Gains: Grants of Easements, Profits a Prendre and Licences, IT 2561, 21 September 1989, [18]. 333 Australian Taxation Office, Income Tax: Capital Gains: How are Grants of Easements Treated for the Purposes of the Capital Gains Tax (CGT) Provisions of the Income Tax Assessment Act 1936?, TD 93/235, 16 December 1993, [6]–[8]. 334 ITAA97 s 104-35(3). 335 ITAA97 s 116-20(1). 336 ITAA97 s 116-30(3)(b). 337 ITAA97 s 116-30(2). 338 Warren Black, ‘Transferring Native Title to a Body Corporate under the Native Title Act 1993 (Cth) – Can CGT Arise? (2000) Journal of Australian Taxation 155, [3.2.2.2.b]. 105 Therefore D1 does not apply to statutory rights under the NTA. However, the contractual rights created under ILUAs may give rise to D1 events, in the same manner as discussed above in relation to easements. As at 25 October 2012 there were approximately 697 ILUAs registered with the Tribunal, so they are a significant aspect of the native title sphere.339
It is not relevant for the operation of D1 that the native title is pre-CGT because D1 applies to the creation of the right at the time that the taxpayer enters into the contract or the right otherwise arises.340 The application of D1 will depend very much on the terms of the agreement and it is important to bear in mind that if C2 applies as discussed earlier in this Part, or any other event (even though there is no CGT liability), then D1 cannot.
In Taxation Determination TD 1999/80, the ATO states that a D1 event occurs if a taxpayer receives money to withdraw an objection against a proposed land development and the money is not for the permanent damage or reduction in value of the taxpayer’s land due to the proposed development. In this latter case C2 would apply. This scenario could be analogous to a native title situation where the Native Title Group receives money to negotiate quickly or agree that negotiation has occurred in ‘good faith’ as is required by the NTA. The Tax Determination states that on receiving the money (or property) for withdrawing the objection, the taxpayer creates a legal or equitable right in the developer to stop the taxpayer from exercising its right to object.341 If however what
339 Federal Government, National Native Title Tribunal, Register of Indigenous Land Use Agreements, 25 October 2012. 340 ITAA97 s 104-35(2). 341 Australian Taxation Office, Income Tax: Capital Gains: Does CGT Event D1 in Section 104- 35 of the Income Tax Assessment Act 1997 Happen if you Receive Money or Property for Withdrawing an Objection against a Proposed Land Development?, TD 1999/80, 15 December 1999, [1].
106 has happened is the reduction in value of the underlying asset then C2 will apply instead and the reasoning in TR 95/35 will mean that there is no CGT where this underlying asset is pre-CGT. Middleton argues that D1 will potentially apply where a PBC and a mining company enter into an agreement under which the mining company is allowed access across land for exploration purposes other than as a statutory right or lease, or the
PBC or Native Title Group enter into an agreement to negotiate quickly regarding a future act and are paid an amount for this.342 The Jax Coal Case may be an example of a payment for an agreement to not impede the grant of a mining lease, and (if not caught by C2), would potentially be subject to D1.
The Tax Determination illustrates the interaction between D1 and C2. Continuing the example of an agreement not to oppose a development, where the money is paid to the landowner to withdraw their objection to the building of a wall between their property and another property, if the building of this wall causes permanent reduction in the value of the landowner’s property and the amount is payment for this then it is event C2 and the compensation amount reduces the landowner’s cost base for their asset.343 In this case D1 does not apply.
The ATO reasoning suggests that if a PBC or Native Title Group enters into an ILUA that creates contractual rights and C2 does not apply, then event D1 will. No CGT discount is available on the calculation of the capital gain for event D1,344 so that the
PBC or Native Title Group will be liable for income tax on the entire amount under the
342 Tom Middleton, ‘Native Title and Taxation Issues’ (2000) 28 Australian Business Law Review 86, 87–88. 343 Australian Taxation Office, Income Tax: Capital Gains: Does CGT Event D1 in Section 104- 35 of the Income Tax Assessment Act 1997 Happen if you Receive Money or Property for Withdrawing an Objection against a Proposed Land Development?, TD 1999/80, 15 December 1999, [6]. 344 ITAA97 s 115-25.
107 contract less any expenses of making the agreement, including legal expenses. But, as noted earlier, there must be actual consideration for the D1 event for this amount to qualify as capital proceeds (there is no market value substitution rule). If the agreement therefore does not provide for a separate amount in respect of the contractual rights that are the subject of the D1 event, then it will be hard for the ATO to successfully argue that an amount is capital proceeds for this event as defined in the CGT provisions.
2.5.7 Event H2: Mining Payments in respect of an Act, Transaction or Event in
Relation to a CGT Asset that you own
CGT event H2 happens if ‘(a) an act, transaction or event occurs in relation to a CGT asset that you own.’345 Furthermore, this act, transaction or event must not have any impact on the asset’s cost base;346 in other words, it must not add to or reduce the value of the asset. CGT event H2 does not happen if ‘the act, transaction or event requires you to do something that is another CGT event that happens to you.’347 H2 therefore applies as a last resort, so will not apply if another CGT event will.348 Thus if C2 applies to the situation even though no CGT liability arises then H2 will not. Once a native title determination is made, s 56(2)(b) of the NTA states that if the Native Title Group so nominates ‘the Federal Court must determine that the prescribed body corporate is to hold the rights and interests from time to time comprising the native title in trust for the common law holders.’ If the Group does not nominate then the Native Title Group holds the native title rights349 and a PBC is appointed as their agent.
345 ITAA97 s 104-155(1)(a). 346 ITAA97 s 104-155(1)(b). 347 ITAA97 s 104-155(5)((b). 348 ITAA97 s 102-25(3). 349 NTA s 56(2)(c).
108 The wording of the NTA referred to above makes it uncertain whether the PBC ‘owns’ the native title interests. The words in the statute are ‘holds’ either as trustee or on behalf of the Native Title Group. My discussion regarding the meaning of ownership in relation to event C2 also applies here. If the PBC does not own the native title then event H2 cannot apply to it. If on the other hand it is considered the owner then the legislation does not exclude the application of this provision to underlying assets that are pre-CGT, so it potentially applies to native title that is still pre-CGT.
H2 could also potentially apply to contractual rights and rights to compensation under the NTA. However the relevant act, transaction or event must not have any impact on the cost base of the asset that is the right. Such a situation therefore seems unlikely.
The breadth of the application of this provision is shown by the example in the legislation that states that this event will apply where the taxpayer owns land that it intends to develop. Another entity pays the taxpayer a sum of money to commence development early and no contractual rights or obligations are created by the arrangement. The payment is made because of the event (the inducement to start construction early) in relation to the taxpayer’s land.
As yet there is little case law where H2 has been applied or discussed. Its predecessor
(s 160M(7)) was considered in a few cases and H2 is similar but not identical to the earlier provision. One of these cases is the 1990 Full Federal Court decision of Federal
Commissioner of Taxation v Cooling.350 In this case the Court was asked to consider whether or not a payment from the landlord to the tenant (a firm of solicitors) to enter into a lease was income. Justice Hill, with whom Lockhart and Gummow JJ agreed, held that the lease incentive payment paid by the landlord to the tenant was assessable
350 (1990) 22 FCR 42.
109 income because the transaction was entered into as a commercial transaction forming part of the firm’s business activity. The Court therefore did not have to conclude the issue of whether or not s 160M(7) would have otherwise applied. Their Honours
Lockhart and Gummow JJ did however conclude that in the alternative, this provision was applicable. The incentive arrangement was an act, transaction or event that took place in respect of an underlying asset (the lease) and did not affect the lease’s cost base.351 These comments indicate the breadth of application of H2 and that the underlying asset could be a legal right such as native title or a contractual or statutory right.
A case that does have some commentary on event H2 is McNeil v Commissioner of
Taxation (‘McNeil’s Case’).352 In this case the taxpayer, Mrs McNeil, had originally held 5,450 shares in the St George Bank (St George) from which she derived dividends in the usual way. In January 2001, St George announced its intention to buy back about
5 per cent of its issued share capital at a fixed price of $16.50 per share. Mrs McNeil thus came to have 272 rights to require St George to buy her shares. These rights were separately listed for trading on the Australian Stock Exchange and at the time of listing had a value of $1.89 each. Mrs McNeil did nothing to exercise her rights with the consequence, under the transaction documents, that they were transferred to a merchant bank, which sold them back to St George at $2.12 each (a total of $567.64).353 Justice
Conti at first instance rejected the application of H2. His Honour considered that the provision was not intended to apply to a situation where the taxpayer was a passive investor in the shares and did not actively engage in the transaction for the buyback
351 Ibid 43 (Lockhart J), 44-5 (Gummow J). 352 [2004] FCA 420. 353 Ibid [18].
110 rights.354 His Honour also commented on the difficulty of the provision when he said
‘[t]he language of section 104-155 may well be clearer in expression than its predecessor s 160M(7) of the 1936 Tax Act, but its import retains some of the uncertainty of meaning and application.’355 And again ‘[t]he complexity of the sell back arrangements put in place by SGL compounds the difficulty presented by a taxing provision as imponderable in scope of expression as section 104-155 of the 1997
Act.’356
The Full Federal Court also rejected the application of H2 and the High Court found that the amount received was income and did not discuss CGT at all.357 Justice French of the Full Federal Court concluded that H2 did not apply and based this conclusion on the premise that the creation of the buyback rights did not occur in relation to a CGT asset then owned by the taxpayer. That was because ‘the Taxpayer’s ownership of the
SGL shares at the time of those events was irrelevant to their occurrence. They were not acts, transactions or events which happened in relation to her ownership of the SGL shares in the real or direct sense that the section requires.’358
His Honour also concluded that the act, transaction or event was not the money or consideration received. There must be a separate amount which is necessary for the purposes of identifying the capital proceeds that arise from CGT event H2.359
354 Ibid [63]–[64]. 355 Ibid [54]. 356 Ibid [63]. 357 (2007) 229 CLR 656. 358 Commissioner of Taxation v McNeil [2005] FCAFC 147[58]. 359 Ibid [59].
111 Justice Emmett in his comments followed the reasoning of Conti J when he stated that
H2 did not apply because:
CGT Event H2 must involve some juridical act by the taxpayer; not the passive receipt
by a taxpayer of a benefit from a third party. Capital Proceeds are not money received
by a taxpayer by reason of some act, transaction or event initiated by another person,
whether or not the act, transaction or event occurs in relation to an asset owned by that
taxpayer.360
In summary, the basis of the Federal Court’s reasoning was that the act, transaction or event that occurred on the listing date by the grant of the sell back rights by St George to the merchant bank was not an act, transaction or event that occurred in relation to shares owned by Mrs McNeil in St George at that date. In other words, there must be a temporal relationship between the assets (the shares) and the act, transaction or event.
The act, transaction or event must also be the cause of the receipt of the consideration
(the capital proceeds) and this was not the case. The definition of capital proceeds for
H2 is ‘[t]he money or other consideration you received, or are entitled to receive, because of the act, transaction or event’.361 This reasoning is supported by authorities dealing with s 160M(7).362 Finally, it seems clear from the different reasoning of the
Federal Court judges that the act, transaction or event that triggers the H2 event cannot also be the capital proceeds for that event.363
360 Ibid [109]. 361 ITAA97 s 116-20(2). 362 Federal Commissioner of Taxation v Cooling (1990) 22 FCR 42, 45 (Gummow J) and 67 (Hill J). 363 Ernest Change, ‘Capital Management Post-McNeil’ (Paper presented to the Annual Corporate Tax Intensive, Taxation Institute of Australia, NSW Division, 1–2 November 2007) 19.
112 If the asset for which the act, transaction or event occurs is the native title, then this must be owned by either the Native Title Group or a PBC (post determination). The reasoning in McNeil’s Case indicates that it is not the actions of the mining company applying to the government for a mining lease and then entering into negotiations with the Native Title Group that is caught by H2. The mining company does not own the native title. The Group or PBC must enter into the act, transaction or event. By entering into negotiations, possibly they are then entering into such an act that relates to an asset owned by them, the native title. But the capital proceeds must be in respect of this act.
What if the capital proceeds are in relation to a range of matters, such as for access to the land, potential damage to the land and culture, and entering into negotiation? It may be difficult to determine which capital proceeds actually relate to the H2 event.
Furthermore, if the underlying asset is not the native title but a statutory right to compensation, it is possible that this right is not owned by the Native Title Group until there is some legal recognition of it.
Alternatively, H2 could occur where the PBC entered into, for example, an agreement to negotiate quickly with a mining company or to finalise negotiations quickly and received a specific amount for this. The asset in this case may well be the native title
(subject to the ownership issue) and the agreement to negotiate quickly the act, transaction or event in relation to it, thus triggering H2. This would be where no other
CGT event such as C2 or D1 applied. What is certain is that the situation is far from clear.
A final point regarding H2 is that the capital proceeds are the money or other consideration that the taxpayer received or is entitled to receive because of the act,
113 transaction or event.364 Event H2 is not subject to the market value substitution rules, so that if no amount is payable or the amount is nominal the ATO cannot substitute the market value.365
2.5.8 Events E2–E9: CGT Events that Relate Specifically to Trusts
Subdivision 104-E sets out CGT events that relate specifically to trusts. In view of the fact that a PBC may hold the native title on trust I consider that I should discuss each of the specific trust CGT events. I have discussed event E1 earlier in this Part so will not repeat the discussion here. CGT event E2 applies where the taxpayer transfers a CGT asset to an existing trust. It seems unlikely that this provision will apply in the context of native title because the trust does not exist until its creation under the NTA. The native title is not transferred to the trust. Event E3 applies where a trust over a CGT asset is converted to a unit trust. In the context of native title it does not seem likely that the trust will be converted (or indeed can be converted) to a unit trust because for this provision to apply the section also requires that prior to the conversion a beneficiary under the trust was absolutely entitled to the asset as against the trustee. The concept of absolute entitlement to an asset as against the trustee has been held to mean that the beneficiary has a vested, indefeasible and absolute entitlement in trust property and is entitled to require the trustee to deal with it as they direct.366 This is unlikely to be the case in the context of native title.
CGT events E4–E8 apply where trustees and beneficiaries deal with each other in respect of interests in income or capital of trusts. Event E4 applies where a trustee
364 ITAA97 s 116-20(2). 365 ITAA97 s 116-25. 366 Kafataris v Deputy Commissioner of Taxation (2008) ATC 20-048.
114 makes a capital payment to a beneficiary in respect of their unit or interest in the trust
(other than for the disposal of the interest, in which case A1, C2, E1, E2, E6 or E7 apply) and this payment is not included in the beneficiary’s assessable income.367 As native title is a communal asset, it is difficult to reconcile the terminology of unit or interest in the native title and therefore it is unlikely that this provision could apply. E5 occurs where the beneficiary becomes absolutely entitled to a CGT asset of a trust.
Similarly, in the context of native title it is difficult to envisage this happening. The same reasoning applies to events E6, E7 and E8 because they all require either disposal to the beneficiary of the trust asset by the trustee or disposal by the beneficiary of the trust asset. E9 relates to a trust over future property and again is not relevant.
2.5.9 Event F1: Leases
Event F1 applies to the situation where a lessor grants a lease and receives capital proceeds in respect of this grant. The capital proceeds are defined as any premium paid or payable to the taxpayer.368 As the PBC or the Native Title Group are not the entity that grants a mining lease (this is the relevant government under the state mining legislation),369 it appears unlikely that this provision could apply. Furthermore, even if the PBC did grant a lease the event only applies where a premium has been paid. In
Gray’s Case the court considered that a premium is a sum payable for entering into the lease; it is for access to, rather than use of, the premises and is separate to the rent.370
Considering the facts of the Jax Coal Case discussed earlier in this Chapter, I argue that
F1 does not apply even though a lump sum was paid to the Native Title Group and there
367 ITAA97 s 104-70. 368 ITAA97 s 116-20(2). 369 For example, in Queensland the State Government grants mining leases in accordance with s 271 Mineral Resources Act 1989 (Qld). 370 89 ATC 649.
115 was a lease involved. In this case the Queensland Government issued a notice under s
29 of the NTA of its intention to grant a mining lease to Jax Coal and the company agreed to pay the Birri People $100,000 for their agreement to the lease. The payment was the ‘price’ for the agreement of the Birri People to allow the company to proceed with the lease.371 This is not a premium and even if it were, the lease was not granted by the Native Title Group but by the state government.
2.5.10 Proposed Amendments to CGT and Native Title
Clause 118-77 of Tax Laws Amendment (2012 Measures No 6) Bill 2012 relating to native title states that a capital gain or loss is disregarded if an Indigenous person or holding company transfers native title to another Indigenous person or holding entity, creates a trust over the native title, or their ownership of the native title ends resulting in
CGT event C2. The use of the word ‘disregarded’ means that once a transfer of the native title asset occurs or a trust is established it will not be subject be CGT but it does not mean that the acquisition by the Indigenous person, holding company or trust is outside the CGT provisions. The result is that the native title will now be acquired after
19 September 1985 and therefore any subsequent dealings will be subject to CGT. If C2 applies then the gain or loss is disregarded.
2.5.11 Exemption from CGT for the Main Residence
The sale of a taxpayer’s main residence is exempt from CGT even though CGT event
A1 is triggered.372 The exemption provision requires that the taxpayer have a dwelling
(which can include a home unit, or a caravan, houseboat or other mobile home) on land
371 [2011] NNTTA 46, [54]. 372 ITAA97 subdiv 118-B. Although there are certain limitations, eg land on which the dwelling is situated and adjacent to the dwelling in excess of 2 hectares is not subject to the exemption; see s 118-120.
116 and that this dwelling is their home or main residence.373 The exemption extends to a maximum of 2 hectares of adjacent land that is sold with the dwelling.374 There are public policy reasons for this exemption, which include the fact that the majority of
Australians’ wealth is tied up in their family home and home ownership is something that is highly valued and encouraged by governments.375
This same public policy rationale could arguably apply to native title and other traditional land. As already discussed, native title is not freehold and not able to be sold.
Therefore, even if a member of the Native Title Group had established their dwelling on the native title land, they would not be eligible for the exemption because they do not own the native title in the way understood in English and Australian law.376 However, researchers and Indigenous Australians view native title lands and traditional
Indigenous lands as the equivalent of the home or homelands of Indigenous
Australians.377 For example, the Yolgnu homelands movement was established so that
Indigenous Australians could move back to their homelands, and the Laynhapuy
Homelands Association Inc was incorporated in 1985 to provide structure and support for Yolgnu to live on their traditional lands.378 Indigenous elder Galarrwuy Yunupingu states of his relationship with his land: ‘[t]he land is my backbone. …My land is mine only because I came in spirit from the land, and so did my ancestors from the same land…my land is my foundation.’379 Anthropologists reason that the terms home and
373 ITAA97 s 118-115(1). 374 ITAA97 s 118-120. 375 Robin Woellner et al, Australian Taxation Law (CCH Australia Ltd, 22nd ed, 2012) [8-050]. 376 P Butt, Land Law (LBC Information Services, Sydney, 3rd ed, 1996) 2507. 377 Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009) [2.210]. 378 Yirralka Rangers, Annual Report (2010–11) 1. 379 Galarrwuy Yunupingu, ‘Letter from Black to White’ (1976) 2(6) Land Rights News 8, 9.
117 homeland can be used in relation to traditional land, but that they are superficial ways of talking about the unique and deep relationship Indigenous Australians have with their traditional lands.380 On this basis, it is arguable that a CGT event in respect of their native title should be subject to a similar exemption as that for the main residence. This would require a change in legislation but as there are already many extensions to the main residence exemption, eg indefinite absence or an absence for 6 years if the premises is rented, this amendment would not be unreasonable.
Part 6
2.6 Conclusion
In this Chapter, I have explained the concept of native title and applied income tax principles to commonly occurring mining agreements in respect of native title. I have demonstrated that the application of ordinary income tax principles is complex and may at times be difficult and uncertain. This is due to a number of factors. First, the law is complex and the principles are often very fact driven. Second, there is a lack of case law dealing with the taxation of compensation or other types of payments under the NTA.
Third, the ATO has not issued a public ruling that would assist in clarifying the application of income tax principles to the mining agreements described in this Chapter.
Fourth, many mining agreements reflect the commercial arrangements that exist in the mining and business sector. However, when their substance is examined specific taxation consequences arise that are not clear from the form of the agreement. As I have argued in this Chapter, in many situations the mining payments are possibly payments
380 W E H Stanner, White Man Got No Dreaming, Essays 1938–1973 (Australian National University Press, Canberra, 1979) 230; R M Berndt, ‘Traditional Concepts of Aboriginal Land’ in R M Berndt (ed), Aboriginal Sites, Rights and Resource Development (University of Western Australia Press, Perth, 1982) 2.
118 of capital for damage to the land and Indigenous culture and not income and therefore income tax arguably does not apply. This argument is easier to make where the mining payments are either one-off or a few annual payments as in the Nullaga Case. It is more difficult where there are royalty type payments involved because these payments have the income type characteristics of regularity and periodicity.
If the mining payments are not income, a consideration of CGT principles must still be undertaken and in this Chapter I have applied the provisions of the CGT regime to mining agreements. I have demonstrated that the concepts are complex and the conclusions are not clear. I argue that in some cases it is arguable that the mining payments relate to the underlying asset (the native title) which was acquired by the
Native Title Group prior to the introduction of CGT in 1985. If this analysis is accepted,
I conclude that in the case of a one-off payment or a limited series of annual payments,
CGT event C2 applies and the reasoning of the ATO in TR 95/35 results in a nil tax liability. This conclusion is supported by ATO private rulings and commentators in the area.
However, a number of other CGT provisions potentially apply to the model agreements.
Where there is the grant of an easement over native title, such as occurs where a Telstra tower is built or a pipeline laid, it may be that event D1 applies. In situations of contractual arrangements relating to negotiation required under the NTA then possibly
H2 occurs.
This Chapter has demonstrated that although there are situations where mining payments are not assessable to income tax, as either income or CGT, there are many grey areas. It has also demonstrated that the MWT does not apply to payments in respect of native title. The following Chapter will discuss the income tax regime (the
119 MWT) that applies to mining payments in respect of the specific land rights legislation in the Northern Territory. It will be seen that the legislation was enacted to ensure that the application of income tax principles was easy and simple. The discussion in the following two Chapters will however highlight the inequity of the MWT from a tax policy perspective.
120 Chapter 3: An Analysis of the Application of Income Tax Principles to
Mining Payments under the Aboriginal Land Rights (Northern Territory)
Act and the Appropriateness of the Mining Withholding Tax as a matter of Income Tax Principles
3.1 Introduction
In Chapter 2 I demonstrated that the application of income tax principles to mining payments to Native Title Groups under the Native Title Act 1993 (Cth) (NTA) can at times lead to uncertain income tax consequences. This uncertainty has led many Indigenous groups to establish charitable entities to gain certainty and income tax exemption. In 1979 uncertainty regarding income tax and mining payments led the Federal Coalition
Government to enact an income tax regime that specifically applies to mining payments in respect of ‘Aboriginal land’ as defined. The focus of this regime is land held under the
Aboriginal Land Rights (Northern Territory) Act 1976 (Cth) (ALRA) although it is possible that it applies more broadly and at times it has been suggested that it applies to land held in accordance with the NTA.
The regime is found in Division 11C, Part III of the Income Tax Assessment Act 1936 (Cth)
(ITAA36) which provides that certain mining payments in respect of Aboriginal land are subject to a flat income tax liability of 4 per cent referred to as a mining withholding tax
(MWT). The payments are then exempt from ordinary income tax. Division 11C imposes
121 the MWT in respect of mining payments arising from Aboriginal land which is defined in
Division 11C and covers land held under the ALRA.
The MWT regime is an alternative to general income tax principles and may therefore be seen as an attractive option to legislatures who wish to enact such a tax system in respect of native title payments. In fact in 2010 the Federal Labor Government issued a Consultation
Paper, Native Title, Indigenous Economic Development and Tax1 which suggested that one approach was the introduction of a MWT similar to the existing regime that would apply to native title payments. This Chapter demonstrates the problems with the existing MWT from an income tax principles perspective. Chapter 4 evaluates it from an income tax policy perspective.
In this Chapter I show that when income tax principles are applied correctly to mining payments as defined under ALRA, the income tax liability will in many instances be nil.
There are four main reasons for this. First, some mining payments are made to Northern
Territory Land Councils to cover their administrative and operating costs. These amounts are not ordinary income and are therefore not taxable. Secondly, some mining payments are made to entities that are endorsed as income tax exempt charities by the ATO. As these entities are exempt from income tax any mining payment they receive should not be subject to tax. Third, some mining payments are compensation for long term damage to land that was acquired before the introduction in Australia of capital gains tax (CGT) in 1985. As argued in Chapter 2 payments in respect of such damage should not be subject to income
1Australian Government, The Treasury, Native Title, Indigenous Economic Development and Tax, 2010. 122 tax or CGT. Finally, certain mining payments are made in the form of government grants for community development purposes. I argue that these grants are not taxable income.
In order to substantiate my arguments that many of the mining payments should not be subject to tax I undertake a legal analysis of the taxation of the five categories of what are defined in Division 11C as ‘mining payments’ made in respect of ‘Aboriginal land’. I also extend my analysis to investigate the rationale behind the MWT and whether or not this is consistent with case law that underpins general income tax law principles.
I argue that the rationale and operation of the MWT is inconsistent with general income tax law. To establish this I will demonstrate that in a number of situations the MWT applies to amounts that otherwise do not fall within the income tax system either because they are not income or because the recipient entity is exempt from income tax.
The majority of this Chapter analyses the distribution of mining payments by the Federal
Government through what is now called the Aboriginals Benefits Account (ABA). This analysis is required due to the complexity of the flow of payments into and out of this account. It is also due to the fact that the volume of these payments and how they are distributed is publicly documented which is not the case when Traditional Aboriginal
Owners negotiate mining payments in respect of Aboriginal land that is not caught by the
ALRA.
123 3.2 Background to Land Rights in the Northern Territory and the Mining
Withholding Tax
The ALRA grants land rights in the Northern Territory that are politically significant2 and which arguably provide a secure basis for Indigenous economic activity.3 One leading text in the area of Indigenous legal issues states that the ALRA ‘remains the most powerful land rights statute and alone has restored more than a third of the national Indigenous estate’.4
The enactment of the ALRA meant that a diversity of payments in respect of traditional land could be negotiated in the Northern Territory. This was mainly because the Northern
Territory Traditional Aboriginal Owners5 (Traditional Owners) were able to veto mining and this provided them with negotiation leverage.6 As I have demonstrated in Chapter 2,
2 Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009) ch 5 [5.10]; Jon Altman, ‘Economic Development and Land Rights in the Northern Territory: Past Performance, Current Issues and Strategic Options’ (Paper presented at Land Rights- Past, Present and Future International Conference, Canberra, 16-17 August 1996) 55, 57. 3 Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009) ch 5 [5.10]; Jon Altman, ‘Economic Development and Land Rights in the Northern Territory: Past Performance, Current Issues and Strategic Options’ (Paper presented at Land Rights- Past, Present and Future International Conference, Canberra, 16-17 August 1996) 55, 57. 4 Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009) ch 4 [4.30]. 5 Traditional Aboriginal Owners are defined in ALRA s 3 as ‘in relation to land, means a local descent group of Aboriginals who: (a) have common spiritual affiliations to a site on the land, being affiliations that place the group under a primary spiritual responsibility for that site and for the land; (b) are entitled by Aboriginal tradition to forage as of right over that land’. 6 This leverage was termed a ‘de facto’ property right in Industry Commission, ‘Mining and Minerals Processing in Australia’ (Report No 7, 25 February 1991) XLI; Jon Altman, ‘Generating Finance for Indigenous Development; Economic Realities and Innovative Options’ (Working Paper No 15, Centre for Aboriginal Economic Policy Research (CAEPR), 2002) 6; Jon Altman, Submission to Department of Families, Housing, Community Services and Indigenous Affairs, Leading Practice Agreements: Maximising Outcomes from Native Title Benefits, November 2010; Jon Altman, ‘Aboriginal Economic Development and Land Rights in the Northern Territory: Past 124 under Australian legislation royalties from mining are payable to the Crown rather than the landowner. This is the system in the Northern Territory so that moneys raised from mining operations on Aboriginal land in the Territory, referred to as royalties, are paid to the
Commonwealth or the Northern Territory Government.7 Under certain provisions in the
ALRA the Commonwealth then pays amounts which are in fact statutory mining royalty equivalents (‘royalty equivalents’)8 into an account that is held for the benefit of
Indigenous Australians in the Northern Territory. It is these payments (and certain others detailed in this Chapter) that are defined as mining payments in Division 11C and subject to the MWT.
3.2.1 The History of Mining Payments in Respect of Indigenous Land in the Northern
Territory
Mining payments to Indigenous Australians have their genesis in two sources: mining developments and the Indigenous land rights movement in Australia. Until 1952, the access of non-Indigenous people to declared Australian reserves had been limited by s 21 of the
Aboriginals Ordinance 1918 (Cth). This restriction was lifted in 1952 by Paul Hasluck,
Performance, Current Issues and Strategic Options’ (Paper presented at Land Rights-Past, Present and Future International Conference, Canberra, 16 – 17 August 1996) 54. 7 ALRA s 63; Royalties in respect of mining of most minerals (other than uranium) are payable to the NT Government in accordance with the Mining Royalty Act 1982 (NT) s 9; Royalties in respect of uranium mining are payable to the Commonwealth Government in accordance with the Uranium Royalty (Northern Territory) Act 2009 (Cth) s 6. 8ALRA s 63; Jon Altman, Submission to Department of Families, Housing, Community Services and Indigenous Affairs, Leading Practice Agreements: Maximising Outcomes from Native Title Benefits, November 2010. 125 then Minister for Territories, to allow for mining of ‘strategic’ resources in the reserves.9
To ensure that Indigenous people could financially benefit from mining on reserves, the
Minister established the Aborigines Benefits Trust Fund (ABTF) by amending the Northern
Territory (Administration) Act 1910 (Cth). Payments in respect of mining on Indigenous land in the Northern Territory were made into this fund even though there was no statutory or common law recognition of Indigenous land ownership at that time (so that, strictly speaking, Indigenous people owned neither the land nor the minerals).10 These payments are referred to in the literature as ‘mining royalty equivalents’ and were paid to Traditional
Owners or their representatives. Mining did not occur on Indigenous land until 196511 and until the 1970s there was no administrative or statutory scheme for the calculation or payment of mining royalty equivalents.12
As far as Indigenous land rights are concerned the most significant development was the
Aboriginal Land Rights Commission headed by Mr Justice Woodward, following the election of the Whitlam Labor Government in 1972.13 This resulted in the ALRA, which
9 Harry Giese, ‘Planning a Program for Aborigines in the 1950s’ (Occasional Papers No 16, Northern Territory Library Service, Darwin, 1990). However, mining on Aboriginal reserves in the Northern Territory did not take place until 1965. See Jon Altman, ‘Land Rights and Aboriginal Economic Development: Lessons from the Northern Territory’ (1995) 2(3) Agenda 291, 292. 10 In Milirrpum v Nabalco Pty Ltd (1971) 17 FLR 141 a single judge of the Northern Territory Supreme Court Court held that the Yolgnu traditional relationship to land could not be recognised as a property right under Australian common law. 11 Jon Altman, ‘Land Rights and Aboriginal Economic Development: Lessons from the Northern Territory’ (1995) 2(3) Agenda 291, 292. 12 Jon Altman, ‘Aboriginal Economic Development and Land Rights in the Northern Territory: Past Performance, Current Issues and Strategic Options’ (Paper presented at Land Rights-Past, Present and Future International Conference, Canberra, 16 – 17 August 1996) 55, footnote 2. 13 Commonwealth of Australia, Aboriginal Land Rights Commission: First Report July 1973 (Parliamentary Paper No 138, 1973) commonly referred to as the Woodward Report; see Jon Altman, The Economic Impact of Australian Aboriginal Land Rights (CAEPR, 1990) 1. 126 was passed by the subsequent Fraser Coalition Government.14 This Act granted Traditional
Owners the right to make traditional land claims for land in the Northern Territory15 and the establishment of land trusts to hold the land as legal title holder on behalf of the
Traditional Owners.16
Economic development arguments have been central to policy intentions in both cases of mining development in the Northern Territory and Indigenous land rights.17 The debates in the 1950s focused primarily on regional economic development, rather than cultural or social issues.18 It has been recognised that two significant objectives of granting land rights to Indigenous Australians are economic development19 and land restoration.20 For example the Indigenous Land Corporation established under the Aboriginal and T orres Strait
Islander Act 2005 (Cth) (ATSI Act) is charged with the duties of assisting Indigenous
Australians to acquire and manage land to provide them with economic, environmental,
14 In the 1960s, South Australia was the first state in Australia that passed land rights legislation (the Aboriginal Land Trust Act 1966 (SA)). Apart from the ALRA the Aboriginal Land Rights Act 1983 (NSW), the Pitjantjatjara Land Rights Act 1981 (SA) and Maralinga Tjarutja Land Rights Act 1984 (SA) remain the most significant land rights legislation in Australia, (in terms of impact on the largest number of Indigenous people) although a variety of arrangements exist in the Australian Capital Territory and most other States. 15 ALRA s 50. 16 ALRA s 4. 17 Jon Altman, ‘Aboriginal Economic Development and Land Rights in the Northern Territory: Past Performance, Current Issues and Strategic Options’ (Paper presented at Land Rights-Past, Present and Future International Conference, Canberra, 16 – 17 August 1996) 54, 55. 18 Ibid. 19 Commonwealth of Australia, Aboriginal Land Rights Commission, Second Report April 1974 (Woodward Report 1974) 10; Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009) ch 4; Aboriginal and Torres Strait Islander Act 2005 (Cth) s 3. 20 Woodward Report 1974, 10; Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009) ch 4; Aboriginal and Torres Strait Islander Act 2005 (Cth) s191B. 127 social or cultural benefits.21 However, it is not the goal of this Chapter to assess the success or otherwise of these policies.22 The focus of the Chapter is to analyse the taxation of
‘mining payments’ from a legal perspective.
The ALRA provides for the establishment of land trusts to hold land and four land councils to represent and assist Traditional Owners and other Indigenous people who have relevant interests.23 When mining occurs in respect of Aboriginal land in the Northern Territory mineral royalties are paid to the Commonwealth or the Northern Territory Government.24
The Commonwealth then pays amounts which are in fact statutory mining royalty equivalents25 out of consolidated revenue into an account that is held for the benefit of
21 s 191B. 22 For such assessments, the reader is referred to Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009); Jon Altman, ‘Aboriginal Economic Development and Land Rights in the Northern Territory: Past Performance, Current Issues and Strategic Options’ (Discussion Paper No 126, CAEPR, 1996). 23 ALRA parts II and III. The four land councils are the Northern Land Council, Central Land Council, Tiwi Land Council and Anindilyakwa Land Council, Australian Government Directory website http://www.directory.gov.au/index.php; Commonwealth of Australia, Report on the Review of the Aboriginals Benefit Trust Account (and Related Financial Matters) in the Northern Territory Land Rights Legislation (Jon Altman, 1985). 24 ALRA s 63; Jon Altman, ‘Aboriginal Economic Development and Land Rights in the Northern Territory: Past Performance, Current Issues and Strategic Options’ (Paper presented at Land Rights -Past, Present and Future International Conference, Canberra, 16 – 17 August 1996) 55, 61. 25ALRA s 63(1); Jon Altman, Submission to Department of Families, Housing, Community Services and Indigenous Affairs, Leading Practice Agreements: Maximising Outcomes from Native Title Benefits, November 2010. 128 ‘Aboriginal’ peoples in the Northern Territory. This account, originally called the ABTF,26 is now called the Aboriginal Benefits Account (ABA).27
The income in the ABA is mainly the royalty equivalents, which are calculated by reference to the value of mining royalties payable by mining companies for their operation on Aboriginal land in the Northern Territory.28 It also includes investment income earned on accumulated funds in the account and an amount that is stated to be for government administrative resources provided free of charge.29 In addition to royalty equivalents s 16 of the ALRA provides that the Crown shall pay to Land Councils amounts equal to the amounts of rents and other prescribed payments paid to the Crown in respect of an interest
(including a mining interest) granted by the Crown in Aboriginal land in the Council’s area.
This is different from the statutory royalty equivalents and is not discussed in this thesis.
Moneys began being paid into the ABTF in respect of mining in the Northern Territory in
1966.30 Originally mining royalty equivalents as distinct from statutory mining royalty
26 Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account (November 2008). 27 Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account (November 2008). 28 Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account (November 2008) Executive Summary and Recommendations. 29 Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account (November 2008) Executive Summary and Recommendations; Jon Altman, ‘Aboriginal Economic Development and Land Rights in the Northern Territory: Past Performance, Current Issues and Strategic Options’ (Paper presented at Land Rights-Past, Present and Future International Conference, Canberra, 16-17 August 1996) 56. 30 Commonwealth of Australia, Report on the Review of the Aboriginals Benefit Trust Account (and Related Financial Matters) in the Northern Territory Land Rights Legislation (Jon Altman, 1985) 229. 129 equivalents were paid into the fund and later distributed to Indigenous people living in the
Northern Territory who were affected by mining operations.31 In 1977 the trust fund was incorporated into the ALRA and became the Aboriginals Benefit Trust Account (ABTA) under the control of the then Federal Minister for Aboriginal Affairs. Various reorganisations have taken place since and in 1999 it became known as the ABA.32 Since
2006 the Department of Families, Housing, Community Services and Indigenous Affairs
(FaHCSIA) has been responsible for administering the ABA in accordance with the ALRA and the Financial Management and Accountability Act 1997 (Cth). The latter Act prescribes the financial management framework under which the ABA is administered.33
3.3 Overview of the Operation of the Mining Withholding Tax
No tax was payable on receipts of the ABTF between 1966 and 1977-1978, these receipts were regarded as non-taxable income34 and research indicates that there was little, if any government discussion of this issue.35 Investment and interest income which was derived
31 Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account, November 2008, Executive Summary and Recommendations [1]. 32Financial Management Legislation Amendment Act 1999 (Cth) s 5(5) changed the name to Aboriginals Benefit Account. 33 Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account, November 2008, Executive Summary and Recommendations [1]. 34 Jon Altman, ‘Financial Aspects of Aboriginal Land Rights in the Northern Territory’ (Discussion Paper No 168, CAEPR, 1998) 20; Commonwealth of Australia, Report on the Review of the Aboriginals Benefit Trust Account (and Related Financial Matters) in the Northern Territory Land Rights Legislation (Jon Altman, 1985). 35 JC Altman and DP Pollack, ‘Financial Aspects of Aboriginal Land Rights in the Northern Territory’ (Discussion Paper No 168, CAEPR, 1998) 20. 130 by the Trust Fund was not taxed either.36 At the same time as the Northern Territory became self-governing, financial provisions of the ALRA were enacted which resulted in royalty equivalents being paid into what became the ABA. It was at this time that actual mining royalties became payable by mining companies to the Northern Territory
Government in respect of all minerals from mining other than uranium.37 Subsequently the
ITAA36 was amended to include special provisions for the taxation of payments made in respect of mining operations on Aboriginal land through the enactment of the Income Tax
(Mining Withholding Tax) Act 1979 (Cth).
The 1979 amendments to the taxation legislation are now contained in Division 11C of the
ITAA36. The Division applies where a ‘mining payment’ is made in respect of ‘Aboriginal land’.38 ‘Mining payments’ are defined in s 128U of Division 11C. Apart from historical payments prior to 1999, mining payments are defined in five ways. The first category of payments is royalty equivalents. Specifically, the definition of mining payment includes amounts that are debited from the ABA which represent credits of royalty equivalents under ss 63 (1) and (4) of ALRA. The second category is in relation to mining exploration licences of a kind referred to in s 44 (1) and (2) of ALRA and the third, fourth and fifth
36 JC Altman and DP Pollack, ‘Financial Aspects of Aboriginal Land Rights in the Northern Territory’ (Discussion Paper No 168, CAEPR, 1998) 20; Jon Altman, Submission to Department of Families, Housing, Community Services and Indigenous Affairs, Leading Practice Agreements: Maximising Outcomes from Native Title Benefits, November 2010. 37 Jon Altman, ‘Aboriginal Economic Development and Land Rights in the Northern Territory: Past Performance, Current Issues and Strategic Options’ (Paper presented at Land Rights- Past, Present and Future International Conference, Canberra, 16 – 17 August 1996) 56. 38 Aboriginal land is defined in s 128U as any estate or interest in land that is held for the use or benefit of Indigenous people under Commonwealth, State or Territory legislation. This clearly covers land held under the ALRA and excludes, as discussed in Chapter 2, interests in land under the Native Title Act 1993 (Cth). 131 categories cover any other payments under Commonwealth, State or Territory legislation that relate to mining of Aboriginal land. These last three categories are defined to include payments in consideration of the issuing, granting or renewal of a miner's right or mining interest in respect of Aboriginal land, in consideration of the granting of permission to enter or remain on Aboriginal land or to do any act on Aboriginal land in relation to prospecting or exploring for, or mining of, minerals and the payment of mineral royalties in respect of the mining on Aboriginal land.
Mining payments therefore include statutory mining royalty equivalents but are broader and include payments that are made before mining actually takes place and payments that are in respect of mining exploration and the actual mining. These payments also include royalties that are negotiated directly between the mining company and the land holder.39
Resource agreements may be made between mining companies and the Land Trusts and
Land Councils established under the ALRA subject to the direction of the relevant Land
Council and the provisions of the ALRA.40 The MWT will apply to payments in accordance with these agreements provided that the payments fall within the definition of mining payments in Division 11C (which is likely) and are in respect of ‘Aboriginal land’ which will be the case where the land is held in accordance with the ALRA. As well as being entitled to royalty equivalents Traditional Owners or Land Councils on their behalf may enter into additional agreements with mining companies to facilitate mining activity
39 Commonly referred to as mining royalties or mineral royalties refer ALRA s 3. 40 ALRA s 19. 132 and these may include substantial mining payments.41 It is important to note that the ABA only includes royalty equivalents, the first category of mining payments in Division 11C.
The use of a fund such as the ABA is probably due to the fact that mineral royalties (except for uranium) are not paid directly to the Federal Government but to the Northern Territory.
The Federal Government is required to pay the equivalent amount into the ABA as a statutory royalty equivalent pursuant to s 63 ALRA.
The definition of mining payments does not include payments made by the Land Councils or other distributing bodies.42 This is to ensure that the MWT is only payable on the distribution of royalty equivalents from the ABA to the Land Council or an Aboriginal
Corporation and not on the subsequent distribution from these entities to royalty associations (defined below) or individual Traditional Owners or other Indigenous people.
When the mining payment is within one of the other four categories of mining payment defined in Division 11C then MWT will be payable to the ATO by the mining company prior to payment of the balance of 96 per cent to the Land Council (see below). When the
Land Council distributes this money to royalty associations or Traditional Owners or other
Indigenous persons in the relevant area there will be no further tax payable.
41 Commonwealth of Australia, House of Representatives, Standing Committee on Aboriginal and Torres Strait Islander Affairs, Unlocking the Future: The Report of the Inquiry into the Reeves Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (1999) [5.14] often called ‘negotiated royalties’; Mick Dodson, David Allen and Tim Goodwin, ‘The Role of the Central Land Council in Aboriginal Land Dealings’ in Australian Agency for International Development, Making Land Work: Case Studies On Customary Land and Development in the Pacific (2008) 107, 113. 42 The statutory wording is that payments by ‘distributing bodies’ which are also defined in s 128U are excluded from the definition of mining payments. 133 Although formal legal liability for the MWT rests with the recipient of the mining payment such as the Land Council, Aboriginal Corporation or Traditional Owner,43 in order to ensure compliance the actual responsibility for paying the tax lies with the paying entity.44
In the case of royalty equivalents this will be the ABA and from 1 July 2003, the ATO has determined the ABA a large pay-as-you-go (PAYG) withholder which places this account within the taxation system and indicates that the quantum of payments are large compared to corporate and business taxpayers.45 With regard to the other four types of mining payments the paying entity will usually be a mining company although it could also be a state or territory government. Paying entities, which in the case of royalty equivalents is the
ABA, are required to withhold an amount from the payment in accordance with the rules established under the PAYG withholding rules.46
At the time the MWT was introduced into Parliament the Treasurer justified this regime on the basis that it was a specific legislative provision aimed at collecting a percentage of certain payments resulting from mining activities as tax. This tax would be collected through the mechanism of a withholding tax which meant that the subsequent distributions of these payments to Land Councils and Traditional Owners would be income tax
43 ITAA36 s 128V. 44 Taxation Administration Act 1953 (Cth) Sch 1. 45 MWT liabilities on payments made are paid on or before due dates in accordance with the pay as you go (PAYG) withholding for large withholders guide issued by the Tax Office, refer FaHCSIA, Annual Report (2009−2010), Appendix K Aboriginals Benefit Account Annual Report 2009-10. 46 Taxation Administration Act 1953 (Cth) Sch 1 s 12-320. 134 exempt.47 In his second reading speech the then Treasurer, John Howard explained the rationale for the tax as follows:
There is a clear need for certainty and simplicity in the rules governing tax on payments
flowing to aboriginals from mining operations. It is important for representative bodies,
such as the Aboriginal Land Councils which, on behalf of aboriginal communities, are
authorised to negotiate terms and conditions on which mining may take place, to have a
ready means of assessing the after-tax benefits of payments to the communities.
Under the present income tax law this would not be an easy task. Much of the mineral
royalties and other payments that aboriginal communities can expect to receive as a result
of agreements for mining projects in the Northern Territory and elsewhere in Australia will
be received in the first instance by various aboriginal bodies having representative and
administrative roles. Those bodies will form a conduit through which mining payments will
pass to the benefit of aboriginal communities.
Because of the unusual nature of this structure and other related factors, application of the
present law would present difficulties. It would mean that, in practice, the after-tax value of
payments received for the use of aboriginal land for mining purposes would not with any
assurance be determined in advance by those negotiating on behalf of the aboriginals.
Perhaps more importantly, there could also be some quite inappropriate taxation effects.
The new withholding tax will overcome these problems and will have a simple operation ...
47 House of Representatives, Second Reading Speech, Income Tax Assessment Amendment Bill (No. 2) 1979 (John Howard, Treasurer) http://law.ato.gov.au/atolaw/view.htm?dbwidetocone=05%3AEXT%3AExplanatory%20Memorand um%20and%20SRS%3A1979%3AIncome%20Tax%20Assessment%20Amendment%20Act%20(N o.%202)%201979%3ASecond%20Reading%20Speech%20-%20REPS%3B. 135 On balance, the Government believes that a rate calculated in this way is a reasonable
revenue contribution out of mining payments of this kind.48
It is widely believed by researchers in the area that the government at the time was concerned to ensure that Traditional Owners receiving mining payments would pay some tax on these amounts. This, it was felt, might be otherwise difficult due to such factors as remoteness and style of living which meant that Indigenous Australians in the Northern
Territory operated outside the Australian tax system.49 It is clear from the statements of the
Treasurer that he felt that some revenue should be payable on payments from mining and that the MWT was a reasonable amount.
The MWT was initially set at the rate of 6.4 per cent.50 The second reading speech refers to the ‘standard rate of 32 per cent’ and that the MWT should be equal to 32 per cent of one- fifth of the gross payments which equals 6.4 per cent. The reference to standard tax rate is in effect a reference to the lowest individual marginal tax rate at that time for a resident taxpayer (after a tax-free threshold of $3,893).51 The MWT rate has been reduced over the years in keeping with the reduction in the lowest marginal tax rate and is currently 4 per
48 Ibid. 49 Commonwealth of Australia, House of Representatives, Standing Committee on Aboriginal and Torres Strait Islander Affairs, Unlocking the Future: The Report of the Inquiry into the Reeves Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (1999) 68 - 69. 50 House of Representatives, Second Reading Speech, Income Tax Assessment Amendment Bill (No 2) 1979 (John Howard, Treasurer) http://law.ato.gov.au/atolaw/view.htm?dbwidetocone=05%3AEXT%3AExplanatory%20Memorand um%20and%20SRS%3A1979%3AIncome%20Tax%20Assessment%20Amendment%20Act%20(N o.%202)%201979%3ASecond%20Reading%20Speech%20-%20REPS%3B. The second reading speech refers to the ‘standard rate of 32 per cent’ and that the MWT should be equal to 32 per cent of one-fifth of the gross payments this being equal to 6.4 per cent. 51 Income Tax (Rates) Amendment Act 1979 No 150 (Cth) s 17. 136 cent. Each subsequent rate was one-fifth of the lowest personal income tax rate for a resident taxpayer at that time.52 Mining payments made to either a ‘distributing body’ or
‘Aboriginal person’53 and which have attracted MWT are non-assessable non-exempt income under s 59-15 of the Income Tax Assessment Act 1997 (Cth) (the ITAA97). The effect of these provisions is that the mining payment is subject to a tax rate of 4 per cent and is otherwise not subject to ordinary income tax.54
3.4 Analysis of the Imposition of the Mining Withholding Tax on Royalty Equivalents
Distributed from the Aboriginal Benefits Account
In order to analyse the impact of the MWT from a taxation law perspective I will now examine the application of the MWT to each type of mining payment in turn. The first category is royalty equivalents which are held in the ABA and distributed from this account. The following flowchart summarises the distribution of payments out of the ABA in accordance with the ALRA.
52 Income Tax (Mining Withholding Tax) Act 1979 (Cth), s 6. The rate was reduced to 6 per cent in November 1982 under Income Tax (Mining Withholding Tax) Amendment Act 1982 No 103 (Cth), then 5.8 per cent in November 1984 and 4 per cent in November 1994; see Commonwealth of Australia, Building on Land Rights for the Next Generation: The Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (John Reeves, 1998), 364. The last reduction in the MWT took place in the 1995-96 financial year when 20 per cent was the lowest personal income tax rate resulting in a 4 per cent rate, refer ATO website for individual rates
138 The activities of the ABA are controlled by the Federal Government and the assets accumulated by the ABA are controlled by the Minister who is responsible for Indigenous affairs.55 The royalty equivalents are credited to the ABA and calculated in accordance with s 63(1) and (4) ALRA which provides that:
Subject to subsection (2), there must be credited to the Account, from time to time, amounts
equal to the amounts of any royalties received by the Commonwealth or the Northern
Territory in respect of a mining interest in Aboriginal land.…
…
(4) If mining operations for minerals are carried on under the Atomic Energy Act 1953 or
any other Act on Aboriginal land by, or on behalf of, the Commonwealth, the Northern
Territory or an Authority, there must be credited to the Account, from time to time,
payments in respect of those mining operations of such amounts as are determined in
accordance with subsection (5).
Amounts are debited from the ABA (net of the MWT) and this money is distributed by the
Commonwealth in three ways. The first stream of payments is made to the Land Councils generally to cover their administration and other costs.56 The second stream of money is set by ALRA at 30 per cent of royalty equivalents.57 This category of payments is distributed from the ABA to the Land Council where the relevant mining interest is situated58 and they
55ALRA part VI; Jon Altman, ‘Generating Finance for Indigenous Development: Economic Realities and Innovative Options’ (Working Paper No 15, CAEPR, 2002) 4. 56 ALRA s 64(1). 57 ALRA s 64(3). 58 ALRA s 64(3). 139 must then distribute it to ‘Aboriginal Corporations’ whose members live on or are the
Traditional Owners of land affected by mining operations.59 These Aboriginal corporations are commonly referred to as ‘royalty associations’60 and the distributions as ‘areas affected moneys’.61
The third stream of distribution from the ABA is paid by the Minister for Indigenous
Affairs on a discretionary basis for the benefit of ‘Aboriginal people’62 living in the
Northern Territory.63 Moneys distributed in accordance with this category can be used to fund one-off, time-limited projects, although multi-year funding may also be possible.
These distributions are commonly referred to as ‘beneficial payments’.64
FaHCSIA produces annual reports that detail the amount of royalty equivalents that are transferred into the ABA and how these moneys are distributed. These reports also set out the amount of MWT that is paid in respect of distributions of royalty equivalents for each year. Table 1 summarises the before-tax income that has been credited to the ABA in accordance with the ALRA for the 2007-08, 2008-09 and 2009-10 financial years.
59 ALRA s 35(2); Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account, November 2008. 60 Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account, November 2008, [4.11]. 61 J C Altman and DP Pollack, ‘Financial Aspects of Aboriginal Land Rights in the Northern Territory’ (Discussion Paper No 168, CAEPR, 1998) 3. 62 ALRA s 3 defines ‘Aboriginal’ as ‘a person who is a member of the Aboriginal race of Australia’. 63 ALRA s 64(4). 64 Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account, November 2008, [4.45]. 140 Table 1: Summary of ABA Income, 2007-08, 2008-09 and 2009-1065
Type of Income 2007−08 2008−09 2009−10 Royalty equivalents $83,257,000 $218,515,000 $175,217,000 Interest $12,253,000 $17,224,000 $17,041,000 Resources stated to be received $1,382,000 $1,712,000 $1,882,000 free of charge from FaHCSIA66 Lease rental income $0 $0 $585,000 Total ABA before-tax income $96,892,000 $237,451,000 $194,725,000
It is apparent from this table that the royalty equivalents vary considerably from year to year. This fluctuation is not new and becomes clearer when the amounts received by the
ABA for royalty equivalents and interest on these amounts since its inception are analysed.
In 1996 Jon Altman summarised the total ABA receipts (which included interest) from
1978 to 199667 and found that the amount received in the first year was $2.1 m which increased to $23.6 m in 1985-86. The total then moved down and up reaching its highest point of $38 m in 1990-91 after which it again fluctuated and dropped to $29.4 m in 1995-
96. The low amounts in the earlier years can be explained by the paucity of mining
65 FaHCSIA, Annual Report (2008−2009), Appendix 12 Aboriginals Benefit Account Annual Report 2008−09 and FaHCSIA, Annual Report (2009-10), Appendix K Aboriginals Benefit Account Annual Report 2009−10. 66 Note that resources stated to be provided ‘free of charge’ in the table represent FaHCSIA’s staffing costs associated with the management of the ABA. They appear as revenue in Table 1 and administrative expenses in the ABA’s expenditure (see Table 3 later). The 2008 Department of Finance audit of the ABA states that the cost of these administrative expenses is included as income in the ABA financial statements implying that they are not deducted from royalty equivalents; see Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account, November 2008, [4.45]. 67 Jon Altman, ‘Economic Development and Land Rights in the Northern Territory: Past Performance, Current Issues and Strategic Options’ (Paper presented at Land Rights-Past, Present and Future International Conference, Canberra, 16-17 August 1996) 55, 56. 141 agreements.68 The rise and fall of royalty equivalents is due to fluctuations in commodity prices69 as the calculation of royalties is linked to the ad valorem price of the minerals.70
Table 2 represents the MWT that has been deducted from the ABA for the same years.
Table 2: Summary of MWT from ABA, 2007-08, 2008-09 and 2009-1071
Years 2007−08 2008−09 2009−10 $2,296,000 $4,460,000 $3,225,000
Note that the MWT represents less than 4 per cent of royalty equivalents as the withholding tax is levied on amounts distributed from the ABA and not the actual balance in the fund.72
The discrepancy is also due to differences in the timing of payments and tax withheld.73
68 J C Altman, Aborigines and Mining Royalties in the Northern Territory (AIATSIS, 1983) 75, 110. 69 House of Representatives Standing Committee on Aboriginal and Torres Strait Islander Affairs, Parliament of Australia, Unlocking the Future, the Report of the Inquiry into the Reeves Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (1999) 60. 70 For example, under the Mineral Royalty Act 1982 (NT) s 10 provides as follows ‘(1) The royalty payable under section 9 is 20% of the net value of a saleable mineral commodity sold or removed without sale from a production unit in a royalty year’; also House of Representatives Standing Committee on Aboriginal and Torres Strait Islander Affairs, Parliament of Australia, Unlocking the Future, the Report of the Inquiry into the Reeves Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (1999) 60. 71 FaHCSIA, Annual Report (2008−2009), Appendix 12 Aboriginals Benefit Account Annual Report 2008−09 and FaHCSIA, Annual Report (2009-10), Appendix K Aboriginals Benefit Account Annual Report 2009−10. 72 From 1 July 2003, the Australian Taxation Office has determined the ABA a large pay-as-you-go (PAYG) withholder. MWT liabilities on payments made are paid on or before due dates in accordance with the PAYG withholding for large withholders guide issued by the Tax Office, see FaHCSIA, Annual Report (2009−2010), Appendix K Aboriginals Benefit Account Annual Report 2009−10. 73 J C Altman and DP Pollack, ‘Financial Aspects of Aboriginal Land Rights in the Northern Territory’ (Discussion Paper No 168, CAEPR, 1998) 21. 142 Table 3 provides a breakdown of distributions from the ABA, as stipulated by the ALRA, for the 2007-08, 2008-09 and 2009-10 financial years.
Table 3: Summary of ABA Distributions, 2007-08, 2008-09 and 2009-1074
Type of Expenditure 2007-08 2008-09 2009-10 Payments to Land Councils for their $25,084,000 $27,613,000 $19,496,000 administrative costs (s 64(1) ALRA) Payments of areas affected moneys $24,977,000 $62,932,000 $50,462,000 via the Land Council to royalty associations (s 64(3) ALRA) Grants made by the Minister $20,311,000 $25,477,000 $23,763,000 (beneficial payments) (s 64(4) ALRA) 75 Administrative payments (s 64(6) and $5,627,000 $3,478,000 $4,601,000 64(4A) ALRA)
As the total after-tax royalty equivalents fluctuate over the years, payments to royalty associations as a direct percentage accordingly represent the most volatile component of the
ABA’s expenditure. How the amounts are calculated is demonstrated as follows:
Total royalty equivalents for 2009-10 Year = $175,217,000
Less MWT @ 4 per cent = $175,217,000 - $7,008,680 = $168,208,320
Areas affected moneys = 30 per cent x $168,208,320 = $50,462,496.
This is, practically speaking, identical to the moneys distributed in Table 3 in accordance with s 64(3) ALRA.
74 FaHCSIA, Annual Report (2008−2009), Appendix 12 Aboriginals Benefit Account Annual Report 2008−09 and FaHCSIA, Annual Report (2009-10), Appendix K Aboriginals Benefit Account Annual Report 2009−10. 75 These payments are for administering the ABA and for expenses for acquiring leases under s 19 ALRA. 143 The ABA consistently generates an operating surplus. As a result the ABA had accumulated a total equity of about $400 m by the end of 2009-10.76 By January 2012 this fund had increased to $412 m.77 This stands in contrast to the clearing house model, with no equity envisaged in the second Woodward Report78 and the approach that is supported by subsequent reports.79
The current distribution of royalty equivalents is not the one originally envisaged. When the second Woodward Royal Commission Report was handed down it was recommended that there should be a split of royalty equivalents, 40 per cent to the Land Councils to administer and claim Aboriginal land, 30 per cent to communities affected by mining operations and the remaining 30 per cent to Indigenous Australians territory wide.80 These percentages were enshrined in s 64 of the original ALRA. As discussed above, the split of royalty equivalents between Land Councils, areas affected by mining and territory wide payments is still in operation. However, the ALRA was amended in 2000 so that the only statutory
76 Annual Report (2009-10), Appendix K Aboriginals Benefit Account Annual Report 2009−10. 77 Paul Cleary, ‘Jenny Macklin taps $400 m Aboriginal Fund for running costs’ The Australian, 10 January 2012 http://www.theaustralian.com.au/national-affairs/indigenous/jenny-macklin-taps 400m-aboriginal-fund-for-running costs/story-fn9hm1pm-1226240324108. 78 Woodward Report 1974 recommended an ad hoc formula of distribution that would give 40, 30 and 30 per cent for land council administration, Indigenous people living in affected areas and indigenous people living in the Northern Territory, respectively; see J C Altman, ‘The Payment of Mining Royalties to Aborigines: Compensation or Revenue?’ (1984) 5(3) Anthropological Forum 474, 478; Commonwealth of Australia, House of Representatives, Standing Committee on Aboriginal and Torres Strait Islander Affairs, Unlocking the Future: The Report of the Inquiry into the Reeves Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (1999) 60. 79 Commonwealth of Australia, Seven Years On: Report by Mr Justice Toohey to the Minister for Aboriginal Affairs on the Aboriginal Land Rights (Northern Territory) Act 1976 and Related Matters (1984) 109; Commonwealth of Australia, House of Representatives, Standing Committee on Aboriginal and Torres Strait Islander Affairs, Unlocking the Future: The Report of the Inquiry into the Reeves Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (1999) 60. 80 Woodward Report 1974, 2. 144 percentage remaining is the 30 per cent for areas affected moneys.81 Under the current legislation the Land Councils receive out of the ABA such amounts as are estimated to cover their administrative and capital costs for each financial year.82 Regarding beneficial payments to or for the benefit of Indigenous peoples living in the Northern Territory these amounts are at the discretion of the Minister.83 Therefore, since 2000 the payments to Land
Councils to cover their expenses and the Minister’s discretionary territory wide payments have been made in accordance with criteria other than a statutory formula which is why they are relatively stable particularly when compared to the 30 per cent areas affected moneys.
The above discussion is relevant to the analysis in this Chapter as it has clarified the legislative rationale for the payments out of the ABA and the types of entities to which these payments are required to be made.
3.5 Inconsistency between General Income Tax Principles and the Mining
Withholding Tax in respect of Royalty Equivalents
3.5.1 Analysis of the Distributions Streams from the ABA from an Income Tax
Perspective
In this part of the Chapter I analyse the distributions from the ABA according to income tax law principles. As demonstrated in Chapter 2 of this thesis it is a key principle of taxation
81 Aboriginal Land Rights (Northern Territory) Amendment Act No 2 2000 (Cth). 82 ALRA s 64(1) and s 34. 83 ALRA s 64(4). 145 law that the characteristic of the receipt ie the character of the amount received is determined in the hands of the taxpayer. Another way of expressing this is, in the words of the High Court, that whether an amount is income ‘depends upon its quality in the hands of the recipient, not the character of the expenditure by the other party’.84 This statement is based on previous statements of the High Court in Scott v Federal Commissioner of
Taxation85 and GP International Pipecoaters Pty Ltd.86 At this stage it is important that I highlight a related point, that the courts have frequently stated, that although the motives of the payer may be relevant they are rarely decisive in determining whether or not a receipt is income.87
As discussed earlier in this Chapter the distributions from the ABA (the royalty equivalents) are divided into three streams. The first stream of payment is to the Land
Councils generally to cover their administration and other costs,88 the second, is paid to those Land Councils in the areas affected by the mining89 for distribution amongst royalty associations who represent the residents and owners of the mining affected land and the third distribution is paid at the discretion of the Minister for the benefit of Aboriginal
84 Federal Commissioner of Taxation v McNeil 2007 ATC 4223, 4227. 85 (1966) 117 CLR 514, 516. 86 90 ATC 4413, 4419. 87 Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47, 55; Federal Commissioner of Taxation v Harris 80 ATC 4238, 4240. 88 ALRA s 64(1). 89 ALRA s 64(3). 146 people living in the Northern Territory.90 I now analyse each of these streams of potential revenue from an income tax law perspective.
3.5.1.1 Payments to Cover Land Council Administration: Are Land Councils
Taxpayers?
When analysing the payments to the Land Councils to cover their administrative costs in accordance with s 64(1) ALRA, the initial question to consider is whether or not these
Councils are taxpayers. The legal form of Land Council is as a corporate entity established under statute that may hold and dispose of real and personal property and which may sue and be sued.91 As already pointed out this legal personality may be a taxpayer. However if it is demonstrated that they are a statutory body corporate that is considered an agent or servant of government then they will not be taxpayers for, as explained earlier in this
Chapter governments are not taxpayers for income tax purposes. One example of where a statutory body corporate was held to be an agent of government and therefore not a taxpayer was Metropolitan Fire Brigades Board v Commissioner of Taxation.92 In this case the fact that the relevant Minister controlled the Board and that the Board could make by- laws persuaded the Court that it was an agent of government.
The ALRA requires that the Minister shall establish at least two Land Councils for the
Northern Territory.93 There are now four Land Councils, the Northern Land Council,
90 ALRA s 64(4). 91 ALRA s 22. 92 (1990) 27 FCR 279. 93 ALRA s 21. 147 Central Land Council, Anindilyakwa Land Council and the Tiwi Land Council. The functions and responsibilities of the Land Councils are expressed in the ALRA. These functions include to ascertain and express the wishes of the Indigenous persons living in their area regarding the management of Aboriginal land94 in that area, to protect their interests and sacred sites, to assist them in making land claims, to manage this land on behalf of the Traditional Owners and to assist them in carrying out commercial activities.95
The Councils are therefore a requirement of the Federal Government, they are the major representative body in respect of Aboriginal land for Indigenous Australians in the
Territory96 and the entity entitled to receive moneys in respect of this land97 as the Land
Trusts are not empowered to receive money.98 The responsibilities and duties of the Land
Councils are established under the statute or regulations. The Land Councils are almost completely funded by the Commonwealth Government via the royalty equivalents although they also receive money from government grants.99 The Land Councils manage Aboriginal
94 Aboriginal land is land held in fee simple by a Land Trust; see ALRA s 5. It is land that has been the successful subject of a land rights claim under ALRA pt II. 95 ALRA s 23. 96 ALRA s 23. 97 ALRA s 6. 98 ALRA s 6. 99 Northern Land Council, Annual Report (2009-2010) Financial Statement; Central Land Council, Annual Report (2009-2010) Financial Statement; Anindilyakwa Land Council, Annual Report (2009-2010) Financial Statement. 148 land and enter into agreements regarding this land however they are required under the
ALRA to consult and gain the consent of the Traditional Owners in order to do this.100
In 2006 the High Court considered the question of whether or not an entity was part of government and therefore not a charity in the case of Central Bayside General Practice
Association Limited v Commissioner of State Revenue.101 In this case the Association was almost entirely funded by government. The majority judgment of Gleeson CJ, Heydon and
Crennan JJ pointed out that there may be situations where an entity is still charitable even though subject to a high degree of government control.102 Justice Kirby in a separate judgement (although coming to the same conclusion) suggested a bifurcation between bodies that carry out governmental policy, using funds derived from consolidated revenue and those that receive public funds but are not part of the machinery of government. He held that entities that are part of government do not have the charitable purposes necessary to make them what the law considers a ‘charitable body’. In his Honour’s words ‘[t]hey lack the spark of altruism and benevolence that is essential to characterisation as
"charitable"’.103 He also considered the issue of control and approved the statements in
Alice Springs Town Council v Mpweteyerre Aboriginal Corporation104 dealing with an
Aboriginal corporation established under statute which found that where no ministerial
100 For example, Part IV of ALRA relates to the agreement to mining exploration licences and requires that the relevant Land Council consult and gain the consent of the Traditional Owners before any agreements are entered into. 101 (2006) 228 CLR 168. 102 Ibid 187. 103 Ibid 210. 104 (2006) 228 CLR 168, 211. 149 control could be exercised either by virtue of the statute that constituted the association or the provisions of its constitution it was not carrying out the functions of government.105
Matthew Harding in his article ‘Distinguishing Government from Charity in Australian
Law’106 argues that the majority of case law is consistent with the view that government is characterised by administration and charity is characterised by what he calls
‘voluntarism’.107 He sees voluntarism as a concept that encompasses the voluntary doing of good.108 Harding points out that all three judgements in the Central Bayside Case109 infer that charity is chosen voluntarily whereas government is determined administratively and that this is what makes them fundamentally different.110 In particular Callinan J makes the point that the taxpayer in the Central Bayside Case ‘was entirely voluntarily established. It is not, and has never been, part of a government department. It does not owe its existence to a statute. It is quite separate from government’.111 The Central Bayside Case is a clear example of a situation where the entity which was established voluntarily was held to be quite separate from government even though almost completely funded by government.112
There have also been cases where the courts have held that an entity created by statute can be a charity and therefore is not a creature of government. The Northern Territory Court of
105 (1997) 139 FLR 236. 106 (2009) 31 Sydney Law Review 559. 107 Ibid 572. 108 Ibid. 109 The majority judgement of Gleeson CJ, Heydon and Crennan JJ and separate judgements of Kirby J and Callinan J. 110 (2009) 31 Sydney Law Review 559, 575. 111 (2006) 228 CLR 168, 229. 112 Ibid 187, 211, 229. 150 Appeal considered this issue in 1996 when deciding whether or not the Mpweteyerre
Aboriginal Corporation was a charity for the purposes of exemption from local government rates.113 The Court held that the mere fact that the association (which was created by statute) was indirectly funded by government did not deprive it of its charitable status. The important factor that the Court relied on to determine it was not a part of government was that there was no Ministerial control over the association either through legislation or its constitution.114
Other case law also tends to suggest that control is central to the distinction between government and non-government entities. A good example of the application of this is
Mines Rescue Board (NSW) v Commissioner of Taxation.115 In this case the Federal Court held that as the Board was established as a statutory body and the relevant Minister could instruct the Directors of the Board and remove those Directors if he or she chose to do so the Board was controlled by government to such an extent that it was not a public benevolent institution. In a case before the Northern Territory Court of Appeal the
Commissioner of Territory Taxes did not argue that the Northern Land Council was a part of Government. The Court accepted that it wasn’t and considered that control was integral to the issue. The Court stated that ‘[i]t is clear from the provisions of the Aboriginal Land
Rights (Northern Territory) Act 1976 that the Minister has no power to give directions to
113 Alice Springs Town Council v Mpweteyerre Aboriginal Corporation (1997) 139 FLR 236. 114 Ibid 254. 115 (2000) 101 FCR 91. 151 the appellant on the exercise of its functions and no power to interfere with the core revenue of the appellant.’116
This case supports the argument that Land Councils are not agents of government however since the time of the decision the ALRA has been amended so that the Federal Government now has control over the revenue of Land Councils. This clouds the situation to some extent.
The Report of the Inquiry into the Definition of Charity and Related Organisations suggests that control by the Minister in its central operations is crucial to deciding the status of the entity in question.117 Control is a question of fact and there is no single feature that is determinative.118 Relevant considerations include the extent that the government can dictate the objectives and activities of the entity, how it is monitored and accountable to government and the level of involvement that government has in its decision making.119
In summary, the persuasive factors for determining that an entity is part of government appear to be the level of control of the entity by the government and whether or not it is engaged in activities that voluntarily do a public good. The issue of control is a question of fact and the relevant considerations include how the powers of the relevant Minister are exercised, the ability of the entity to make by-laws and to impose penalties for breaches of the by-laws it makes, how closely government monitors the activities of the entity and the
116 Northern Land Council v Commissioner of State Taxes [2002] NTCA 11 [24]. 117 Report of the Inquiry into the Definition of Charity and Related Organisations, Ian Sheppard, Robert Fitzgerald and David Gonski, June 2001 (Sheppard Report) 234, 239. 118 Sheppard Report 234, 239 – 240. 119 Sheppard Report 234, 239 – 240. 152 level of involvement of government in the entity’s policy and decision making.120 The court in the Mpwetyerre Aboriginal Corporation Case discussed earlier focussed on the
Minister’s lack of control of the company to find that it was not an agent of government.
Lack of Ministerial power to give directions or interfere with the core revenue of the
Council, were the determining factors in the Northern Land Council Case.
In order to answer the question of whether or not Land Councils are part of government it is therefore relevant to look at their establishment, constitutions and purposes. The Land
Councils are established by statute. This does indicate closeness with government however the Northern Land Council Case and the Mpwetyerre Aboriginal Corporation Case involved statutory corporations and the courts still held that they were charities and not part of government. In the Central Bayside Case Kirby J said that even bodies established by statute could be charitable.121 His Honour considered that the important factor was ministerial control and that this was more important than whether or not the entity was established under statute or funded by government.122 The Land Councils do not have clearly stated constitutions nor are their purposes set out in the ALRA however their functions are found in s 23 ALRA. These functions include ascertaining and expressing the wishes and opinions of Indigenous Australians living in the Land Council area regarding the management of Aboriginal land in that area and protecting the Traditional Owner land interests and sacred sites. Land Councils have extensive land management functions and are the entities that enter into agreements regarding land use such as mining. They must
120 Metropolitan Fire Brigades Board v Commissioner of Taxation (1990) 27 FCR 279. 121 (2006) 228 CLR 168, 211. 122 Ibid. 153 however consult with Traditional Owners and Aboriginal residents of the mine affected areas and gain the consent of Traditional Owners before this can be agreed to. Other functions include assisting Indigenous Australians to enter into commercial activities and agreements. Section 23(2) states that a Land Council may with the approval of the Minister perform any functions conferred on it by a Northern Territory law including protection of sacred sites, access to Aboriginal land and schemes for the management of wildlife on
Aboriginal land.
The Councils’ functions as articulated in s 23(1) are to assist private citizens to obtain ownership of land and manage that land on their behalf and protect sacred sites on the land.
The Councils’ management is in accordance with the statute and subject to agreement by the Traditional Owners. It is not subject to ministerial scrutiny. The functions of the Land
Councils may even be inconsistent with other government policy, eg allowing mining on
Aboriginal land. If the Councils were subject to government control then a change in government policy regarding Aboriginal land would affect the way that Land Councils are able to manage this land without the need for legislative amendment.
The powers of the Councils are expressed in terms of their functions which I suggest are broad and subject to minimal ministerial control.123 One counterargument is that the
Minister must approve a Land Council entering into an agreement on behalf of a Land
Trust holding land in its area that is for more than $1 m.124 This essentially provides an upper limit to the financial risk that the Land Council is exposed to. It does indicate control
123 ALRA s 27. 124 ALRA s 27(3). 154 but is arguably there to ensure that where large sums are at stake the wishes of the local
Indigenous people are taken into account rather than that government policy is adhered to.
This is clear when we read the terms of s 27(4), which provides that the Minister’s agreement will not be granted unless the Traditional Owners have been consulted in accordance with s 23(3).
A telling factor is the approach of the entity itself in its public documents. The Central
Land Council’s Annual Report clearly states that ‘although its (the Land Council’s) functions are determined by the Act, the Land Council is first and foremost a representative organisation for the Aboriginal people in its area’.125 The ATO accepts for the purposes of the ITAA97 that three of the Councils, the Northern, Central and Anindilyakwa Land
Councils are all tax concession charities.126
With respect to the concept of voluntarism, as the Land Councils are created by statute and with responsibilities and obligations that are set out in the statute it is difficult to reconcile them with Harding’s view. However the case law does establish that statutory corporations are not necessarily creatures of government and the public statements of the Land Councils referred to above do indicate that they pursue their functions in order to benefit the
Indigenous people they represent and not as part of government policy.
For all the reasons stated above I argue that the Councils are not part of the machinery of government and must be treated like other taxpayers.
125 Central Land Council, Annual Report (2009-2010) 6. 126 Furthermore, although ABN Lookup does not state that the Tiwi Land Council is a charity the Council’s Annual Report does state it is; see Tiwi Land Council, Annual Report (2008-09) 69. 155 The Land Councils’ charitable status127 also means that they are exempt from income tax on all their income no matter what type or where it is from.128 Any amount paid to them as income is therefore not taxable so in effect the royalty equivalents if considered ordinary income to these Land Councils would be subject to nil income tax instead of the 4 per cent
MWT.
3.5.1.2 Whether Distributions to Land Councils under ALRA for their Administration
Expenses are Assessable Income
If my conclusion that Land Councils are taxpayers is correct then it is now relevant to my thesis that I analyse whether payments made to the Land Councils under s 64(1) ALRA are ordinary income at common law. These payments are currently subject to 4 per cent MWT however if they are not income under common law principles the result is inconsistency between the MWT and taxation law. I point out that there is no statement in Division 11C or any other part of the income tax legislation that deems these payments to be income and the general implication of the Division is that all payments under the ALRA would otherwise be income at common law.
The relevant provision in the ALRA is s 64(1) which states that:
(1) There must be debited from the Account from time to time, and paid by the
Commonwealth for distribution between or among the Land Councils such amounts as the
Minister determines having regard to the following in relation to each Land Council:
127 Australian Government, ABN Lookup http://www.abr.business.gov.au/. 128 Tax concession charities are exempt from income tax refer ITAA97 div 50. 156 (a) the most recent estimates approved by the Minister under section 34;
(b) the most recent amounts notified to the Minister under subsection 34(1A);
(c) any surplus specified in the most recent financial statements prepared under clause 2 of
Schedule 1 to the Commonwealth Authorities and Companies Act 1997 and given to the
Minister.
Section 34 requires that each Land Council prepares estimates of its expenditures to meet its administrative costs or capital costs for each financial year. Section 34(1A) requires each
Land Council to provide an estimate of any fees it expects to receive during the same period. Payments out of the ABA under s 64(1) therefore represent an estimate of the administrative expenses of each Land Council taking into account any other income that it receives during the financial year.
As discussed in Chapter 2 economists traditionally refer to income as being a financial
‘gain’.129 They determine a person’s income for a period of time by reference to their change in wealth over that period plus their consumption during the same period. This concept means that all gains including unrealised gains form part of income however the
Australian courts take a narrower view and only include as income realised gains. From a
129 Robert Haig, The Concept of Income-Economic and Legal Aspects: The Federal Income Tax: (Columbia University Press, 1921) 1–28; Henry Simons, Personal Income Taxation: the Definition of Income as a Problem of Fiscal Policy (University of Chicago Press, 1938); J King, ‘The Concept of Income’ in Parthasrathi Shome (ed), Tax Policy Handbook (International Monetary Fund, Washington, 1995) 117. 157 taxation law perspective it is therefore important to decide whether or not there is a realised gain to the taxpayer to determine if an amount received is income.130
The leading case on this point is Hochstrasser v Mayes.131 As discussed in chapter 2, in this case the taxpayer was employed by a company that paid compensation to employees for any loss on the sale of their home when they were transferred from one place of business to another. The taxpayer was transferred and made a loss on the sale of his house for which he was paid compensation. Lord Denning held that the amount received was not income as the taxpayer did not make a gain. This principle was applied in Australia in Lees & Leech Pty
Ltd v Federal Commissioner of Taxation132 where the taxpayer was paid $40,000 by its landlord as part reimbursement of the costs incurred to fit out the premises it leased. The work did not result in any gain to the taxpayer as the value of the fit out to the taxpayer at the end of the lease would be no more than its scrap value. As there was no gain, the company was not assessable on the $40,000.
In order to determine whether or not payments to cover Land Council administrative expenses are income it is therefore necessary to ask whether there has been a gain to the
Land Council through the receipt of payments under s 64(1). It appears from the wording of the section that they are, in effect, to reimburse the Land Council for its administrative costs such as office rent, staff salaries, computers and running expenses. Each Land
Council’s Budget has to be approved by FaHCSIA and an amount is then paid from the
130 Hochstrasser v Mayes [1960] AC 376. 131 [1960] AC 376. 132 (1997) 73 FCR 136. 158 ABA to cover these expenses.133 The amounts are estimated and approved in advance; however, the payments are to cover these estimations which in reality means that they reimburse the Land Councils’ operating costs as all amounts are required under ALRA to be spent in the financial year or allocated to the following year’s budget.134 There is no gain to the Land Council as it is not in a better financial position at the end of the income year than at the beginning. This argument is supported by the conclusion in the review of the
ALRA which was commissioned by the Federal Government in 1997. The final report stated that the impost of the MWT on payments to Land Councils to cover their administrative expenses was ‘illogical’.135 It further states that:
Given that the application of mining withholding tax was apparently intended to be a final
tax at source to cover whatever payments may be made to individuals from the ABR, the
application of the tax to the monies distributed by the ABR to the Land Councils for their
administrative expenses appears to be illogical.136
This criticism is further supported by the House of Representatives Standing Committee on
Aboriginal and Torres Strait Islander Affairs which subsequently stated, when recommending the abolition of the MWT that it is ‘also unnecessarily inconsistent (the
133 ALRA s 34 and s 64. 134 ALRA s35(1). 135 Commonwealth of Australia, Building on Land Rights for the Next Generation: The Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (John Reeves, 1998) 364. 136 Commonwealth of Australia, Building on Land Rights for the Next Generation: The Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (John Reeves, 1998) 364. 159 Committee believes) that the budgets of land councils, as Commonwealth authorities, are taxed at source’.137
3.5.1.3 Distribution of Areas Affected Moneys to Royalty Associations and potentially to Individual Traditional Owners
Before analysing whether areas affected moneys are actually income I will identify the entities that these payments are made to. Since 2006, distributions of 30 per cent of royalty equivalents in accordance with s 64(3) have been required to be made to Aboriginal corporations (royalty associations) and not individuals. The 2009 and 2010 FaHCSIA
Annual Reports advise that the Land Councils distribute this amount to royalty associations in order to benefit those Indigenous people who are affected by mining operations.138 The
2008 audit of the ABA undertaken by the Office of Evaluation and Audit advises that since
2006 royalty associations are required to specify a purpose for any payments they make to groups or individual Indigenous persons.139 This 2008 report lists the names of all royalty associations together with payments for the 2004-05, 2005-06 and 2006-07 years.140 When
I examine the 2006−07 year report I find that the total of payments to royalty associations was $26,460,281. Of this total $16,872,077 or more than half was paid to entities that are
137 Commonwealth of Australia, House of Representatives, Standing Committee on Aboriginal and Torres Strait Islander Affairs, Unlocking the Future: The Report of the Inquiry into the Reeves Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (1999) 68-69. 138 FaHCSIA, Annual Report (2008−2009), Appendix 12 Aboriginals Benefit Account Annual Report 2008-09 and FaHCSIA, Annual Report (2009-2010), Appendix K Aboriginals Benefit Account Annual Report 2009−10. 139 Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account (November 2008) [4.12]. 140 Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account (November 2008) [4.21] and Appendix B. 160 also income tax exempt charities.141 The Gundjeihmi Aboriginal Corporation received
$4,190,621, Gumatj Association Inc $1,406,230, Rirratjingu Association $432,686,
Laynhapuy Homelands Association $360,272, Ngurratjuta Aboriginal Corporation
$1,814,749, Groote Eylandt and Bickerton Island Enterprises Aboriginal Corporation
(GEBIE) received $8,417,519 and Amangarra Aboriginal Association $250,000. All these entities are income tax exempt as charities.142 This means that all their income is exempt from income tax.143 These royalty associations are effectively subject to a tax on moneys that if received in another form would be exempt from income tax. An examination of the
2010 Annual Reports for the Northern and Central Land Councils indicate that distributions in accordance with s 64(3) totalling $21 m were made to six royalty associations (four by the Northern Land Council and two by the Central Land Council) during the 2009-10 financial year.144 Five of these entities are charities.145 Granites Mines Affected Areas
Aboriginal Corporation (GMAAAC) is not a charity according the Commonwealth
Government ABN Lookup website however its financial reports lodged with ORIC indicate that it is.146 Furthermore, as will be discussed later in this Chapter, the majority of its areas affected moneys are used for community development purposes. The Anindilyakwa Land
141 Australian Government, ABN Lookup
GEBIE financial accounts lodged with the Federal Government, Office of the Registrar of
Indigenous Corporations (ORIC) for the same period confirm that it received this distribution.148 According to the Tiwi Land Council 2009-10 Annual Report this Council did not receive any areas affected moneys for this year.
It will also be demonstrated in more detail in Chapter 5 that if any money is distributed by charities to individuals it must be in accordance with the charity’s charitable purpose; otherwise the charity will lose this status. For example, a charity that is for the advancement of education can pay money for educational scholarships or to cover expenses related to gaining an education; a charity that is for the relief of poverty can pay impoverished peoples medical bills and make a contribution towards their essential living expenses such as food and rent. Such payments, as demonstrated in Chapter 5, are accepted at common law and by the ATO as charitable distributions and not income and not taxable.149 In respect of charities for the relief of poverty the ATO has specifically stated that poverty can be relieved by providing money, accommodation, and legal or medical aid.150
147 Anindiliyakwa Land Council, Annual Report (2007-08) 54. 148 GEBIE, Financial Accounts 2007 and 2008. 149 Flynn v Mamarika [1996] NTSC 16, [24]. 150 ATO, Income Tax and Fringe Benefits Tax: Charities, TR 2011/4, 12 October 2011 [316]. 162 If any money is paid by non-charity royalty associations to individual Traditional Owners then potentially this is income and, if the MWT did not exist, it would be subject to ordinary income tax rates at progressive marginal tax rates. For example GMAAAC received royalties via the Central Land Council in respect of areas affected moneys totalling $5.4 m in 2009 and $4.44 m in 2010.151 According to GMAAAC’s financial reports lodged with ORIC the company distributed $1.8 m in 2008 and $2 m in 2009 to
Traditional Owners. The GMAAAC General Report also lodged with ORIC lists just under
700 individual members for this same period.152 Therefore each Traditional Owner would, on average, have received approximately $2,881. It will be demonstrated in Chapter 4 that in the vast majority of cases Traditional Owners in the Northern Territory are below the income tax threshold (when the low income offset and remote area or zone rebate are taken into account). Furthermore, I demonstrate in Chapter 4 that this is still the situation if individual payments are included with their other income. This is because averaged distributions are usually in the range of $1,000 to $3,000 in view of the total amount of distributions and the number of Traditional Owners that a royalty association represents.153
Therefore even if these distributions are included in their assessable income the individual
Traditional Owners are likely to remain non-taxable.
151 Central Land Council, Annual Report (2009-10) 85, 142. 152 GMAAAC, General Report (2009). 153 For example, GMAAAC discussed above. Another example is the Traditional Owners represented by Amawurra Aboriginal Corporation on Groote Island who, on average, each received $2,278 for 2006 and $962 for 2007. The total distribution for each year was $207,278 and $87,530 and there were 91 individual Traditional Owners at this time; see Amawurra Aboriginal Corporation, Financial Report (2006) and (2007) lodged with ORIC. 163 I should also point out that in 2008-09 the Central Land Council introduced a community development arrangement that uses all GMAAAC’s areas affected moneys for community development programs and not for individual benefits.154 Thus even though GMAAAC may not be endorsed as an income tax exempt charity its activities are for the benefit of the community which in many cases will also fall within the definition of charitable activity, as will be discussed in Chapter 6.
3.5.1.4 Whether Distribution of Areas Affected Moneys to Royalty Associations and through them to Individuals is Assessable Income
It was discussed above that some areas affected moneys are paid to entities that are not charities. In this case it is important for the purposes of determining whether or not the
MWT complies with income tax principles to analyse whether the areas affected moneys are actually income. Section 64(3) together with s 35(2) ALRA provide that 30 per cent of the royalty equivalents are to be distributed by the relevant Land Council to the royalty associations whose members live in, or are the Traditional Owners of, the area affected by the mining operations. The 2009 and 2010 FaHCSIA Annual Reports confirm that the Land
Councils distribute areas affected moneys to royalty associations in order to benefit those
Indigenous people who are affected by mining operations.155 Section 35(2) ALRA provides that areas affected moneys must be paid to the royalty associations whose members live in or are the Traditional Owners of the area affected by mining. This provides a causal link
154 Central Land Council, Annual Report (2009-10) 85. 155 FaHCSIA, Annual Report (2008−2009), Appendix 12 Aboriginals Benefit Account Annual Report 2008-09 and FaHCSIA, Annual Report (2009-2010), Appendix K Aboriginals Benefit Account, Annual Report (2009−10). 164 between these payments, the land and mining activity on the land which indicates income characteristics as discussed in Chapter 2. However, before I discuss this point it is important to determine who the relevant taxpayer is and what they are receiving. This relates back to the income tax principle established in Chapter 2 that the character of the receipt must be determined in the hands of the recipient.
The freehold title to Aboriginal land is held by the Land Trusts156 but these entities are not allowed to accept money so it is the Land Councils who receive any money in respect of the land and mining.157 Once the Land Councils receive the areas affected moneys it is then payable within 6 months of receipt to royalty associations but in such proportions as the
Council determines.158 A further complication is that the royalty associations may represent
Indigenous residents of the mining area as well as the Traditional Owners of this area who are the beneficial owners of the land. It is arguable that the Land Councils hold the royalty equivalents on constructive trust for the royalty associations with fiduciary obligations to distribute this money within 6 months of receipt but with discretion as to which associations it is distributed to.159 On this basis the royalty associations receive these amounts as beneficiaries of a trust. These trust distributions would be assessable to them as trust income under Part 3, Division 6 ITAA36. As corporations or unincorporated associations the royalty associations are taxable at the rate of 30 per cent on all income they receive as trust beneficiaries. However, it is open to each royalty association to hold the
156 ALRA s 5. 157 ALRA s 6. 158 ALRA s 35(2). 159 This is in accordance with general trust law principles as discussed in G E Dal Pont, Equity and Trusts in Australia (5th ed, Thomson Reuters, 2011). 165 money on discretionary trust for its members (the individual beneficiaries who are the
Traditional Owners and the Indigenous residents of the areas affected by mining). The royalty association can then distribute the trust income in the most tax effective manner bearing in mind the progressive income tax rates, low income tax offset and zone rebate that may be available to individual taxpayers. How this operates in respect of an individual
Traditional Owner taxpayer was discussed briefly above in respect of GMAAAC and is developed in more detail in Chapter 4. It is suggested that in many cases, even if individual distributions are included in a Traditional Owner’s income their total taxable income will still be below the taxable threshold.
Alternatively the Land Councils receive the amounts constructively for the royalty associations in accordance with s 6-5(4) and s 6-10(3) ITAA97. This principle was discussed in Chapter 2 in relation to the Federal Coke Case. If the actual taxpayers are therefore the royalty associations and the areas affected moneys are royalties (in an income tax sense) in respect of mining then, as discussed in Chapter 2, they will be income and taxable. If instead they are compensation for long term damage to a capital asset then, again as discussed in Chapter 2, the payments are capital and therefore not assessable as ordinary income although they may be statutory income and taxable under the CGT provisions.
There is no specific case law relating to whether or not areas affected moneys are income so that in order to answer this question I must turn to general tax law principles. A 1966 decision of the High Court stated that if compensation payments appear simply to be
166 replacing lost income, the courts have considered them income.160 If, on the other hand, what is being replaced is an asset or right of long term or enduring benefit then the amount paid is for lost capital and will be a capital receipt in the hands of the taxpayer.161
These principles were applied in the case of Barrett v Federal Commissioner of Taxation162 which was also discussed in detail in Chapter 2. In this case the High Court concluded that the payments were not income in return for granting a licence to mine the land but were compensation for damage to the land and were therefore found to be capital.163 As the decision was before the introduction of CGT there was no income tax liability in respect of these payments. The more recent decision of Nullaga Pastoral Co Pty Ltd v Federal
Commissioner of Taxation164 was also discussed in Chapter 2 and confirms the High Court view in Barrett. Again this case dealt with the law as it stood before the introduction of
CGT. Opposing this view is the decision of Cape Flattery Silica Mines Pty Ltd v Federal
Commissioner of Taxation.165 This case was discussed in detail in Chapter 2 and it is significant that in this case the regular payments in respect of mining were considered to be
160 Scott v Commissioner of Taxation (1966) 117 CLR 514. 161 Glenboig Union Fireclay Co Ltd v Inland Revenue Commissioners (1921) 21 TC 427; Fiona Martin,‘Native Title Payments and their Tax Consequences: Is the Federal Government’s Recommendation of a Withholding Tax the Best Approach?’ (2010) 33(3) University of New South Wales Law Journal 685; Warren Black, ‘Tax Implications to Native Title Holders of Compensation Payments’ (1999) Journal of Australian Taxation 344, [3.1.1]; Tom Middleton, ‘Native Title and Taxation Issues’ (2000) 28(2) Australian Business Law Review 86. 162 (1968) 118 CLR 666. 163 Barrett v Federal Commissioner of Taxation (1968) 118 CLR 666. 164 78 ATC 4329. 165 Cape Flattery Silica Mines Pty Ltd v Federal Commissioner of Taxation 97 ATC 4552. 167 a type of rental for the use of the Aboriginal Council’s land.166 Furthermore, as the case dealt with whether or not the payments were deductible to the mining company it is not authority for or against the income nature of mining payments.
Barrett and Nullaga suggest that where damage is being caused to the land when the resources are being extracted, or a severe interference to the ability to use the land will follow, compensation payments will be considered capital. Even though these decisions involved periodical payments, which can suggest a replacement of income, the payments were found to be capital on the basis that the land was subject to long term damage and not useable by the taxpayer owner. However an early High Court case dealing with the sale of land stated that if the same amount had been paid as a lump sum for the sale of land (rather than a series of payments for a 50 year lease) it would have been considered capital rather than income.167 Therefore there are some cases, including Cape Flattery Silica Mines that support the view that where there are few other facts to indicate a capital receipt a series of payments are more likely than a one-off payment to be considered income as they are regular and periodic which are characteristics of income.168 The regular nature of the payments in the Cape Flattery Case together with the opinion that there would be no loss to the value of the land gave them an income characteristic. As Spender J stated:
These payments are recurrent payments (calculated as a percentage of gross sales) in lieu of
compensation for deprivation of possession, diminution in value, diminution of the use
166 97 ATC 4552, 4559. 167 Just v Federal Commissioner of Taxation (1949) 8 ATD 419, 422. 168 Just v Federal Commissioner of Taxation (1949) 8 ATD 419, 422; Cape Flattery Silica Mines Pty Ltd v Federal Commissioner of Taxation 97 ATC 4552. 168 which may be made of the land, severance of any part of the land, compensation for any
surface rights of access, and for loss and expense that arises as a consequence of the
renewal of the mining lease...
While one of the factors in s 7.38 is damage to the land, in my opinion it is not likely in this
case that there will be any diminution in the value of the land, particularly given the
obligations under the mining lease to rehabilitate the land, which include the obligations
imposed by s 7.33 of the Mineral Resources Act.169
The essential character of the payments in issue in the present case is that of a series of
recurrent payments in the nature of rental, for the right of occupation by the taxpayer, a
right which otherwise would be enjoyed by the aboriginal community. The quantum of the
recurrent payments is calculated by reference to the value of silica sand that is won from the
mining lease.
In my opinion the payments made under the compensation deeds are on revenue account.170
However it was also significant to the decision that the long term damage to the land was not considered great in view of the legislative requirement to rehabilitate the site.171 I also argue that it can be inferred from the tone of the judge’s comments that sand mining is not considered as damaging a form of mining as other types of mining.
169 Sections 7.33 and 7.38 were amended by the Mineral Resources Amendment Act 1995 (Qld). They provided that the owner of mineral leases rehabilitate the mine site once mining ceased. The requirement now is that an environmental management plan is in place. 170 97 ATC 4552, 4563. 171 Ibid. 169 The cases indicate that the severity of the interference of the mining operation and the prevention of use of the land for any other purposes will influence the decision of whether or not the mining payments are capital. For example, if land can be mined, but communities can still live there, food can still be hunted, or a cultural practice can still take place, then it is possible a court would consider payments as a licence fee or rental payments for the mining company’s use of the land rather than compensation for long term damage. This interference will be a question of fact depending on the type of mining taking place, eg is it uranium, gold, coal or sand? Each type of mining will cause different levels of disturbance to the land. Other relevant factors include the size of the mine, the life expectancy of the mine, the expected level of pollution and the likely success of rehabilitation of the mining site. Apart from digging, the construction of mines requires that roads and facilities (such as processing and enriching plants) also need to be built. This significantly changes the physical landscape of the mine site and its surrounds172 and will also be a relevant factor in determining whether or not there has been long term damage to the land.
One example which I analyse as a case study in Chapter 5 is the Kakadu and Jabiru areas in the Northern Territory which are the traditional home of the Mirarr people. The royalty association for the Mirarr receives mining payments net of the 4 per cent MWT in accordance with Division 11C. The mining that takes place in Kakadu is uranium and the main environmental implication of uranium mining is the potential for radioactive contamination. Water discharged from uranium mines can contain traces of radioactive
172 Australian Conservation Foundation, Submission to the House of Representatives Standing Committee on Industry Resources, Inquiry into the Strategic Importance of Australia’s Uranium Resources, 2005; The Environment Centre, Northern Territory http://www.ecnt.org/index.html. 170 materials. The disposal of tailings (radioactive waste products) can also lead to radioactive contamination of downstream water and habitats if the dams and pits used to dispose of them are faulty.173 The destruction of habitats and maintenance of biodiversity are other issues related to uranium mining.174
A 2005 Federal Government inquiry found that uranium mining posed no more threat to the environment than other forms of mining.175 There is however concern regarding the rehabilitation of some uranium sites in Australia.176 Furthermore leaks have been reported at the Ranger site.177
In the situation of uranium mining it may therefore be arguable that the long term damage to the land and the surrounding eco-systems are severe and not easily repaired so that payments that take the form of royalties or a percentage of profits are in reality compensation for damage to the land. When determining the significance of the land usage, the area and the length of time that the land cannot be used by the Traditional Owners and residents will be relevant. The long term damage to the land and the site rehabilitation
173 United Nations Educational, Scientific and Cultural Organisation, Convention Concerning the Protection of the World Cultural and Natural Heritage, ‘Kakadu National Park Australia’ (1999) v; Gavin M Mudd, ‘Radon Release from Australian Uranium Mining and Milling Projects: Assessing the UNSCEAR Approach’ (2008) 99 Journal of Environmental Radioactivity 288. 174 Australian Conservation Foundation, Submission to the House of Representatives Standing Committee on Industry Resources, Inquiry into the Strategic Importance of Australia’s Uranium Resources, 2005; The Environment Centre, Northern Territory http://www.ecnt.org/index.html. 175 House of Representatives, Standing Committee on Industry and Resources, ‘Australia’s Uranium-Greenhouse Friendly Fuel for an Energy Hungry World’ (2006). 176 Ibid lxiii, 10. 177 Department of Environment and Heritage, Supervising Scientist, ‘Investigation of Tailings Water Leak at the Ranger Uranium Mine’ (2000). 171 prospects will also be relevant.178 In addition, whether or not the area surrounding the mine can be also used for the owner’s usual activities is relevant.179 Such a decision will depend on the type of mining activity undertaken. In the case of uranium mining there may be long term damage to such an extent that parts of the land will never be usable for Indigenous hunting and cultural activities180 but in the case of sand mining, site rehabilitation may be more feasible.181
A further important point is that areas affected moneys may also be paid by royalty associations to Indigenous Australians who are resident in the mining affected areas but who may not be the Traditional Owners. The argument that areas affected moneys going to them is for damage to their interest in the land does not apply. However it is arguable that the moneys are to compensate them for loss of the ability to use the land for living on, hunting, gathering and cultural practices.
Some commentators have concluded that the areas affected moneys, of all three streams under the ALRA from the ABA, is the most clearly linked to compensation for damage to
178 Barrett v Federal Commissioner of Taxation (1968) 118 CLR 666. 179 Nullaga Pastoral Co Pty Ltd v Federal Commissioner of Taxation 78 ATC 4329. 180 Gundjeihmi Aboriginal Corporation, Submission to the House of Representatives Standing Committee on Industry Resources, Inquiry into Developing Australia’s Non-Fossil Fuel Energy Industry, May 2005, 12 states that the environment will need to be monitored for at least 10,000 years. 181 On uranium see Australian Conservation Foundation, Submission to the House of Representatives Standing Committee on Industry Resources, Inquiry into the Strategic Importance of Australia’s Uranium Resources, 2005; The Environment Centre, Northern Territory http://www.ecnt.org/index.html; on sand mining see Cape Flattery Silica Mines Pty Ltd v Federal Commissioner of Taxation 98 ATC 4552. 172 the ‘Aboriginal lands’ in the Northern Territory.182 The 1973 and 1974 Woodward Reports indicated that areas affected payments included some form of compensation for loss of land and or damage to the land as well as providing revenue to the Traditional Owners.183 It therefore had a twofold purpose and one purpose was the compensation for damage to the land.
In his 1983 study Aborigines and M ining Royalties in the Northern Territory Altman accepts that the Second Woodward Report viewed areas affected moneys as compensation for Aboriginal communities located within 60 kilometres of a mining project.184 In a subsequent publication Altman refers to the meaning of ‘compensation’ in the non-tax technical manner as to provide recompense, counter-balance or make amends to persons by means of another thing. Using compensation with this meaning he argues that the areas affected moneys were intended to compensate the Indigenous owners for social, cultural and economic upheavals that were a consequence of mining near where they were living.185
3.5.1.5 Conclusion
Arguably areas affected moneys paid to royalty associations are direct compensation for the negative impacts of resource developments projects. It is possible to conclude that where
182 Woodward Report 1974, 108; Commonwealth of Australia, Report on the Review of the Aboriginals Benefit Trust Account (and Related Financial Matters) in the Northern Territory Land Rights Legislation (Jon Altman, 1985) 229-234; J C Altman and DP Pollack, ‘Financial Aspects of Aboriginal Land Rights in the Northern Territory’ (Discussion Paper No 168, CAEPR, 1998) 3, 26. 183 Woodward Report; Woodward Report 1974, 108. 184 J C Altman, Aborigines and Mining Royalties in the Northern Territory (AIATSIS, 1983) 111. 185 J C Altman, ‘The Payment of Mining Royalties to Aborigines: Compensation or Revenue?’ (1984) 5(3) Anthropological Forum 474, 475. 173 there is significant mining activity which causes long term damage to the land and which prevents the Traditional Owners and other Indigenous residents from hunting and living their traditional lives on the land or using an important part of it such as a sacred site, the areas affected moneys are not ordinary income. Where this is the case the arguments that I have raised in Chapter 2 regarding the application of CGT are relevant. The specific application of CGT principles to areas affected moneys is discussed below.
3.5.1.6 Analysis of Distribution of Areas Affected Money in accordance with Capital
Gains Tax Principles
As discussed in Chapter 2 of this thesis, even when amounts are found to be capital, the introduction of CGT into the income tax legislation means that these amounts may still be included as part of assessable income.186 Capital gains arising after 19 September 1985 will generally be included in assessable income. CGT arises where what is termed in the legislation a ‘CGT event’ takes place.187 The most common CGT event occurs where there is the change of beneficial ownership of an asset from one person to another (CGT event
A1).188 The most common example is the sale of land. For CGT to apply to the gain on this sale the land must have been acquired by the potential taxpayer on or after 19 September
1985.189 There are however many other situations where a CGT event occurs as was
186 The current CGT provisions are found in pts 3-1 and 3-3 ITAA97. 187 ITAA97 division 104 lists all the CGT events. 188 ITAA97 s104-10. 189 ITAA97 s 104-10 (5) ‘A capital gain or capital loss you make is disregarded if: (a) you acquired the asset before 20 September 1985’. 174 discussed in Chapter 2.190 If an amount is assessable as income then it is not included as a capital gain.191 This prevents double taxation of the same amount. It is also why I discussed the application of general income tax principles to areas affected moneys before discussing
CGT.
As stated above where CGT event A1 applies, the land must have been acquired and disposed of after 1985. The granting of land under the ALRA commenced in 1976 and is subject to a grandfather clause that provides that no new land claims can be made after June
1997.192 In some instances Aboriginal land under ALRA will therefore have been acquired by the Land Trusts prior to the coming into existence of CGT. This means that the disposal of such land, as long as it was acquired before 20 September 1985 is not subject to CGT.193
Some land may have been acquired after 1985, however it is arguable that all land held in accordance with the ALRA was, in reality but not in a form recognised by European law, acquired by the Traditional Owners prior to European settlement in 1788. If this argument is accepted and the actual land is disposed of then, although A1 technically applies, as the
190 Gordon Cooper and Chris Evans, Cooper & Evans on CGT (Thomson Reuters Australia, 2009) 30, [2 030]. 191 ITAA97 s 118-20. 192 ALRA s 50(2A). 193 Glenboig Union Fireclay Co Ltd v Inland Revenue Commissioners (1921) 21 TC 427; Fiona Martin,‘Native Title Payments and their Tax Consequences: Is the Federal Government’s Recommendation of a Withholding Tax the Best Approach?’ (2010) 33(3) University of New South Wales Law Journal 685; Warren Black, ‘Tax Implications to Native Title Holders of Compensation Payments’ (1999) Journal of Australian Taxation 344, [3.1.1]; Tom Middleton, ‘Native Title and Taxation Issues’ (2000) 28(2) Australian Business Law Review 86. 175 land is pre-CGT there is no liability. This scenario is however unlikely as Aboriginal land under ALRA is inalienable.194 Therefore other CGT events must now be analysed.
3.5.1.7 Areas Affected Money and CGT Event C2
As discussed in Chapter 2 CGT event C2 happens if a taxpayer’s ownership of an intangible CGT asset (such as a contractual right) ends because it is redeemed, cancelled, released, discharged, satisfied, abandoned, surrendered, forfeited or expired.195
The common scenarios that this CGT event applies to are the cancellation or redemption of shares. For this event to apply there needs to be an intangible asset as discussed in Chapter
2. In the case of areas affected moneys this asset could be the statutory right under ALRA to the 30 per cent of royalty equivalents. This intangible asset must have been acquired on or after 20 September 1985.196ALRA was enacted in 1976 however it is arguable that the right arises each year when payment is made to the Land Councils for distribution to the royalty associations. The obligation to make the distribution arises each time there is payment of royalty equivalents into the ABA that relate to the relevant area being mined.
Does payment of this distribution discharge or satisfy the right? There is no case law on this point. If CGT event C2 does apply then, for the reasons established in Chapter 2 I argue that the payments may relate to an underlying pre-CGT asset. The ATO states in
Taxation Ruling TR 95/35 that where C2 may apply and there is an underlying asset the
194 ALRA s 19. 195 ITAA97 s 104-25(1). The common scenarios that this CGT event applies to are the cancellation or redemption of shares. 196 ITAA97 s 104-25(5)(a). 176 compensation will be treated as a recoupment of the original cost of the underlying asset in a ‘look through approach’.197
In addition, there will be no disposal of the asset at that time. The result is that any CGT is deferred and eliminates the problem that a ‘right to sue’ or a ‘right to compensation’ is a
CGT asset that would otherwise trigger CGT on its disposal.198 If this argument is accepted then the reasoning in the ATO ruling means that the payment in relation to pre-CGT
Aboriginal land is not subject to CGT.
3.5.1.8 Areas Affected Money and CGT Event D3
This event occurs if the owner of a prospecting or mining entitlement grants another entity a right to receive ordinary income or statutory income from operations permitted to be carried on by the entitlement.199 The ALRA does not empower the Land Trust, Councils or the royalty associations to grant another entity the right to receive income from mining operations. It empowers the Land Councils to consent to exploration licences and mining. I therefore argue that event D3 does not apply.
197 Australian Taxation Office, Income Tax: Capital Gains: Treatment of Compensation Receipts, TR 95/35, 29 November 2006, [4]–[5]. 198 Gordon Cooper and Chris Evans, Cooper & Evans on CGT (Thomson Reuters Australia, 2009) 310 [11 240]. 199 ITAA97 s 104-45. 177 3.5.1.9 Areas Affected Money and CGT Event D1
Event D1 occurs where ‘you create a contractual right or other legal or equitable right in another entity’.200 There are potentially three rights covered by D1 in relation to areas affected moneys. First, the right to the areas affected moneys under the ALRA, second the right to mine that the government creates in the mining company201 and third, the rights under the agreement entered into by the Land Council after consultation with the
Traditional Owners and Aboriginal people living in the area affected by the mining in accordance with the ALRA202 (this third right will be discussed later in this Chapter when dealing with mining payments that are outside ALRA).
The right to areas affected moneys under ALRA is not created by the Land Council or the royalty associations but by the statute so arguably D1 does not apply. The right to explore for minerals and mine is granted by the government so D1 does not apply to the Land
Councils or Traditional Owners.
3.5.1.10 Areas Affected Moneys and CGT Event H2
The final CGT event that might apply to this situation is H2.203 CGT event H2 applies as a last resort, so will not apply if another CGT event will.204 H2 happens where an act, transaction or event occurs in relation to a CGT asset owned by the taxpayer and this act,
200 ITAA97 s 104-35. 201 Through the grant of exploration licences and mining tenements, Part IV ALRA. 202 ALRA s 40 and 45. 203 ITAA97 s 104-35. 204 ITAA97 s 102-25(3). 178 transaction or event does not result in an adjustment to the asset’s cost base. The legislation does not exclude the application of this provision to underlying assets that are pre-CGT so it potentially applies to land or a right that is pre-CGT. The crux of event H2 is whether it can be said that an act, transaction or event occurs ‘in relation to’ a CGT asset of the taxpayer. There is little case law on this event however in Commissioner of Taxation v
McNeil,205 which was discussed in detail in Chapter 2, the Full Federal Court commented on H2, ultimately holding that it did not apply to the complex share buyback scheme that was the subject of the case. A relevant point from French J’s discussion was that event H2 must apply to an asset owned by the taxpayer at the time of the relevant event.206
Technically the Land Trusts are the legal owners of the Aboriginal land under ALRA and the Traditional Owners are the beneficial owners. The agreement is with the Land Council which does not own the land so if this reasoning is correct H2 cannot apply.
An alternative argument turns on the use of the term ‘in relation to’ in s 104-155(1). This phrase is usually broadly interpreted.207 The width of the application of this provision is shown by the example in the legislation which states that this event will apply where the taxpayer owns land that it intends to develop. Another entity pays the taxpayer a sum of money to commence development early and no contractual rights or obligations are created by the arrangement. The payment is made because of the event (the inducement to start construction early) in relation to the taxpayer’s land. This situation occurs in a commercial
205 [2005] FCAFC 147. 206 Ibid [58]. 207 Paul Tanti, ‘Capital Gains Tax: The Obscure Provisions’ (2011) Vol 45 (11) Taxation in Australia 668, 671. 179 context and it is certainly arguable that the ATO would seek to apply H2 where no other
CGT event applies and an amount is paid in a commercial context.208 This is what the ATO attempted to do unsuccessfully in McNeil’s Case. If the asset is the Aboriginal land then the comments of the Full Federal Court in McNeil’s Case state that the act, transaction or event must be in relation to this land and the payment of capital proceeds must be because of the act, transaction or event.209 If the act, transaction or event is the agreement under s 46 and the Land Council is considered to be merely acting as a representative or on behalf of the
Land Trust it is still difficult to apply H2 as these Land Trusts are not empowered to receive money. Capital proceeds in relation to H2 events are specifically defined as the money or other consideration the taxpayer is entitled to receive because of the act, transaction or event.210 There is no temporal or causal connection between payment of areas affected moneys and the entering into of the s 46 agreement.
3.5.1.11 Conclusion
I argue that it is unlikely that CGT will apply to areas affected moneys. No CGT event is clearly relevant to the situation for the reasons stated above. If CGT event C2 could apply it is strongly arguable that the underlying asset, the Aboriginal land, is pre-CGT and on the basis of the reasoning discussed in Chapter 2 there is no CGT liability. It is also arguable that areas affected moneys are not the equivalent of capital proceeds due to the fact that
208 Ibid. 209 [2005] FCAFC 147 [58], [109]. 210 ITAA97 s 116-20(2). 180 they are payable in accordance with the ALRA and are taken from consolidated Federal
Government revenue.
3.5.1.12 The Application of Income Tax Principles to Beneficial Payments
Beneficial payments, the final stream of money from the ABA in accordance with the
ALRA, are made by the Minister for Indigenous Affairs for the benefit of Aboriginal people living in the Northern Territory.211 These payments are used for a variety of purposes; however, they are subject to the Minister’s discretion. FaHCSIA reports that payments are to ‘improve the lives of Aboriginal people in the Northern Territory through improving employment opportunities, education, infrastructure and health’.212
The Minister is advised on beneficial payments by the Account Advisory Committee which was established under s 65 ALRA. All applications are considered three times a year by the
Committee which consists of 14 members from the four Territory Land Councils and a chairperson appointed by the Minister for a three year term.213 Only organisations established under a Commonwealth, state or territory law can apply for ABA funding.
These organisations include incorporated associations, cooperatives, corporations and Land
Councils but not individuals.214
211 ALRA s 64(4); Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account (November 2008), [4.45]. 212 FaHCSIA, Annual Report (2008−2009), Appendix 12 Aboriginals Benefit Account Annual Report 2008-09 and FaHCSIA, Annual Report (2009-2010), Appendix K Aboriginals Benefit Account Annual Report 2009−10. 213 FaHCSIA Aboriginals Benefit Account (ABA) Guidelines for Grant Applicants, http://www.fahcsia.gov.au/sa/indigenous/funding/aba1/Pages/intro.aspx. 214 Ibid. 181 In 1996 it was reported that a significant portion of beneficial payments had been used to purchase pastoral stations that then became eligible for land claims.215 In 2011 the Federal
Government advised that funds were available for major economic projects, small business initiatives, land and sea management, community enhancement, scholarship and sponsorship in education and leadership and ceremonial and funeral support.216 Payments for the last two items are to Land Councils only. It further advised that all projects must be for the benefit of Aboriginal people living in the Northern Territory.217 The criteria attached to the application state that project funding may be used for project-specific activities, building and infrastructure construction, purchase of assets, salaries and staff training, materials and equipment directly related to the implementation of the proposal and evaluation expenses.218
Major grants approved by the Minister for the 2009-2010 year were reported by FaHCSIA as:
• $6.6 m to provide the Northern Land Council with operational capital to ensure a safe
and healthy work environment for Indigenous ranger groups in the Top End.
• $2 m for the Julalikari Council to build accommodation and rebuild and refurbish local
community centres.
215 Jon Altman, ‘Economic Development and Land Rights in the Northern Territory: Past Performance, Current Issues and Strategic Options’ (Paper presented at Land Rights-Past, Present and Future International Conference, Canberra, 16-17 August 1996) 57. 216 FaHCSIA, Aboriginals Benefit Account (ABA) Guidelines for Grant Applicants. 217 Ibid. 218 Ibid. 182 • $1.5 m over three years for the Tiwi Land Council Sea Ranger Program. This is
intended to protect the Tiwi Islands environment by managing weeds, endangered
species, feral animals and fire, and by enabling the establishment of a cadet ranger
group to care for the forest plantation.
• $1.3 m for construction of a new office structure to accommodate the Dhimurru Land
Management Aboriginal Corporation.
• $1.2 m for the Thamarrurr Development Corporation to purchase eight self-contained
demountables and to purchase civil construction machinery. These demountables are to
provide accommodation for staff working as rangers or in housing and construction.
• $0.6 m for the Central Australian Aboriginal Media Association to refurbish and
upgrade its premises.
• $0.5 m for the Aboriginal Medical Services Alliance Northern Territory's Building
Leadership and Capacity Program in Amangal and Bagot Community. The program is
intended to address social disadvantage, strengthen community capacity, develop
positive and proactive leadership among community leaders, and improve service
coordination and delivery while establishing better relationships with service providers,
including relevant governments.
• $0.2 m for the Yothu Yindi Foundation to support the Garma Festival in 2010.219
219 FaHCSIA, Annual Report (2009-2010) Appendix K. 183 Other grants over this period include Northern Land Council land and sea management programs,220 Central Land Council for construction of an early childhood and learning community centre,221 and grants of $96,617 and $368,060 for the 2009 and 2010 financial years to GEBIE.222 GEBIE is exempt from income tax as a tax concession charity and uses these funds for charitable purposes such as maintaining language and culture and providing educational support and assistance for the benefit of the Indigenous residents of Groote and
Bickerton Islands.223
In the same or similar periods grants were made to the Northern Land Council for ceremonial purposes224 and the Central Land Council to cover funeral expenses.225
Ceremonial and funeral grants enable the Land Councils to provide funds to their members to conduct funerals and ceremonies on their land which is an integral aspect of their cultural and heritage protection.226
The above government statements and the purposes for which the funds are used indicate that they are to be used for community development and infrastructure. They are not
220 Northern Land Council, Annual Report (2009-2010) 187, 188. 221 In 2010 the Community Development Unit of the Central Land Council was successful in gaining $2.6 m for the construction of the Willowra Early Childhood and Learning Community Centre, refer Central Land Council, Annual Report (2009-2010) 84. 222 GEBIE, ‘Report by the Directors for the Year Ended 30 June 2010’ Australian Government, Office of the Registrar of Indigenous Corporations http://www.oric.gov.au/. 223 GEBIE Rule Book, Australian Government, Office of the Registrar of Indigenous Corporations http://www.oric.gov.au/; Flynn v Mamarika [1996] NTSC 16. 224 Northern Land Council, Annual Report (2009-2010) 94. 225 In 2007-08 the Central Land Council received a grant of $500,000 from the ABA for funeral purposes see Central Land Council, Annual Report (2007-2008) 73. 226 Northern Land Council, Annual Report (2009-2010) 94. 184 income under income tax law as they do not have any of the characteristics of income as established in Chapter 2. They are not in return for services, nor are they regular and periodic,227 they are not relied upon by individuals for their day to day support228 and they are not the proceeds of carrying on a business.229 It therefore seems inappropriate and inconsistent with case law that they are subject to a form of income tax.
A further point is that many of the entities receiving these beneficial payments are income tax exempt charities. This includes the Northern, Central and Anindilyakwa Land Councils as well as GEBIE, Alyawarr Ingkerr-Wenh Aboriginal Corporation (relief of poverty, promotion of culture and language),230 Tiwi Designs Aboriginal Corporation (Indigenous art)231 and Mutijulu Community Aboriginal Corporation (relief of poverty).232 The Tiwi
Land Council also reports in its financial statements that it is an income tax exempt charity.233
227 Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540. 228 Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540. 229 Californian Copper Syndicate v Harris (1904) 5 TC 159. 230 Alyawarr Ingkerr-Wenh Aboriginal Corporation is a PBI see Government of Australia, ABN Lookup. Alyawarr received $237,000 in ABA Grants for cultural development; see Financial Report http://www.oric.gov.au/. 231 Tiwi Designs Aboriginal Corporation is income tax exempt as a charity and received an ABA grant of $4,163 to upgrade its pottery shed in 2010; see Tiwi Designs Aboriginal Corporation, Financial Report http://www.oric.gov.au/. 232 Mutitjulu is income tax exempt as a charity and received grants of nearly $200,000 for the years ended 30 June 2009 and 2010; see Mutitjulu, Financial Report http://www.oric.gov.au/. 233 Tiwi Land Council, Annual Report (2010-11). 185 3.6. Application of Income Tax Principles to Non-Royalty Equivalents: The Four
Remaining Categories of Mining Payments under Division 11C
The definition of mining payments in Division 11C of Part III of the ITAA36 has four other categories apart from royalty equivalents under the ALRA. Section 128U states that mining payments also include:
[A] payment made to a distributing body or made to, or applied for the benefit of, an
Aboriginal or Aboriginals, being:
...
(b) any payment made on or after 1 July 1979 that is of the kind referred to in subsection 44
(1) or (2) of the Aboriginal Land Rights (Northern Territory) Act 1976 ; and
(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 Aboriginals 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 Aboriginal land;
(ii) in consideration of the granting of permission to a person to enter or remain on
Aboriginal land or to do any act on Aboriginal 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
Aboriginal land or by way of payment of an amount determined by reference to an amount
186 of mineral royalties received by the Commonwealth, a State or the Northern Territory in
respect of the mining of minerals on Aboriginal land;
but does not include a payment made by a distributing body.
These payments are therefore for permission to enter Aboriginal land, prospect, explore and, or mine the land. Mining payments other than royalty equivalents therefore include payments that are made before mining actually takes place, payments for land access and payments that are in respect of mining including privately negotiated royalties.234
The mining payment defined in s 128U (b) relates to payments for exploration licences pursuant to s 44 (1) and (2) ALRA. Part IV ALRA which contains s 44 establishes an integrated system for the grant of exploration licences over Aboriginal land. Section 40 of
Part IV provides for the grant of an exploration licence in certain circumstances and ss 42,
43 and 44 establish a process of agreement making in respect of these licences. The Part requires that the licence is only granted if the relevant Land Council consents and as part of this process the Council must consult with the Traditional Owners and any Aboriginal community or groups that may be affected by the grant of the licence.235 Section 44A(1) then states that the terms and conditions determined under ss 42, 43 and 44 shall include terms and conditions requiring the payment by the mining company of ‘compensation for damage or disturbance caused to the relevant Aboriginal land, and to the traditional
Aboriginal owners of the land, by exploration activities’. Payments that are in respect of the
234 Commonly referred to as mining royalties or mineral royalties ALRA s 3. 235 ALRA s 42(2). 187 value of the minerals are specifically excluded. This means that mineral royalties as discussed in Chapter 2 are excluded.
The Mineral Titles Act 2010 (NT) (‘Mineral Act’) and Mining Management Act 2002 (NT) also regulate mineral exploration and mining in the Northern Territory. Exploration licences are granted pursuant to ss 26-32 of the Mineral Act and are usually for a term of 6 years236 with the provision for further terms of a maximum of five years.237 They may therefore last a maximum of 11 years. A licence allows occupation of the area and for the exploration for minerals, a process which includes surface sampling, drilling, digging pits and trenches.238 The Mineral Act also provides for the grant of a mineral lease under s 40.
A mineral lease allows occupation of the relevant area and for the exclusive right of mining minerals which includes digging, extracting minerals and the treatment and removal of tailings.239 The period of a lease is at the discretion of the Minister.240
It is difficult to gain specific details of any mining agreements between mining companies and Traditional Owners as they are generally entered into in ‘commercial in confidence’ situations. However, by a process of examining financial reports of the four Land Councils, major mining companies and Aboriginal corporations I have been able to identify certain mining payments. The following are four case studies examining each of the Northern
Territory Land Councils’ Annual Reports to determine the amounts of any mining
236 Mineral Act s 27(3). 237 Mineral Act s 36(2). 238 Mineral Act s 26 and s 31. 239 Northern Territory Department of Primary Industry, Fisheries and Mines, ‘Exploring Country: A Guide to Making an Exploration and Mining Agreement’ 2006, XVI. 240 Mineral Act s 41(3). 188 payments (other than from the ABA) and the entities that have received them in order to determine whether or not they are potentially income.
3.6.1 Northern Land Council
The Northern Land Council (NLC) is responsible for the north half of the Northern
Territory and has approximately 30,000 Indigenous Australians living within its area. Many of the people it represents live in the major towns however the NLC is also responsible for
200 communities ranging in size from small family outstations to settlements of up to 3,000 people.241
The Annual Reports for the NLC identify amounts that are in respect of ss 42, 43 and 44
ALRA. The Reports state that these amounts are held in trust, but do not state which entities or individuals they are distributed to. The amounts for the five years up to 2010, the latest Annual Report, are $792,000 for 2006,242 $1,401,000 for 2007,243 $1,184,000 for
2008,244 $1,206,000 for 2009 and $1,831,000 for 2010.245 These amounts are significantly less than the total ABA distribution of areas affected moneys to the NLC for the same periods which were $5.2 m for 2005-06 and $5.1 m for 2006-07 according to the 2008 audit of the ABA by the Office of Evaluation and Audit.246
241 Northern Land Council, Annual Report (2008-09) 13. 242 Northern Land Council, Annual Report (2006-07) 207. 243 Northern Land Council, Annual Report (2007-08) 213. 244 Northern Land Council, Annual Report (2007-08) 213. 245 Northern Land Council, Annual Report (2009-10) 155. 246 Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account, November 2008 [4.14]. 189 The NLC Annual Reports for 2008-09 and 2009-10 state that areas affected moneys were distributed for the 2008, 2009 and 2010 years under s 64(3) to only four royalty associations. These were the Gumatj Aboriginal Corporation, Rirratjingu Association
Incorporated, Laynhapuy Association Incorporated and Gundjeihmi Aboriginal
Corporation.247 As discussed earlier these entities are all income tax exempt charities. It is reasonable to conclude that as mining is taking place in respect of the areas represented by these corporations that they would also be in receipt of other mining payments for exploration licences under ss 42, 43 and 44 ALRA. However, an examination of the financial reports of all four entities lodged with ORIC does not reveal any such payments or any payments other than from the ABA. For example, the Gundjeihmi Annual Report for
2010 is very comprehensive however it only discloses distributions via the NLC from the
ABA.248 There is also an annual rental payment for the mine site payable by the mining company (ERA) to Gundjeihmi which is $192,000 per annum and which, because it is not linked to increases in the Consumer Price Index has been the same amount for at least ten years.249 ERA states in its 2010 Annual Report that it makes royalty payments to the
Commonwealth Government,250 it also states that a percentage of these royalties is passed
247 Northern Land Council, Annual Report (2008-09) 155; Northern Land Council, Annual Report (2009-10), 184. 248 Gundjeihmi, Annual Report (2010). 249 This rental amount is arguably income as it is regular and periodic and expressed to be for the regular use of the land however, as argued in Chapter 4, once divided amongst the members of the community the amount, even if income, often will not increase the Traditional Owner’s income to a taxable level. 250 ERA, Annual Report (2010) 25. 190 through the ABA to the Traditional Owners and residents.251 There is nothing in the ERA financial statements about any other mining payments.
In 1995 Ciaran O’Faircheallaigh analysed several mineral development agreements negotiated by Indigenous groups in the 1990s. He advises that from 1987 until 1995 the
Northern Land Council had entered into ten agreements involving non-statutory or private mining royalties and were negotiating several more.252 He advises that the fiscal regime for these agreements usually involves a non-statutory royalty equivalent to about 2-3 per cent of the value of the mineral sales.253 In other words, the agreements provide for an ad valorem calculation of royalties. In addition there is often a rental agreement with provision for rental of about $100,000 per annum.254 This is consistent with the Gundjheimi arrangement.
3.6.2 Central Land Council
The Central Land Council (CLC) enters into mining agreements on behalf of the
Traditional Owners in the southern half of the Northern Territory. Its region covers 771,747 square kilometres of remote, rugged and often inaccessible areas. There are 18,000
Aboriginal people from 15 different Aboriginal language groups in Central Australia.255
251 ERA, Annual Report (2010) 25. 252 Ciaran O’Faircheallaigh, ‘Mineral Development Agreements Negotiated by Aboriginal Communities in the 1990s’ (Research Report No 85, CAEPR, 1995) 3. 253 Ibid 4. 254 Ibid. 255 Central Land Council, Annual Report (2009-10) 5. 191 The two royalty associations that received areas affected moneys from the CLC for the
2009-10 year were the Ngurratjuta Pmara Ntjarra Aboriginal Corporation and GMAAAC and the total royalties distributed as areas affected moneys for 2009 was $11.7 m.256 For
2009 GMAAAC reported receiving $5.7 m in royalties257 however Ngurratjuta does not lodge reports with ORIC or provide them on its website. Ngurratjuta is a charity258 and it is unclear whether GMAAAC is or is not.
The 2009-10 CLC Annual Report states that it received $11.7 m for 2009 and $12 m for
2010 in exploration licence fees and privately negotiated royalties.259 In 2003 the CLC negotiated a mining agreement between the gold mining company Newmont Tanami Pty
Ltd (Newmont) and the Traditional Owners (the Warlpiri people) of the Tanami Desert.
The Tanami Desert is approximately 600 kilometres north-west of Alice Springs. The agreement between the Warlpiri people and Newmont is an example of a situation where mining payments are made by the mining company directly to the Traditional Owners in the Northern Territory.260 The mining agreement has also subsumed the nearby Granites
Gold Mine operations which are also operated by Newmont. The life of these mines is anticipated to be about 15 years.261
256 Central Land Council, Annual Report (2009-10) 142. 257 Australian Government, ORIC, GMAAAC, Financial Report (2009-10). 258 Australian Government, ABN Lookup http://www.abr.business.gov.au/Index.aspx. 259 Central Land Council, Annual Report (2009-10) 142. 260 Mick Dodson, David Allen and Tim Goodwin, ‘The Role of the Central Land Council in Aboriginal Land Dealings’ in Australian Agency for International Development, Making Land Work: Case Studies On Customary Land and Development in the Pacific (2008) 107,118. 261 Central Land Council, Submission to FaHCSIA Consultation Paper, Leading Practice Agreements: Maximising Outcomes from Native Title Benefits’ and Treasury, Consultation Paper, 192 As a result of this agreement with Newmont, the Warlpiri Education and Training Trust
(WETT) was established. It is an income tax exempt charity.262 Since 2004 WETT has received 20 per cent of the privately negotiated royalty income under the agreement and the full amount of a further negotiated increase in royalties that is paid by Newmont as a result of the establishment of WETT.263 Approximately $1.2 m per year is allocated to the
Trust.264 Of the remaining 80 per cent, half of the mining payments are distributed to individuals and half are invested on their behalf.265 The publicly available documents do not specify the corporations or individuals that these amounts are distributed to however the financial reports of the Warlpiri Aboriginal Corporation are lodged with ORIC. These reports disclose the receipt of royalties and distribution to Traditional Owners. For 2009 the total distribution was $1,395,244 and for 2010 $894,887. At this time there were 1,281 members of this corporation which results in average individual distributions of $1,089 and
$699 for each year.266
WETT programs involve language and cultural support through the community schools, an early childhood program, and support for Warlpiri students completing secondary studies, a
Native Title, Indigenous Economic Develoment and Tax, November 2010. Gold mining lasts less time than other types of mining such as bauxite and manganese. 262Australian Government, ABN Lookup
CLC through its Community Development Unit which was established in 2005.268 The
Community Development Unit has eight full-time staff three of whom are fully funded by
WETT.269 The Unit facilitates a number of projects which in 2010 were stated to use approximately $5 m in areas affected moneys, mining royalties and rent.270
The rationale behind the establishment of WETT was to use the mining royalty payments solely for educational and training purposes of the Indigenous people living in the Tanami region.271 The CLC chairs the WETT advisory committee which has representatives from
Newmont, the peak Warlpiri education body and the Commonwealth and Northern
Territory Education Departments. The CLC coordinates WETT projects and uses WETT funds to enhance and supplement existing government programs and services.272
This case study tells us three things about these mining payments and their taxation. First,
WETT is income tax exempt which means that the imposition of the MWT is inconsistent with the treatment of other income tax exempt funds and entities that do not receive mining
267 Danielle Campbell and Janet Hunt, ‘Community Development in Central Australia: Broadening the Benefits from Land Use Agreements’ (Topical Issue No 7, CAEPR, 2010) 5. 268 Central Land Council, Community Development Framework, September 2009 http://www.clc.org.au/media/papers/CLC%20CD%20framework%20Sept%202009%202.pdf; Danielle Campbell and Janet Hunt, ‘Community Development in Central Australia: Broadening the Benefits from Land Use Agreements’ (Topical Issue No 7, CAEPR, 2010) 5. 269 Ibid 14. 270 Ibid 10. 271 Central Land Council, ‘Community Development in Central Australia Newsletter’ June 2009, 3. 272 Ibid; Central Land Council, Annual Report (2008-2009) 84. 194 payments. Secondly, some mining payments are being used for significant public benefit as evidenced by their use solely for education and training, and the high level of government involvement in how they are spent. It seems inappropriate to impose taxation on money that is not used by individuals but by a community for its betterment. Whether or not the payments would otherwise be taxable income is discussed at the end of this section.
Thirdly, although the complete details of all distributions to individuals are not publicly available it seems likely that in many situations the amounts paid are between $1,000 and
$3,000 each year. Furthermore, as is demonstrated in Chapter 4, the recipients are usually below the taxable income level even when these distributions are treated as income and added to their other income.
3.6.3 Anindilyakwa Land Council and Groote Eylandt and Bickerton Island
Enterprises Aboriginal Corporation (GEBIE)
The Anindilyakwa Land Council (ALC) represents the Traditional Owners and Aboriginal residents of Groote and Bickerton Islands. Mining commenced on these islands in 1964 prior to the enactment of the ALRA so at that stage there was no land council and there was no requirement to consult with the Traditional Owners regarding mining.273 A mining agreement was however entered into between BHP and the Church Missionary Society of
Australia and Tasmania in 1963.274 This Society managed the islands and under the agreement mining payments were made into the Groote Eylandt Aboriginal Trust, a charity established for the advancement of, and relief of poverty of, the Traditional Owners on the
273 AIATSIS, Agreements, Treaties and Negotiated Settlements Project, ‘Renewal Mining Agreement between Groote Eylandt Mining Company and Anindilyakwa Land Council’. 274 Flynn v Mamarika [1996] NTSC 16 [2]-[3]. 195 two islands.275 In 2006 a mining agreement under ALRA was entered into between ALC on behalf of the Traditional Owners and BHP Groote Eylandt Mining Company (GEMCO).276
GEMCO also applied for three exploration licences during this period.277 GEBIE, which was introduced earlier in this Chapter, was incorporated to be the business and investment entity for the ALC and is also an income tax exempt charity.278 For the 2006-07 financial year GEBIE received $8,417,519 in areas affected moneys from the ABA.279 The ALC
Annual Report further states that the Council received privately negotiated royalties of
$1.1 m in 2007 and $4 m in 2008 and that this money was distributed, however it does not identify the entities that the money was distributed to. The 2006-07 Report also states that for the 2006 financial year it received $115,891 from GEMCO in respect of mining leases and no income from these leases for 2007. Furthermore, although there is a heading of
GEMCO mining leases in the 2007-08 Annual Report (the most recent publicly available) there is a nil amount from the GEMCO leases for 2007 and 2008.280 GEBIE does not report the receipt of any mining payments other than ABA royalties. I have also examined all the financial reports lodged with ORIC for the royalty associations listed in the 2008 audit of the ABA by the Office of Evaluation and Audit that are in respect of the ALC area and
275 Ibid. This charity appears to still exist although as there are no public documents available it was not possible to determine whether or not it still receives mining payments. 276 Anindilyakwa Land Council, Annual Report (2006-07) 23. 277 Ibid. 278 Ibid. 279 Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account, November 2008, Appendix B. 280 Anindilyakwa Land Council, Annual Report (2007-08) 51. 196 none disclose any payments except distributions from the ALC which appear to only be from ABA funds.
Payments are also made by GEMCO to ALC as part of a Regional Partnership Agreement.
This Agreement was entered into in 2009 and is between the ALC, Australian Government,
Northern Territory Government, GEMCO and the East Arnhem Shire.281 All parties are contributing financially and the funds are going towards such things as road works, a health clinic, government staff accommodation and water fluoridation.282 There are no details available of the specific amounts from the mining company and whether or not they would fall within the definition of mining payments.
3.6.4 Tiwi Land Council
The 2008 audit of the ABA states that the Tiwi Land Council did not receive any areas affected moneys between the 2005 to 2007 years. Mining commenced on the Tiwi Islands in 2007.283 Initial consent was given by the Tiwi Land Council to Matilda Minerals Limited to mine mineral sands on the islands in late 2006.284 This company went into administration in 2008, however a different company Matilda Zircon Limited subsequently commenced mineral exploration on the Islands, purchased the mineral tenements and assets of Matilda
Minerals in 2009285 and in 2010 went from being an exploration company to a mining
281 ALC, ‘Ayakwa Newsletter’, November 2009 Issue 2, 2. 282 Ibid. 283 Tiwi Land Council, Annual Report (2010-11), 21. 284 Northern Territory Department of Primary Industry, Fisheries and Mines, ‘Exploring Country: A Guide to Making an Exploration and Mining Agreement’ 2006, 2. 285 Matilda Zircon Limited, http://www.matildazircon.com.au/projects/tiwi islands.html. 197 company.286 The company’s 2010 Annual Report states that it sustained a net loss for the
2010 year of $4.77 m which was down from an $8.42 m loss in the previous year.287 There is no reference in this Annual Report to any mining payments to the Land Council or to any
Traditional Owners. In the Tiwi Land Council Annual Report for 2010-2011 there is a general reference to permits, fishing agreements and mining agreements with around 70 family groups.288 There is no statement of any mining payments being received or made in the financial section of the Annual Report.
3.6.5 Conclusion regarding Mining Payments Other than Statutory Royalty
Equivalents
It is clear from this discussion that mining payments are currently being made to
Traditional Owners via the relevant Land Council in accordance with Part IV of ALRA and there are also privately negotiated mining payments occurring with respect to the agreements negotiated by the Northern Land Council, the mining agreement between
Tanami and Newmont and other agreements surmised from the information in the ALC
Annual Reports. The discussions above also indicate that there is little information in the financial documents about these payments which makes it difficult to determine whether any amounts received or receivable in respect of mining exploration and leases are income.
However what can be said is that s 44A(1) ALRA states that mining agreements include payment for compensation for damage or disturbance to the land. Subsection (3) states that
286 Matilda Zircon Limited, Annual Report (2010), 1. 287 Ibid 20. 288 Tiwi Land Council, Annual Report (2010-2011), 24. 198 the references in subsection (1) to compensation for damage or disturbance to the land include references to compensation for deprivation of the use of the land, deprivation of use of improvements on the land or severance of the land from other land with the same
Traditional Owners. Payments made in accordance with Part IV of ALRA are therefore arguably in respect of damage to the land caused by mining or deprivation of the use of the land. This seems a valid argument because, as discussed in this Chapter, many mines last for periods in excess of 10 years.289 The result is that they are not ordinary income.
If the amounts are determined to be capital and not income then CGT must still be considered. In many cases the land will have been acquired by the Land Trust prior to 1985 and therefore most capital receipts in respect of this land will not be subject to CGT. If the land was acquired on or after 20 September 1985 then the arguments discussed in Chapter 2 and summarised in this Chapter apply.
The events that might be relevant to the mining payments described above are either D1 or
H2. CGT event D1 happens if the taxpayer creates a contractual or other legal or equitable right in another entity.290 The example given in the legislation is of a restrictive covenant291 and the asset in question is the ‘right’ which is created at the time of the event.292 The capital proceeds are the amount payable for the restrictive covenant.
289 For example with GEBIE mining commencing in 1966, the first lease agreement with the Traditional Owners was entered into in 2006 and these leases remain valid until 2031. 290 ITAA97 s 104-35(1). 291 Also refer Tuite v Exelby 93 ATC 4293, [9] where the Court considered that the asset in question could be the benefit of a restraint of trade covenant (Shepherdson J). 292 ITAA97 s 104-35(2). 199 It is however arguable that D1 does not apply to the right to compensation or any other statutory rights under ALRA as these rights are not ‘created’ by the Land Trust or the
Traditional Owners in another person as they are creatures of statute. However, if mining payments are negotiated separately from the ALRA then the contractual rights created in accordance with the agreement may trigger a D1 event. It is not relevant for the operation of D1 that the Aboriginal land is pre-CGT as D1 applies to create the right at the time that the taxpayer enters into the contract or the right otherwise arises.293 Section 45 of ALRA provides that a mining interest will not be granted in respect of Aboriginal land without the mining company entering into an agreement with the relevant Land Council in accordance with s 46. The rights under the agreement are potentially legal rights that the mining company could enforce in a court if a valid contract has been entered into. It is possible that, by acting on behalf of the Traditional Owners who have consented to the mining, and then making an agreement pursuant to s 46 the Land Council creates contractual rights in the mining company.
Assuming then that a right has been created, for the purposes of event D1 there still need to be capital proceeds for an amount to be included in assessable income as a capital gain.
Section 104-35(3) states that you make a capital gain in respect of a D1 event ‘if the capital proceeds from creating the right are more than the incidental costs you incurred that relate to the event. You make a capital loss if those capital proceeds are less’. Capital proceeds
293 ITAA97 s 104-35(2). 200 are defined as money or property that the taxpayer receives or is entitled to receive in respect of the event happening.294
With regard to Aboriginal peoples who are not Traditional Owners the payments are even less likely to be ordinary income. As these people do not own the capital asset, the land, the payments cannot be rent or a licence fee. The payments are not the proceeds of carrying on a business unless the Aboriginal communities and groups are in some form of business which seems unlikely, nor are they a fee for service as no services are provided. Thus, it is inconsistent with taxation law principles to impose the MWT on payments that are in many cases, as discussed in this Chapter, not income.
3.7 Conclusion
In this Chapter I have demonstrated that a large proportion of mining payments that are distributed from the ABA are not income and therefore should not be subject to any income tax. Payments made to Land Councils to cover their administrative expenses are reimbursement of these expenses and not income. Areas affected moneys are in many situations arguably for long term damage to pre-CGT land and not ordinary income.
Furthermore I have demonstrated in this Chapter that it is unlikely that CGT applies to the distribution of these moneys. Grants (beneficial payments) made in accordance with the
ALRA which are payable at the discretion of the Federal Government are not income and in many instances are paid to income tax exempt charities.
294 ITAA97 s 116-20. 201 In addition to the arguments that mining payments are not income this Chapter has also demonstrated that a significant proportion of royalty equivalents and other mining payments is paid to income tax exempt charities such as the Northern, Central and
Anindilyakwa Land Councils and the royalty associations identified in the Chapter. This situation results in income tax being paid by charities when the provisions of income tax legislation clearly exempt these entities from income tax. This is inappropriate from a tax law and policy perspective as it taxes certain charities that represent Traditional Owners when charities that are for the benefit of non-Indigenous people would not be taxable.
202 Chapter 4: Do the Two Canons of Tax Policy, Simplicity and Equity, support the imposition of the Mining Withholding Tax of 4 per cent on
Mining Payments received by Traditional Owners in accordance with the Aboriginal Land Rights (Northern Territory) Act?
4.1 Introduction
In Chapter 3 of this thesis I evaluated the operation of the mining withholding tax
(MWT) imposed on mining payments in respect of Aboriginal land under Division 11C of the Income Tax Assessment Act 1936 (Cth) (ITAA36). I analysed the way that this tax regime operates in respect of mining payments made under the Aboriginal Land
Rights (Northern Territory) Act 1976 (Cth) (ALRA) and then applied income tax principles to this operation. In this Chapter I again analyse the MWT but this time from a taxation policy perspective.
In this Chapter I evaluate the MWT imposed on mining payments in respect of
Aboriginal land under the ALRA from the tax policy perspectives of simplicity and equity in the context of distributions to the corporate entities that represent individual
Traditional Owners1 such as Land Councils and royalty associations as well as the individual Traditional Owners. These policy perspectives are universally recognised as important aspects of a good tax system, but it is also recognised that they are often in conflict.2 This conflict is clear in the case of the MWT.3 I conclude that the MWT has
1 This term is used throughout this Chapter to refer to traditional Aboriginal owners as defined in ALRA s 3. 2 Treasury, Australia's Future Tax System Review Panel, Australia’s Future Tax System: Report to the Treasurer ( 2009) (Henry Review) [2.1]; Ken Henry ‘How much Inequity should We Allow?’ (Speech to the Australian Council of Social Service National Conference, 2009). 203 many advantages from a tax simplicity perspective; however, it has disadvantages from a tax equity perspective when looked at from the viewpoint of Traditional Owners.
The most recent review of the Australian tax system, Australia's Future Tax System:
Report to the Treasurer (the Henry Review), stated that the design principles of a good tax system should consider equity, efficiency, simplicity, sustainability and policy consistency.4 In this Chapter I undertake an analysis of the MWT from the tax policy perspectives of simplicity and equity.5
There are four reasons why I consider specifically these two canons of tax design. First, they are both highly valued by reviewers and commentators in the area of tax policy.6
‘Equity, or fairness, is a basic criterion for community acceptance of the tax system’ and people generally expect that a tax system is fair.7 In 1975 the Asprey Committee referred to ‘simplicity’ as being, after equity, ‘perhaps the next most universally sought after of qualities in individual taxes and tax systems as a whole.’8
3 It is important to note that the MWT is a separate tax to the profits-based Minerals Resource Rent Tax (MRRT) which was introduced by the Australian Government in 2012; see Minerals Resource Rent Tax Act 2012 (Cth) s 25-5. The Department of Treasury, Fact Sheet ‘A New Resource Taxation Regime: Improved Resource Tax Arrangements’ 2011 states that the MRRT is calculated on the value of the mineral commodity, determined at its first saleable form at mine gate, less all costs to that point. It is not intended to replace the MWT. 4 Henry Review [2.1]. 5 I have published a significant amount of this research in Fiona Martin and Binh Tran-Nam, ‘The Mining Withholding Tax under Division 11C of the Income Tax Assessment Act 1936: It May Be Simple but is it Equitable? (2012) 27 Australian Tax Forum 149. 6 Henry Review [2.1]; Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (first published 1776) Book Five, Chapter II; Graeme Cooper, ‘Themes and Issues in Tax Simplification’ (1993) 10 Australian Tax Forum 417; Richard Krever, ‘Taming Complexity in Australian Income Tax’ (2003) 25(4) Sydney Law Review 467. 7 Ralph Review of Business Taxation, A Strong Foundation: Establishing Objectives, Principles and Processes, Discussion Paper (1998) [39] (Ralph Review); Henry Review, 29. 8 Commonwealth Taxation Review Committee, Full Report (1975) (Asprey Report) [3.19]- [3.20]. 204 Second, equity and simplicity are often seen to be in competition. The Henry Review put it this way; equity encompasses the idea that the tax system should ‘treat individuals with similar economic capacity in the same way’, but with an eye on complexity and associated costs and risks.9
Third, as he introduced the MWT the then Treasurer dwelt in detail on the benefits of this tax from a simplicity perspective. The Treasurer, John Howard, stated that he was very influenced by the ‘clear need for certainty and simplicity in the rules governing tax on payments flowing to aboriginals from mining operations’.10 He also stated that it was important for Aboriginal Land Councils to be able to easily determine the after-tax benefits of these payments.11
Finally, Indigenous Australians are recognised as being significantly disadvantaged in terms of commonly used social indicators such as wealth, employment and life expectancy.12 For example, in 2008 more than three in five (64 per cent) Indigenous
Australians in remote areas lived in households that would be unable to raise $2,000 within a week in an emergency, compared to two in five people living in major cities
(40 per cent) or regional areas (43 per cent).13 Australian Indigenous peoples also have a much lower life expectancy than the general Australian population. Indigenous
Australians born in the period 1996–2001 are estimated to have a life expectancy at
9 Henry Review [2.1]. 10 House of Representatives, Second Reading Speech, Income Tax Assessment Amendment Bill (No. 2) 1979 (John Howard, Treasurer)
I argue that any tax system applied to their income should be rigorously fair so that their disadvantage is not further exacerbated.
4.2 An Analysis of the Mining Withholding Tax in Terms of Tax Simplicity
As stated earlier in this Chapter, policy makers, tax researchers and practitioners consider that simplicity is a sought after feature of an effective tax system.15 The Henry
Review stated that ‘the tax and transfer system should be easy to understand and simple to comply with. A simple and transparent system makes it easier for people to understand their obligations and entitlements.’16
The Review put it in context like this:
In forming its recommendations the Review has drawn on the latest developments in
economic theory and rigorous evidence-based analysis of the impact of taxes and
transfers…Translating this information into policy design has, of necessity, required the
Review to make judgements about its relevance in the Australian context and about the
trade-offs that arise between the goals of fairness, efficiency, simplicity, sustainability
and policy consistency…In evaluating these trade-offs, the Panel has been guided by
the following broad objectives:
…
14 Australian Government, Australian Institute of Health and Welfare, ‘Indigenous Life Expectancy’ 2011. 15 Henry Review [2.1]; Ralph Review 39; Asprey Report [3.19]; Chris Evans and Binh Tran-Nam, ‘Controlling Tax Complexity: Rhetoric or Reality?’ in Chris Evans, Richard Krever and Peter Mellor (eds), Australia’s Future Tax System: The Prospects After Henry (Thomson Reuters, 2010) 439. 16 Henry Review [2.1]. 206 Policy settings should be coherent and reflect a greater emphasis on simplicity and
transparency than is presently evident.17
An easily understood tax-transfer system that makes it easier for people to understand their obligations and entitlements18 also tends to encourage taxpayers’ voluntary compliance. This may be regarded as a fundamental attribute of a successful modern tax system.
Tax simplicity is capable of alternative definitions and interpretations, depending on the context of discussion and the researcher’s background and interests.19 A potentially useful approach to analysing tax simplicity is to distinguish between legal simplicity and effective simplicity.20 Legal simplicity includes both statutory and procedural
(administrative) simplicities. Statutory simplicity refers to the ease by which a tax law can be read, understood, applied and resolved in cases of dispute. Procedural simplicity refers to the ease by which tax administrative requirements can be met by taxpayers and tax administrators. An example of procedural simplicity is the number of dealings that taxpayers must have with government departments in order to comply with their tax obligations. Legal simplicity is clearly of particular interest to tax lawyers and tax practitioners.
An alternative way of looking at tax simplicity involves shifting from comprehensibility to applicability. This approach emphasises the ease with which the correct tax liability
17 Henry Review [2]. 18 Henry Review [2.1]. 19 For a definitive discussion of the issues surrounding the concept of tax simplicity see Graeme Cooper, ‘Themes and Issues in Tax Simplification’ (1993) 10 Australian Tax Forum 417, and Richard Krever, ‘Taming Complexity in Australian Income Tax’ (2003) 25(4) Sydney Law Review 467. 20 See, for example, Chris Evans and Binh Tran-Nam, ‘Managing Tax System Complexity: Building Bridges through Pre-filled Tax Returns’ (2010) 25 Australian Tax Forum 251–252. 207 can be determined. A more formal definition along this line, offered by Surrey and
Brannon, is that ‘simplicity is the characteristic of a tax which makes the tax determinable for each taxpayer from a few readily ascertainable facts’.21 Thus, effective or economic simplicity can be measured in terms of the value of resources expended by the society in raising some amount of tax revenue. In this sense, a tax is considered to be effectively simpler than another (revenue equivalent) tax if the operating costs, which are defined as the sum of administrative and compliance costs of the first tax, are lower than those incurred in raising the same amount of revenue by the second tax, all other things being equal.22 In 1975 the Asprey Committee considered that a tax is simple relative to other taxes if the ratio of its operating costs to the tax revenue is small compared to other types of taxes.23
A withholding tax such as the MWT has a number of advantages particularly from the tax compliance and administration perspective.24 The MWT is simple relative to other comparable taxes in terms of statutory, procedural and effective simplicity. First, the legislation governing the MWT is relatively easy to read, comprehend and apply. There are no deductions, exemptions or offsets so that the MWT offers virtually no opportunity for tax avoidance or legal disputes. Note also that the demographic differences between ultimate individual recipients are not relevant to the MWT.
Second, the compliance costs of the MWT are low thanks to a number of factors, including a certain base, a single rate and low frequency of calculations. The MWT is
21 Stanley S Surrey and Gerrard N Brannon, ‘Simplification and Equity as Goals of Tax Policy’ (1968) 9 William & Mary Law Review 915, 915. 22 Binh Tran-Nam, ‘Tax Reform, Tax Simplification: Some Conceptual Issues and a Preliminary Assessment’ (1999) 21(3) Sydney Law Review 500 [3B]. 23 Asprey Report [3.20]. 24 For a general discussion of withholding tax see Harvey Dale, ‘Withholding Tax on Payments to Foreign Persons’ (1980–1981) 36 Tax Law Review 49. 208 withheld by the mining company prior to payment to the ultimate recipients, which means that the tax liability is ascertained without reference to any factors other than the gross amount of the payment. In addition a flat-rate withholding tax is reputed to be the simplest tax to calculate and pay.25 Furthermore, the tax is calculated when income is paid rather than on the basis of transactions as is the case with a value added tax. This means that the amount can be calculated and remitted to the Australian Taxation Office
(ATO) immediately and does not have to await the finalisation or potential cancellation of a transaction.
Third, the issue of collection and recovery is handled through the imposition of the
MWT, which as a withholding tax puts the actual responsibility for payment (although not the legal liability) on the Aboriginals Benefit Account (ABA) or the mining companies. This means that the number of paying entities is small, which in turn makes aggregate compliance costs of the MWT lower than they would potentially be if it were not a withholding tax.
Fourth, the aggregate administrative costs of the MWT are also low. All of the features discussed above ensure that the ATO is able to easily calculate the amount of tax that it is entitled to receive and will receive it in a timely manner. Further, because of the relatively small number of MWT payers and the lack of need for auditing, the ATO only requires a few staff to administer the tax. As the paying entities will usually be the
ABA or mining companies that the ATO will have a record of through lodgement of tax returns this ensures ease of collection and recovery from the ATO perspective. The payer is responsible for the payment of tax out of the monies to be paid, so there is less
25 Kim Brooks, ‘Tax Treaty Treatment of Royalty Payments from Low-Income Countries: A Comparison of Canada and Australia’s Policies’ (2007) 5(2) eJournal of Tax Research 169, 185. 209 risk that the moneys will be dissipated before the tax is collected by the ATO. This advantage is increased by the fact that government agencies would not place the revenue at risk due to potential non-payment. In sum, the MWT is a relatively simple tax to administer.26
Fifth, a possible component of tax compliance costs is psychological costs, defined as the stress, anxiety and frustration experienced by taxpayers in dealing with their tax obligations.27 The MWT under Division 11C also provides certainty and causes less stress to the Indigenous corporation or individual taxpayer in that the mining payment is not included in their assessable income for tax purposes.28 The result is that they do not have to be concerned about the amount to include in any tax return or delay lodging a return due to late notification by the payer. It also means that it does not lead to an
Indigenous recipient being required to lodge a tax return when they would not otherwise have this responsibility.
In conclusion, the MWT allows for simplicity and certainty from the perspectives of the paying entity, the ATO and the Indigenous recipients.
26 John A Greig, ‘Aspects of Interest Withholding Tax’ (1993) 3(1) Revenue Law Journal 27, 29. For a general discussion regarding tax policy and the relevance and importance of simplicity (expressed as certainty and convenience) see Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (first published 1776) Book Five, Chapter II. 27 C Sandford, M R Godwin and P J W Hardwick, Administrative and Compliance Costs of Taxation (Fiscal Publications, 1989) 18; Chris Evans and Binh Tran-Nam, ‘The Impact of Cedric Sandford on the Discipline of Tax Compliance Costs’ (2002) 17 Australian Tax Forum 389, 403. 28 Mining payments made to either a distributing body or Aboriginal person and which have attracted mining withholding tax are non-assessable non-exempt income under ITAA97 s 59-15. The result is that the mining payment is subject to a current tax rate of 4 per cent and is otherwise exempt from ordinary income tax. 210 4.3 An Analysis of the Mining Withholding Tax on the Basis of Equity or Fairness
It is appropriate to analyse the MWT from an equity perspective because policy makers and researchers in the area of tax policy argue that the concept of equity or fairness in a tax system is of social, political and economic importance.29 In terms of Australian tax policy, as far back as 1975 equity or fairness was seen as significant30 and subsequent reviews of the Australian tax system in 1999 and 2009 have supported this view.31 If we consider that tax is part of the government and administration of our country, we see that the tax system in conjunction with the country’s welfare or transfer system and other public expenditures programs has a critical part in the impact of the distribution of income and wealth in the country. If the country’s tax system is equitable then it is likely to enjoy widespread acceptance and this will bring with it the co-operation of its taxpayers. If it is not fair then government will make sub-optimal decisions, due to insufficient resources or taxing some areas of the economy disproportionately, and the country will not be as effectively governed.32
There are two major approaches to equity in the literature; namely, ability to pay and benefit principles.33 Over the years, most tax policy makers and researchers have been
29 Henry Review [2.1]; Neil Brooks, ‘Taxing the Wealthy’ in Chris Evans, Richard Krever and Peter Mellor (eds), Australia’s Future Tax System: The Prospects After Henry (Thomson Reuters, 2010) 179; Robin Woellner et al, Australian Taxation Law (CCH, 22nd, 2012) 2–185; Maheswaran Sridiran, ‘Taxation of Capital Gains and Horizontal Equity: A Review of the Australian Perception’ (2005) 20(1) Australian Tax Forum 41. 30 Asprey Report [3.7]. 31 Ralph Review 13, 15; Henry Review [2.1]. 32 Henry Review [2.1]; Neil Brooks, ‘Taxing the Wealthy’ in Chris Evans, Richard Krever and Peter Mellor (eds), Australia’s Future Tax System: The Prospects After Henry (Thomson Reuters, 2010) 179. 33 Asprey Report [3.7]; Henry Review, Part 1 Overview 23; Binh Tran-Nam, ‘Tax Reform, Tax Simplification: Some Conceptual Issues and a Preliminary Assessment’ (1999) 21(3) Sydney Law Review 500. 211 inclined to accept ability to pay as the basic principle of equity.34 Under the ability to pay principle, there are two commonly recognised dimensions to the quality of equity; horizontal and vertical equity. Horizontal equity means that people in the same position should be taxed equally. Vertical equity means that those who are in different tax positions should be treated differently, and where they are in a more favourable position they should be taxed more.35 The Henry Review states the policy rationale behind equity as:
The tax and transfer system should treat individuals with similar economic capacity in
the same way, while those with greater capacity should bear a greater net burden, or
benefit less in the case of net transfers. This burden should change more than in
proportion to the change in capacity. That is, the overall system should be progressive.
Considerations about the equity of the system also need to take into account exposure to
complexity and the distribution of compliance costs and risk.36
4.4 An Evaluation of the MWT from an Equity Perspective in relation to Payments to Land Councils to cover their Administrative Expenses
As discussed in Chapter 3, a proportion of royalty equivalents are paid from the ABA to the Land Councils to provide for their operating and administrative expenses under s
64(1) ALRA. The Northern Land Council,37 Central Land Council38 and Anindilyakwa
34 Henry Review Part 1 Overview 23; Asprey Report [3.7]; Binh Tran-Nam, ‘Tax Reform, Tax Simplification: Some Conceptual Issues and a Preliminary Assessment’ (1999) 21(3) Sydney Law Review 500. 35 Henry Review [2.1]; Asprey Report [3.7]. 36 Henry Review [2.1]. 37 The Northern Land Council represents 30,000 Indigenous Australians in the Top End of the Northern Territory, Northern Land Council, Annual Report (2008–09), 13. 38 The Central Land Council manages an area of 771,747 square kilometres with a population of 24,000 Indigenous Australians covering 15 different language groups
ABA to the Land Councils is a clear breach of the horizontal equity principle of taxation law because any income paid to another charity would not be subject to tax.
The amount of MWT that has been collected from the Land Council payments to cover their administrative expenses is demonstrated in the following table:
Table 1: MWT and Payments for Land Council Administrative Expenses42
Year 2007–08 2008–09 2009–10 Payments to Land Councils for their admin costs (s 64(1) $25,084,000 $27,613,000 $19,496,000 ALRA) MWT $1,150,542 $1,045,166$812,333
Total MWT paid between $3,008,041 2008 and 2010
The Land Councils have therefore paid tax of just over $3 million for this period when if they were another charity receiving income, there would have been no tax payable.
39 The Anindilyakwa Land Council represents the 14 clans who live on Groote Eylandt and Bickerton Island, Anindilyakwa Land Council, Annual Report (2007–08), 5. 40 Australian Government, ABN Lookup
As discussed in Chapter 3, areas affected moneys are royalty equivalents paid via the
Land Councils to royalty associations. These companies and incorporated associations represent Indigenous Australians who are either the Traditional Owners of land affected by the mining or who are living in areas affected by mining. This money is not distributed directly by the Land Councils to individuals but is required to be paid to
Aboriginal corporations and incorporated associations.43
As demonstrated in Chapter 3, a significant proportion of areas affected money under
ALRA is paid to income tax exempt charities. Of the 19 royalty associations listed by the Department of Families, Housing, Community Services and Indigenous Affairs
(FaHCSIA) for the 2006–07 year as receiving areas affected payments; nine are endorsed by the ATO as tax concession charities.44 The total of payments to royalty associations for the 2007 financial year was $26,460,281; and of this total $16,872,077
(64 per cent) was paid to entities that are also income tax exempt charities as listed in
Chapter 3. A further royalty association, Granites Mine Affected Areas Aboriginal
Corporation (GMAAAC), received royalties of $7,404,195. This royalty association states in financial reports lodged with the Office of the Registrar of Indigenous
43 ALRA ss 64(3) and 35(2). 44 All royalty associations identified in the Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account (November 2008) were cross-checked with details of whether or not they are stated to be tax concession charities on the Commonwealth of Australia ABN Lookup website
(although this is not reported on the Australian Government business website).
The nine royalty associations that are charities are effectively subject to a tax on areas affected moneys, whereas if they or another charity received the same amount of money as income it would be income tax exempt. The imposition of the MWT is a clear example of inconsistent treatment of the same category of taxpayers by the income tax legislation, and a breach of the principle of horizontal equity.
4.6 An Evaluation of the Beneficial Payments from an Equity Perspective
In Chapter 3, I analysed the payment of beneficial payments out of the ABA under s
64(4) ALRA. These payments are made by the Minister for Indigenous Affairs for the benefit of ‘Aboriginal’ people living in the Northern Territory46 and are used for a variety of purposes. The relevant government documents state that the grants are to
‘improve the lives of Aboriginal people in the Northern Territory through improving employment opportunities, education, infrastructure and health’.47
The following table details the major grants made in the 2009–10 financial year by
FaHCSIA on behalf of the Minister and the status of the entities to which these grants were made.
45 ORIC, ‘Financial Statements GMAAAC’ 2007–2010 financial years. 46 ALRA s 64(4); Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account (November 2008) [4.45]. 47 FaHCSIA, Annual Report (200809), Appendix 12 Aboriginals Benefit Account, Annual Report (2008–09) and FaHCSIA, Annual Report (2009–10), Appendix K Aboriginals Benefit Account, Annual Report (200910). 215 Table 2: Beneficial Payments under s 64(4) ALRA 2009–10 Financial Year
Name of Entity Amount of Charity Purpose of Grant Grant Northern Land $6.6 m48 Yes Indigenous Ranger Council Groups in the Top End Central Land Council $14.0 m49 Yes Indigenous Ranger Groups and to purchase pastoral lease Anindilyakwa Land $0.368 m50 Yes Youth support and Council leadership development Tiwi Land Council $1.5 m over No, according to ABN Sea Ranger Program 3 years51 lookup, but Tiwi Land Council Annual Report states it is income tax exempt52 Julalikari Council $2 m Yes For accommodation and Aboriginal to rebuild and refurbish Corporation local community centres Dhimurru Land $1.3 m Yes New office for the Management corporation Aboriginal Corporation Thamarrurr $1.2 m Yes Provide accommodation Development for staff working as Corporation rangers or in housing and construction Central Australian $0.6 m Yes Refurbish and upgrade Aboriginal Media association’s premises Association
48 FaHCSIA, Annual Report (2009–10) Appendix K. 49 FaHCSIA, Government Grant Announcements, 2010. Note that the amounts in the announcement are not identical to the amounts stated in the Central Land Council, Annual Report (2009–10). The Report states that the Council received from the Federal Government $8,484,491 in ‘Special Purpose Contracts’ and $3,026,856 in ‘Money not yet spent’, 106. 50 This amount was paid to the Groote Eylandt and Bickerton Island Enterprises Aboriginal Corporation, which is the company established by the Land Council to carry out commercial activities and act as the royalty association; see Groote Eylandt and Bickerton Island Enterprises Aboriginal Corporation Rule Book, 2011, 13 [7]. It is also income tax exempt as a charity; see ORIC, Financial Report (2009–10). 51 All amounts, recipients and purposes of grants unless otherwise footnoted are detailed in the FaHCSIA, Annual Report (2009–10) Appendix K. 52 Tiwi Land Council, Annual Report (2008–09), 69. 216 Name of Entity Amount of Charity Purpose of Grant Grant Aboriginal Medical $0.5 m No – AMSANT is the Building leadership and Services Alliance peak body for capacity program Northern Territory Aboriginal community controlled health services in the Northern Territory Yothu Yindi $0.2 m Yes Garma Aboriginal Foundation Aboriginal Festival Corporation
An analysis of the quantum of grants paid in the 2009–10 income year and the entities that received these grants shows that a significant portion of beneficial payments are made each year to tax concession charities. If any other type of government grant was paid to these charities or any other charities, the grants would be exempt from income tax even if otherwise considered income. The payment of beneficial payments out of the
ABA is, therefore, a breach of the principle of horizontal equity as these charities are paying tax when other charities do not pay tax if in receipt of any grants.
4.7 Individual Indigenous Recipients
In the analysis of equity of taxation, it is also important to distinguish between the legal
(formal) and economic (effective) incidence of taxation. Legal incidence refers to who is required to pay the taxes, while economic incidence refers to who ultimately bears the burden of the taxes. In the case of the MWT, the legal incidence for the majority of payments falls onto the Land Councils in the Northern Territory, although the responsibility to remit the MWT to the ATO lies with the ABA. Where there are privately negotiated royalties, the legal responsibility to pay is with the mining company. It seems plausible to assume, however, that the ultimate bearers of the economic burden of the MWT are mainly the Indigenous people living in the Northern
217 Territory.53 Since equity is concerned with who ultimately bears the burden of the tax, it is therefore necessary to focus our attention on the population of Indigenous people residing in the Northern Territory.
Due to many factors – including remote areas, lack of employment opportunities and lack of education opportunities – Indigenous Australians living outside urban areas, especially those living in the Northern Territory, receive typically low monetary incomes.54 As at August 2006, 41.4 per cent of Indigenous people were reported as earning a low weekly income of $249 or less.55 In 2008, Indigenous people aged 15–64 years were less likely to participate in the labour force than the civilian population56 of the same age group (65 per cent and 77 per cent respectively) and were also less likely to be employed (54 per cent compared to 73 per cent). The unemployment rate for
Indigenous Australians was more than three times the unemployment rate of the civilian population (16.6 per cent and 5.0 per cent respectively).57
53 The imposition of the MWT may theoretically affect Indigenous Australians living in the Northern Territory as well as the rest of the Australian community. However, the impact on the rest of the Australian community is, if any, negligible and can thus be disregarded for practical purposes. 54 Northern Land Council, Annual Report (2009–10) 73, 95; The Trustees of the Indigenous Barristers Trust v Commissioner of Taxation [2002] FCA 1474; Ken Henry, Secretary to the Treasury, ‘Addressing Extreme Disadvantage Through Investment in Capability Development’ (Paper presented at the Institute of Health and Welfare Conference, Australia’s Welfare 2007, Canberra, 6 December 2007) 2; Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009) [9.130]. 55 Steering Committee for the Review of Government Service Provision, Report on Government Services 2008 - Indigenous Compendium (Productivity Commission, 2008) 285. 56 Australian Bureau of Statistics, ‘National Aboriginal and Torres Strait Islander Social Survey, 2008’ (Report No 4714.0, 2009) states that ‘The Australian civilian population was used for comparison as non-Indigenous estimates for August 2008 to April 2009 were not available at the time of publication.’ 57 Australian Bureau of Statistics, ‘National Aboriginal and Torres Strait Islander Social Survey, 2008’ (Report No 4714.0, 2009). 218 The most recently available ATO income and taxation statistics58 show that the average taxable income of individuals for each state and territory ranges from $50,000 to
$64,000 per annum (except for Tasmania, which is $47,375).59 The average state or territory proportion of non-taxable individuals to total taxpayers is in the range of 15 to
22 per cent.60 Non-taxable persons are defined as taxpayers with no amount of net tax charged.61 However, if I examine postcodes in the Northern Territory for areas where there are a high percentage of Indigenous Australians – such as around Alice Springs,
Uluru, central desert areas and near Kakadu – the results change. In the area covered by postcode 0872 (Alice Springs, Uluru, Gibson Desert, Tanami and surrounding areas which are represented by the Central Land Council and which have large Indigenous populations),62 the percentage of non-taxable individuals to total taxpayers for the
2003–04 financial year was 51.7 per cent compared to 48.3 per cent taxable;63 for the
2008–09 financial year the figures were 44.48 per cent non-taxable compared to 55.52 per cent taxable64 and for the 2009-2010 financial year the figures were 43 per cent non-
58 ATO Taxation Statistics 2009-10
Islands and other areas in East Arnhem Land),66 for the 2004 financial year 49 per cent of total taxpayers were non-taxable67 (no figures were provided for 2009 and 2010). For postcode area 0862, which extends from 1000 kilometres south of Darwin (Tenant
Creek where one-third of its population are Indigenous Australians68) to the Gulf of
Carpentaria, the percentage of non-taxable persons for both 2004 and 2009 was 42 per cent69 and in 2010 it was 36.5 per cent.70 For the target group of taxpayers, the percentage of non-taxable persons is significantly higher than for the rest of Australia.
Further evidence of low incomes for Indigenous Australians in remote areas is provided by the Commonwealth Government. As stated earlier in this Chapter the Australian
Bureau of Statistics reported in 2008 that in the case of an emergency more than three in five Indigenous Australians living in remote areas were in households unable to raise
65 ATO Taxation Statistics 2008–09 Table 3: Personal Tax ‘Selected Items by State/Territory and Postcode for Taxable Individuals, 2009-2010 Income Year; Part G: Northern Territory
Based on this research, I argue that it is more likely than not that the majority of
Indigenous people living in the Northern Territory are low income earners and rely primarily on government funded positions, Indigenous employment and development schemes such as the Community Development Employment Projects (CDEP) program,
Newstart allowance (unemployment) and a variety of public pension schemes. As at
March 2012, a single adult without dependents on Newstart allowance was entitled to receive $12,732.20 per annum from the Federal Government.72
In terms of taxation, I now discuss how Australia’s low income residents are treated.
For 2011-12 Australian adult resident taxpayers could receive $16,000 tax free
(including the low income tax offset) rising to $20,000 tax free per annum for 2012-
13.73 For many senior Australians, the effective tax-free thresholds are even higher.74
There are other rebates or tax offsets available that decrease the amount of tax payable by an individual. Examples of rebates or tax offsets that may apply to Indigenous
Australians are the zone offsets available to people living in remote areas such as the
71 Australian Bureau of Statistics, ‘National Aboriginal and Torres Strait Islander Social Survey, 2008’ (Report No 4714.0, 2009) ‘Financial Stress’. 72 Australian Government Centrelink website
(maximum of $2,232 for the 2010–11 year); however, this last offset is not available where the taxpayer is entitled to Family Tax Benefit Part B.77
In order to illustrate the application of the principle of equity in a taxation sense to recipients of mining royalty equivalents (royalty equivalents) from the ABA, I turn to a case study of an Aboriginal corporation in the Northern Territory, which I introduced in
Chapter 3. The Gundjeihmi Aboriginal Corporation (Gundjeihmi) is an association that was incorporated under the Aboriginal Councils and Associations Act 1976 (Cth) in
1995.78 It acts as the royalty association to receive royalty equivalents from the Ranger uranium mine in the Northern Territory for the Mirarr People. These payments are made
79 via the Northern Territory Land Council. The Gundjeihmi Annual Report states that the company received royalty equivalents of $4,612,598 for the 2008 financial year and
$7,869,047 for the 2009 financial year.80 The Northern Land Council Annual Report for
2010 has different figures due to different reporting periods and further states that for
75 ITAA36 s 79A. 76 ITAA97 subdiv 61-M. 77 ITAA36 s 159L. 78 Australian Government, ORIC
These amounts also include an undefined share of the lease payments from the Ranger uranium mine of $192,000 per annum. 87
81 Northern Land Council, Annual Report (2009–10), 184 states that for the 2009 year Gundjeihmi received royalty equivalents from the ABA of $5,560,000 and for the 2010 year $9,118,000. 82 Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow. A Socioeconomic Update (2010), 99–102. 83 Australian Government, ORIC, ‘Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI) General Report’ Financial Year ended 30 June 2010, 69, 71. 84 Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow. A Socioeconomic Update (2010) 101. 85 Parliament of Australia, Senate Committee for Uranium Mining and Milling, Report on Uranium Mining and Milling (1997) Northern Territory, 2. 86 Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow. A Socioeconomic Update (2010), 101. There are approximately 180–200 members of the Mirarr; see Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow. A Socioeconomic Update (2010), 17. 87 Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow. A Socioeconomic Update (2010), 99; Energy Resources of Australia Pty Ltd (owned by Rio Tinto Ltd), the company that operates the Ranger uranium mine, pays rental to Gundjeihmi for the land at Kakadu of $192,000 per annum; see Australian Uranium Association ‘ERA’s Ranger Mine Issues Briefing’ September 2009, 6. 223 The following is a worked example of a hypothetical adult Indigenous Australian living in Jabiru in the Northern Territory, which is part of the area for the Kakadu Land Trust, and who is in receipt of a distribution of royalty equivalents.
Case Study 1
Gundjeihmi member
Ronald is entitled to receive limited cash distributions from Gundjeihmi as determined by the relevant committee that oversees Gundjeihmi. He lives in the Jabiru area in the
Northern Territory, which is a ‘special zone’ for the income tax zone rebate.88 He is 25 years of age and has no dependents; he is unemployed and in receipt of Newstart unemployment benefits.89
2012–13 financial year
Ronald received $12,732.20 per annum in Newstart allowances from the Federal Government, which is the maximum payable for an adult with no dependents.90
For the same year he also received a distribution from Gundjeihmi of $6,672 (although the average payments are advised as less, I have used this figure to ensure that Ronald receives more than the tax-free threshold before tax offsets).
His taxable income (if we include the $6,672 making it hypothetically assessable income)
= $12,732 + 6,672 = $19,404.00
88 ATO
$19,404 – $18,200 (tax-free threshold) = $1,204.00
$2,532.00 x 19%91 = $228.76
Less:
Offsets = $445.00 low income offset + $1,173 (special area zone rebate)
= $228.76 – $1,618.00 = Nil tax payable
(in reality it is minus $1,389.24 –but this amount is not refundable).
No Medicare levy is payable on income less than $19,404 for the year of income
2012-13.92
The result is that Ronald is under the taxpaying threshold and his tax payable is nil. This is despite the possible artificial inflation of his income by including the distribution from Gundjeihmi.
The above example shows that low income Indigenous people in the Northern Territory may be being treated differently from other low income Australian residents because of the MWT. If I treat the distribution as income, Ronald is not taxable on it. Yet tax has been deducted from this at source at the rate of 4 per cent via the MWT. Thus, the
MWT appears to violate the principle of horizontal equity of taxation.
I argue that the MWT also violates the principle of vertical equity of taxation when considering the income tax burden of extremely low income Indigenous people living in the Northern Territory and other people who also live in the Northern Territory on higher incomes.
91 Income Tax Rates Act 1986 (Cth) sch 7; ATO
Case Study 2
Jeff is also 25 years of age, is not married and has no dependents. He works part-time as a labourer and lives in the Jabiru area, Northern Territory. Jeff is not an Indigenous Australian and is therefore not entitled to MREs (mining royalty equivalents).
Jeff receives a salary of $24,000 for the 2012-13 income year. He receives no other income for this year.
Tax on $24,000 = ($24,000 – $18,200) x 19% = $1,102.00
Medicare levy = ($24,000 x 1.5% = $360.0093)
Total tax = $1,462.00
Less:
Offsets = $445.00 low income offset + $1,173 (special area zone rebate)
= Nil tax payable (excess offset of $156 – this amount is non refundable)
Jeff is not liable to any income tax.
The result from this case study is that the person who receives $4,596 more in income than Ronald is not paying any income tax whilst Ronald has paid $278 of MWT.94 Not surprisingly some previous studies of the MWT have also criticised this tax on the basis
93 The levy is 1.5 per cent; see ITAA36 s 251S; Medicare Levy Act 1986 (Cth) s 7; ATO
Torres Strait Islander Affairs stated in 1999 that:
The justification for the MWT no longer exists – particularly on the basis of the tax’s
inequity. Aboriginal people and organisations have been increasingly incorporated into
the mainstream taxation system and should be taxed in the same way as other
Australians and entities.96
The Committee indicated that even if the payments are income and taxable to individual
Indigenous peoples and corporations as income, this would be the most appropriate and equitable approach to take. In his submission to this Committee, Jon Altman argued for the abolition of the MWT; one of his reasons was that this would ‘signal that these moneys [royalty equivalents] should not be paid to individuals but should in fact be paid for community benefit.’97
The one advantage Ronald has over Jeff is that Ronald does not have to lodge a tax return or be concerned about the amount of his distribution in order to determine if he needs to lodge one or not. As I have stated earlier in this Chapter, the MWT grants
95 The MWT has been subjected to extensive criticism from an equity perspective; see, eg Commonwealth of Australia, House of Representatives Standing Committee on Aboriginal and Torres Strait Islander Affairs, Unlocking the Future: The Report of the Inquiry into the Reeves Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (1999) 68; Jon Altman and D P Pollack, ‘Reforming the NT Land Rights Act’s Financial Framework Into a More Logical and More Workable Model’ (Working Paper No 5, CAEPR, 1999) stated that ‘Almost all reviewers of the ALRA have recommended that the tax be abolished’ 20; Commonwealth of Australia, Report on the Review of the Aboriginals Benefit Trust Account (and Related Financial Matters) in the Northern Territory Land Rights Legislation (Jon Altman, 1985) 229– 234; Commonwealth of Australia, Building on Land Rights for the Next Generation, the Review of the Aboriginal Land Rights (NT) Act 1976, Second Edition Report (1998, John Reeves) 364. 96 Commonwealth of Australia, House of Representatives Standing Committee on Aboriginal and Torres Strait Islander Affairs, Unlocking the Future: The Report of the Inquiry into the Reeves Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (1999) 68. 97 Jon Altman, Centre for Aboriginal and Economic Policy Research (CAEPR) Transcripts, House of Representatives Standing Committee on Aboriginal and Torres Strait Islander Affairs, Unlocking the Future: The Report of the Inquiry into the Reeves Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (1999) 806. 227 certainty and as a result causes no compliance cost to the taxpayer in that the mining payment is not included in their assessable income for tax purposes.98 Ronald would not need to be concerned about the amount to include in any tax return or delay lodging a return due to any delays in notification by the ABA or other payer. He also may not have to lodge a tax return.
4.8 Reviews of the ALRA and the MWT
The ALRA has been the subject of a number of reviews that have also commented on the MWT.99 In 1997 the Federal Government conducted a review that resulted in the
Reeves Report.100 This Report noted the previous criticisms of the tax, that it is unfair and inequitable, and also that to tax payments for Land Council overheads was illogical.101 The report recommended that the MWT be re-examined or abolished. A subsequent Parliamentary Committee Report in 1999 made the recommendation that the tax be re-examined with a view to its abolition in view of its inequity and inefficiency.102 Jon Altman and D P Pollack advise that ‘Almost all reviewers of the
ALRA have recommended that the tax be abolished.’103
98 Mining payments made to either a distributing body or Aboriginal person and which have attracted mining withholding tax are non-assessable non-exempt income under ITAA97 s 59-15. The result is that the mining payment is subject to a current tax rate of 4 per cent and is otherwise exempt from ordinary income tax. 99 Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of the Aboriginals Benefit Account (November 2008), Executive Summary and Recommendations [7]. 100 Commonwealth of Australia, Building on Land Rights for the Next Generation: The Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (1998, John Reeves). 101 Ibid 364. 102 House of Representatives Standing Committee on Aboriginal and Torres Strait Islander Affairs, Unlocking the Future: The Report of the Inquiry into the Reeves Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (1999) recommendation 15. 103 Jon Altman and D P Pollack, ‘Reforming the NT Land Rights Act’s Financial Framework Into a More Logical and More Workable Model’ (Working Paper No 5, CAEPR, 1999) 20. 228 4.9 Conclusion
A flat-rate withholding tax such as the MWT is a very simple and certain tax. It therefore offers many benefits from a simplicity perspective for the revenue collector,104 the paying entity and the ultimate taxpayer. The current MWT is, however, arguably inequitable from a tax policy perspective because it results in many recipients bearing a tax burden indirectly that their personal circumstances would not require them to bear if tax were imposed directly.
Whilst there may have been some initial justification for the tax on the basis that
Indigenous Australians in the Northern Territory were not part of the Federal tax system, it was recognised as long ago as 1999 that this is no longer the case and that the justification for the MWT on this basis no longer exists.105 If areas affected moneys is distributed through to individuals then, as demonstrated in my example of a member of the Mirarr people of the Northern Territory, it is highly likely that this amount would be subject to less tax than the MWT. On this basis, the imposition of the MWT breaches the tax policy principle of horizontal equity.
It is also arguable that the MWT adds to the disadvantage of a group of already disadvantaged Australians compared to the tax position of non-Indigenous taxpayers in the same or similar economic positions. Furthermore, where mining payments are made to Land Councils, royalty associations and other corporate entities that are also charities, the principle of horizontal equity is again breached because other charities are not subject to income tax on any income, grants or other payments that they receive.
104 The Henry Review states that a flat-rate tax is a very simple tax, Part 2 Vol 1, A1 Personal Income Tax. 105 Commonwealth of Australia, House of Representatives Standing Committee on Aboriginal and Torres Strait Islander Affairs, Unlocking the Future: The Report of the Inquiry into the Reeves Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (1999) 68. 229 Chapter 5: An Analysis of the choice to use Charitable Entities by
Indigenous Australians in receipt of Mining Payments
Part 1
5.1 Introduction
In Chapter 3 I established that the use of charities by Traditional Owners1 under the
Aboriginal Land Rights (Northern Territory) Act 1976 (Cth) (ALRA) is widespread.
Literature relating to mining agreements and native title indicates that the use of charities is also common amongst Native Title Groups2 under the Native Title Act 1993
(Cth) (NTA). In particular, studies by the Australian Institute of Aboriginal and Torres
Strait Islander Studies (AIATSIS) a research institute funded by the Commonwealth
Government,3 confirms that many Native Title Groups use a charitable entity to enter into resource agreements and/or receive mining payments.4
In this Chapter I demonstrate the five main reasons why charitable entities are used by
Indigenous Australians5 to receive mining payments under mining agreements. I then discuss three case studies that I have chosen to express their use of charities and which
1 This term is used in this Chapter when referring to traditional Aboriginal owners as defined in s 3 ALRA. 2 This is the term used in this Chapter to refer to Indigenous Australians with a Federal Court determination of their native title interests and those who assert native title rights, whether as formal claimants under the NTA or otherwise. 3 AIATSIS is a Commonwealth statutory authority within the Department of Industry, Innovation, Science, Research and Tertiary Education portfolio. 4 Lisa Strelein and Tran Tran, ‘Taxation of Trusts and the Distribution of Benefits under Native Title Agreements’ (Native Title Research Report No 1, AIATSIS, 2007) [2.1]; Lisa Strelein, ‘Taxation of Native Title Agreements’ (Native Title Research Monograph No 1, AIATSIS, 2008) 31. 5 This is the term used in this Chapter to refer to Native Title Groups, Traditional Owners and Aboriginal and Torres Strait Islander Australians generally. 230 also highlight the complexity and uncertainty surrounding the application of income tax principles to mining payments which was discussed in Chapter 2. These case studies are also used to show that the charitable structure is not always a good fit for Indigenous
Australians due to certain legal barriers and limitations that will be made clear in this
Chapter and Chapter 6.
In Part 1 of this Chapter, I discuss the reasons why Indigenous Australians use charities to receive mining payments. In order to place the use of charities in context I also provide an overview of the relevance of the charity sector to Australia and Indigenous
Australians and the statistics on Indigenous disadvantage. In Part 2, I demonstrate the use of charitable structures through three case studies. These are exemplars of resource agreements using a charitable organisation to receive mining payments on behalf of
Indigenous Australians. The first two case studies are the Western Cape Communities
Co-existence Agreement6 and the agreement between Tjurabalan Native Title Land
Aboriginal Corporation and a gold mining company in the central desert area. Both these agreements relate to land that is subject to native title under the NTA. The third case study is the mining agreement with Gundjeihmi Aboriginal Corporation
(Gundjeihmi) in the Northern Territory which is a mining agreement in respect of
Aboriginal land as defined in the ALRA. Each case study confirms the use of charities by Indigenous Australians. They also demonstrate that the payments from resource agreements are used for community development purposes. My discussion will however highlight that there are certain legal limitations that arise when establishing and using charitable entities. The identification of these limitations leads to my discussion in
6 National Native Title Tribunal, Registered ILUA Summary, Comalco ILUA http://www.nntt.gov.au/Indigenous-Land-Use-Agreements/Search-Registered- ILUAs/Pages/Comalco_ILUA_QIA2001002.aspx. 231 Chapter 6 of the legal advantages and disadvantages of using charitable entities from the perspective of Indigenous Australians.
5.1.1 Reasons to Use Charities: Feedback from Representatives of Indigenous
Groups
As stated above there are five main reasons for the use of charities by Indigenous
Australians which I have identified from the literature and from interviews with staff working with Indigenous organisations. The first is the income tax exemption and the lack of clarity surrounding whether or not there is a liability to income tax on these payments. Charities attract an income tax exemption and ensure greater certainty from a tax perspective.7 The uncertainty regarding the application of income tax law to payments arising from resource agreements was analysed in Chapter 2 and will be highlighted in the case studies. The second reason is that mining companies often require Indigenous Australians to establish charities to ensure that mining payments are not taxable and are used for the benefit of the community. The third reason is that
Indigenous Australians wish to use mining payments for community development purposes and these purposes often coincide with charitable purposes.8 This use was demonstrated in Chapter 3 and will be enlarged upon in this Chapter particularly in the case studies. The fourth reason, which is related to the previous reason, is that charities are not-for-profit (NFP), so that any surpluses are reinvested into the entity, they are
7 Lisa Strelein, ‘Taxation of Native Title Agreements’ (Native Title Research Monograph No 1, AIATSIS, 2008) 31. 8 Victorian Native Title Legal Service, Submission to Australian Government, Attorney- General, Discussion Paper: Leading Practice Agreements: Maximising Outcomes from Native Title Benefits, 2011, 1; Freehills, solicitors, Submission to Australian Government, Attorney- General, Discussion Paper: Leading Practice Agreements: Maximising Outcomes from Native Title Benefits, 2011, 1; Australians for Native Title and Reconciliation (ANTaR), Submission to Australian Government, Attorney-General, Discussion Paper: Leading Practice Agreements: Maximising Outcomes from Native Title Benefits, November 2010, 1. 232 established for specific purposes that often match Indigenous Australians’ aims and objectives, and can be small, flexible and controlled by their members such as Native
Title Groups and Traditional Owners. These advantages will be demonstrated through my discussion of the literature and through the case studies. The final main reason is that charities are able to exist in perpetuity as opposed to private trusts which must comply with the rule against perpetuities.
With regard to the taxation of mining payments, Indigenous Australians wish to gain the income tax exemption and therefore maximise the outcomes from these payments and investment of these payments. The use of charities is a response to the belief that these payments are exempt from income tax together with the lack of clarity regarding the imposition of income tax if a charity is not used. Furthermore, mining companies either do not wish to clearly identify in agreements what payments are in respect of, or consider that this would add to the complexity of the agreements so they prefer the use of a charity to avoid some of the difficult definitional issues that exist regarding any income tax liability.9 Mining companies also want clarity regarding any income tax liability arising from mining agreements and the use of a charity as the recipient of the payments ensures this. A further advantage from the mining industry perspective is that the use of charities demonstrates that the funds are ‘doing good’ which enhances their social responsibility and their reputation.10
As stated in the joint submission to Treasury by the Minerals Council of Australia and the National Native Title Council ‘currently, charitable trusts are commonly used for
9 Minerals Council of Australia (MCA) and National Native Title Council (NNTC), Submission to Treasury, Consultation Paper, Native Title, Indigenous Economic Development and Tax, 30 November 2010, 11. 10 Ibid 12. 233 holding benefits from negotiated agreements to both maximise the value of the benefits and to avoid some of the difficult definitional issues that exist in current taxation arrangements’.11
During 2009 and 2010 I interviewed representatives of Land Councils and corporations that act on behalf of Native Title Groups. I also interviewed representatives of the
Office of the Registrar of Indigenous Corporations (ORIC) and AIATSIS. I used the qualitative research technique of semi-structured interviews, and asked these representatives about the use of charities by Indigenous Australians that have entered into resource agreements. This approach and my rationale for it are discussed in Chapter
1. The research discovered a wide variety of information resulting from the responses of the participants to the interview questions.
Open ended questions were asked of interviewees so that they could express their ideas in their own words. The interviews were conducted in the interviewee’s own setting so that they felt comfortable in their surroundings and more open and responsive. This also led to other members of the organisation being interviewed which would not necessarily have occurred if interviews were conducted over the telephone.
The interviewees all confirmed that the use of charities by Indigenous Australians as part of mining agreements is widespread. They agreed that the rationale for this use is to gain the income tax exemption.12 Several interviewees advised that they do not consider that payments under resource agreements are taxable as they are in respect of
11 Ibid 11. The MCA represents Australian mining companies that are responsible for 85 per cent of mining in Australia. 12 In many cases they also wished to gain fringe benefits tax concessions as Public Benevolent Institutions (PBIs) but also stated that the strict requirements for PBI status were not attainable for some organisations. 234 compensation for damage to the land or to the native title but that the use of a charity makes this certain. All interviewees advised that as the funds are used for community purposes the benefits need to be maximised and that the most effective way of doing this is to ensure that the entities receiving the funds are exempt from income tax. In this way not only are the payments under the agreement income tax exempt but also any moneys earned when these funds are invested. The interviewees advised that a charitable structure or a community service provider13 is currently the best option available to them that provides income tax exemption and ensures that funds are used for community development purposes. These results agree with other research in this area.14
5.1.2 Differences between the Not-for-Profit (including Charitable), Business and
Government Sectors
In order to demonstrate the advantages of using a charitable entity other than the income tax exemption it is necessary to define exactly what a charity is and its place in the
Australian economy and society. In modern communities many functions are performed by government and business however there is another area which provides and consumes products and services. This is commonly referred to as the NFP sector, the
13 Some interviewees expressed limited use of this income tax exempt structure. A community service provider is a not-for-profit entity that provides services to a community and is income tax exempt under ss 50-10 and 50-70 Income Tax Assessment Act 1936 (Cth) (ITAA97). The community service provider exempt entity was established to enable organisations such as Rotary and the Lions Club to be income tax exempt. It will be discussed in detail in Chapter 7. 14 See Lisa Strelein and Tran Tran, ‘Taxation of Trusts and the Distribution of Benefits under Native Title Agreements’ (Native Title Research Report No 1, AIATSIS, 2007) [2.1]; Lisa Strelein ‘Taxation of Native Title Agreements’ (Native Title Research Monograph No 1, AIATSIS, 2008) 31. 235 third sector, the nonprofit sector, the civil sector, the civil society; or the philanthropic sector.15 Within this sector are also found charitable organisations.16
The NFP sector consists of private organisations that are formed and sustained by groups of people (usually their members) acting voluntarily. They provide benefits to themselves and others, most commonly the community or a section of it.17 They range from local neighbourhood watch groups, tennis clubs and other community organisations to religions, medical research organisations and international agencies that assist developing countries. Third sector organisations may be funded by the government and provide public services such as education or medical services; however they are not part of the government. Nor are they part of the business sector as, although they may charge for their services, the generation of profit for their owners is not generally an aim. In most cases any profits are returned to the organisation to be used in the furtherance of its purposes.18 These organisations therefore occupy a unique space within the community in that they are private in nature but they exist for a public or community purpose.19
15 Mark Lyons and Susan Hocking, 'Dimensions of Australia's Third Sector' (Centre for Australian Community Organisations and Management, University of Technology, Sydney 2000) 1. 16 Gino Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) [1.15]. 17 Mark Lyons and Susan Hocking, 'Dimensions of Australia's Third Sector' (Centre for Australian Community Organisations and Management, University of Technology, Sydney 2000) 1. 18 Mark Lyons and Susan Hocking, 'Dimensions of Australia's Third Sector' (Centre for Australian Community Organisations and Management, University of Technology, Sydney 2000) ch 1. 19 Lester M Salamon, S Wojciech Sokolowski and Regina List, 'Global Civil Society: An Overview' (Centre for Civil Society Studies The Johns Hopkins University, 2003), 1; Susan D Phillips and Steven Rathgeb Smith, ‘Between Governance and Regulation: Evolving Government-Third Sector Relationships’ in Susan D Phillips and Steven Rathgeb Smith (eds), Governance and Regulation in the Third Sector (Routledge, 2011) 1-29. 236 The governing structure of such organisations also shows the differences between these philanthropic organisations and government and business. Government departments and agencies are responsible to parliament and a minister; businesses are formed to generate a return on moneys invested and are controlled by their owners or their agents eg a board of directors of a company who control the entity for the shareholders. The assets of the company are owned by the company and the shareholders’ only interests are their shares and the rights attaching to these shares.20 If the business is carried on by a trust, then the trustee must carry out the objectives of the trust in accordance with the terms of the trust.21 The trustee holds property for the benefit of the trust beneficiaries (other than where it is a charitable trust in which case the property is held for a purpose).22 The directors of most NFP organisations are responsible to their members, who are in effect the owners of the organisation. Each member has an equal say. Furthermore the directors must comply with the purposes or objects of the NFP and these are generally altruistic or community focused.23
An important distinguishing feature of organisations within the third or NFP sector is their treatment of profit. Almost all NFP sector organisations must generate a surplus of income over expenditure in order to survive. However most of these organisations are prohibited from directly distributing any part of their profit or surplus to members. Most also prohibit distribution to members when they cease to exist and provide that any
20 Robin Woellner et al, Australian Taxation Law (CCH Sydney, 22nd ed, 2012) [18-010]. 21 Ibid [17-005-17-020]. 22 Ibid 9-040. 23 Australian Government, Productivity Commission Research Report, Contribution of the Not- for-Profit Sector (January 2010) xviii; United Nations, System of National Accounts (1993)
I therefore suggest that there are three features of NFPs which make them attractive to
Indigenous communities. First, the reinvestment of surpluses of income over expenditure into the objects or purposes of the entity can assist towards a continuing cycle of economic and social improvement. Second, as Native Title Groups and
Traditional Owners have communal ownership of their traditional lands it is important that they share in decision making regarding its use. This sharing of decision making is more easily accommodated by an NFP than a for-profit structure. It will be demonstrated in my discussion of the case studies later in this Chapter that representation of community needs and aspirations is an integral aspect of the use of charities by Indigenous Australians as part of resource agreements. As members of
NFPs are the owners of the organisation they have a stronger voice in ensuring that the
NFP acts in accordance with their wishes. NFPs are more open to the focus and opinions of the community of members that they represent than for profit entities whose mission is to make a profit, and this leads to flexibility in targeting a range of community purposes.
Finally, the legal structure of NFPs is essential to provide a single point of engagement with third parties for Indigenous Australians (although this advantage is shared with for- profit corporations).25 This enables them to deal with their communal interests in land in a market economy. As discussed in Chapter 2 the NTA requires the incorporation of a
24 United Nations, System of National Accounts (1993). 25 See Marcia Langton and Angus Frith, ‘Legal Personality and Native Title Corporations: The Problem of Perpetual Succession’ in Lisa Strelein (ed), Dialogue About Land Justice (Aboriginal Studies Press, 2010) 173. 238 company, the Prescribed Body Corporate (PBC) once a determination of native title is made so that it can manage the native title and represent the Native Title Group in legal and commercial matters.26 In Chapter 3 I discussed the system established under the
ALRA wherein Land Trusts hold title to Aboriginal land and the Land Councils act on behalf of Traditional Owners. The Land Councils also receive statutory mining royalty equivalents and any other mining payments on behalf of Traditional Owners and
Indigenous Australians resident in the Northern Territory. Other companies, such as those referred to as royalty associations are also incorporated to act on behalf of
Northern Territory Indigenous Australians as discussed in Chapter 3. In each of these situations the intersection between Indigenous Australians dealing with interests in land or the market economy and the Australian legal system requires the incorporation of a legal entity. The Land Councils and many royalty associations are also charities.
5.1.3 ‘Charities’ as Part of the Not-for-Profit Sector
Charities share many of the features of NFPs particularly the criterion of not distributing profit. At common law a ‘charity’ must be a NFP.27 No payment can be made to a charity’s members other than for wages or allowances to employees, reimbursement of
26 NTA ss 56 and 57; Native Title Prescribed Body Corporate Regulations 1999 (Cth) regs 8 and 8A. 27 Re Smith’s Wills Trusts; Barclays’ Bank Ltd v Mercantile Bank Ltd [1962] 2 All ER 563; Ann O'Connell, 'The Tax Position of Charities in Australia - Why Does It Have To Be So Complicated?' (2008) 37 Australian Tax Review 17, 24. 239 expenses, or payment for services.28 This requirement also means that on a winding up any excess funds must be transferred to an entity with similar purposes.29
There is no exhaustive statutory definition of ‘charity’ or charitable purpose in Australia although the Federal Government has announced that it will enact a statutory definition.30 The Australian courts have recognised that there is a legal definition as developed through the common law.31 This common law dates back to the Preamble to the 1601 Statute of Charitable Uses32 which listed a range of charitable purposes that included relief of poverty, assistance to scholars and orphans, help to returned soldiers and repairs to highways and churches.
In 1891 the House of Lords accepted the guidelines suggested by Lord Macnaghten in
Commissioners for Special Purposes of Income Tax v Pemsel33 in applying the spirit and intendment of the Preamble in a tax scenario. Lord Macnaghten suggested that
28 Ann O'Connell, 'The Tax Position of Charities in Australia - Why Does It Have To Be So Complicated?' (2008) 37 Australian Tax Review 17, 24; Gino Dal Pont, Law of Charity (LexisNexis, Butterworths, 2010) [3.24]-[3.25]. 29 Australian Taxation Office, Income Tax and Fringe Benefits Tax: Charities, TR 2011/4, 2011 [235]. 30 The Federal Government advised in 2011 that it intends to enact a statutory definition of charity however as at 31 December 2012 (the time of writing this thesis) consultations were still in progress and no draft legislation had been produced; see Treasury, Consultation Paper, A Definition of Charity, October 2011. Australian Government, Report of the Inquiry into the Definition of Charities and Related Organisations, Ian Sheppard, Robert Fitzgerald and David Gonski, June 2001 (Sheppard Report) recommended that Australia have a statutory definition. In 2004 the Federal Government enacted the Extension of Charitable Purpose Act 2004 (Cth) which provides for certain specified purposes to be charitable, these are not-for-profit child care and rental accommodation under the national rental affordability scheme, ss4 and 4A. Since 2006 the United Kingdom has had a statutory definition of ‘charity’ in accordance with the provisions of the Charities Act 2006 (c 50). This definition largely encapsulates the common law although it adds some additional charitable categories such as the advancement of amateur sport and also specifically refers to a requirement of ‘public benefit’ which at common law had been presumed for the first three categories of charity established in Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531. 31 Salvation Army (Victoria) Property Trust v Shire of Fern Tree Gully (1952) 85 CLR 159. 32 43 Eliz. 1, c.4, commonly referred to as the Statute of Elizabeth. 33 [1891] AC 531. 240 charitable purposes fall within four divisions. These are the relief of poverty, advancement of education, advancement of religion and other purposes beneficial to the community, not falling under any of the preceding heads.34
The classification of charitable purpose into these four areas has been consistently used as a guideline in Australian judicial considerations.35 Furthermore, as well as requiring a charitable purpose, entities that aim to qualify as charities must also be of public benefit.36
The legal definition of charity and how this is applied to charities for Indigenous
Australians will be analysed in detail in Chapter 6 in order to demonstrate the legal barriers and limitations that the use of this structure can place before Indigenous
Australians. For the purposes of the discussion in this Chapter it is sufficient to state as demonstrated earlier in this Chapter and the previous chapters that many Indigenous
Australians that hold land and enter into agreements with mining companies have established a charitable entity to receive mining payments under these agreements.
These charitable entities are generally established with the charitable purpose of either relief of poverty of Indigenous Australians, or for other purposes beneficial to the community such as cultural cohesion and the holding of traditional lands.37
34 [1891] AC 531, 583. 35 See the High Court of Australia in Commissioner of Taxation v Word Investments Limited [2008] HCA 55; Salvation Army (Victoria) Property Trust v Shire of Fern Tree Gully (1952) 85 CLR 159, 173; Ashfield Municipal Council v Joyce (1976) 10 ALR 193; Commissioner of Taxation v The Triton Foundation (2005) 226 ALR 293, 299 (Kenny J). 36 Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531; Salvation Army (Victoria) Property Trust v Shire of Fern Tree Gully (1952) 85 CLR 159. 37 See charitable trust structure described in Australian Senate, Finance and Public Administration References Committee, ‘Relationship between the Central Land Council and Centrecorp Aboriginal Investments Corporation Pty Ltd’ November 2009 [2.38]; examples provided in Lisa Strelein and Tran Tran, ‘Taxation of Trusts and the Distribution of Benefits 241 5.1.4 The Fiscal Treatment of Not-for-Profits and Charities in Australia
Just being an NFP does not automatically provide exemption from income tax.38
However charities that are endorsed by the ATO are entitled to income tax exemption.39
Charities may also be entitled to a range of other tax concessions both at Federal and
State level. In respect of the goods and services tax (GST) regime the supply by a charity of accommodation and meals to a resident of a retirement village that the charity operates is GST-free,40 as are the supply of tickets in raffles and games of bingo41 and of certain second-hand goods.42 Charities can decide that all supplies in relation to a
‘fund-raising event’ are input taxed.43 This means that the charity does not charge GST on any supplies in relation to the event and cannot claim any input tax credits in respect of these supplies.44 The reimbursement of volunteers’ expenses by a charity is not treated as a taxable supply so that GST is not payable.45 Charities and NFPs are not required to register for the GST unless their GST annual turnover reaches a threshold level of $150,000 compared to $75,000 for businesses.46
under Native Title Agreements’ (Native Title Research Report No 1, AIATSIS, 2007) [3.2]- 4.6]. 38 There are a range of NFPs that are entitled to income tax exemption eg ‘community service providers’ under ITAA97 s 50-10; employee and employer organisations and trade unions under ITAA97 s 50-15. 39 ITAA97 s 50-1, 50-5, 50-20 and 50-105. 40 A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act) s 38-260; the result is that the charity does not charge GST on the supply but can claim back any input tax credits relating to the supply; see GST Act s 9-30(1) div 38 and s 11-15. 41 GST Act s 38-270 42 GST Act s 38-255. 43 GST Act s 40-160. 44 GST Act s 11-15. 45 GST Act s 111-18 and s 9-20(2). 46 GST Act ss 23-5 and 23-15 and A New Tax System (Goods and Services Tax) Regulations 1999 (Cth) reg 23-15(2). 242 With respect to the taxation of fringe benefits of employees (FBT) certain charities and other entities are entitled to FBT exemptions or concessions. For example, benefits provided to employees of Public Benevolent Institutions (PBIs) are exempt from FBT.47
As pointed out in Chapter 3, PBIs are NFPs organized for the direct relief of poverty, sickness, suffering, distress, misfortune, disability or helplessness.48 PBIs are charities49 but not all charities are PBIs. Benefits provided to employees of NFP hospitals50 and
‘health promotion charities’ are also exempt.51 Health promotion charities are charitable institutions whose principal activity is to promote the prevention or the control of diseases in human beings.52 Certain specified charities are entitled to a rebate of FBT.53
In certain circumstances charities are also exempt from local government rates54 and state pay-roll taxes.55 The income tax exemption for charities is found in many other countries.56
47 Fringe Benefits Tax Assessment Act 1986 (Cth) (FBT Act) s 57A(1). 48 Perpetual Trustee Company Ltd v Federal Commissioner of Taxation (1931) 45 CLR 224, 232. 49 See Australian Taxation Office, Taxation Ruling TR 2003/5 Income tax and Fringe Benefits Tax: Public Benevolent Institutions, 4 June 2003, for the purposes of income tax a PBI is a charitable institution [24]. 50 FBT Act s 57A(4) and s 65J(5). 51 FBT Act s 57A(5). 52 FBT Act s 136. 53 FBT Act s 65J. 54 For example Local Government Act 1993 (NSW) s 556(1)(h); see Fiona Martin. ‘Local Government Rates Exemptions for Indigenous Organisations: The Complexities of a State by State System’ (2010) 14(1) Australian Indigenous Law Review 35. 55 For example Payroll Tax Act 2007 (NSW) s 48(1). 56 In the United Kingdom the exemption from income tax of trading profits of charities is found in Income Tax Act 2007 c 3, s 524; Canada Income Tax Act RSC 1985 c1 (5th supp) s 149(1)(f); New Zealand: Income Tax Act 2007 (NZ) s CW 41 and CW 42. 243 This government intervention in the form of tax concessions is justified in terms of the desire of society to increase the output of certain charitable objects beyond the level which would be provided by individual donors. This is seen as a public policy matter, concerning the objectives of government with respect to the allocation of the budget and the divisions of responsibility between voluntary and statutory welfare services.57
Subsidising charities enables governments to further their social objectives particularly in supporting the disadvantaged. Furthermore, it is suggested that tax subsidies, rather than the increase of government provisions, can result in better targeting of resources.58
It is however outside the boundaries of this thesis to discuss in detail the advantages and disadvantages of tax subsidies to the NFP sector.
5.1.5 Overview of the Economic and Social Situation of Indigenous Peoples in
Australia
A number of judicial decisions in the area of charity law have involved the charitable status of entities supporting Indigenous Australians. These cases will be discussed in detail in Chapter 6. In order to place in context the use by Indigenous Australians of charities I consider it necessary to provide an overview of current Indigenous economic and social circumstances. This is particularly relevant as many of the charities for
Indigenous Australians that I have examined are established for the charitable purpose, relief of poverty.
57 A J Culyer, J Wiseman and J W Posnett, 'Charity and Public Policy in the UK- The Law and the Economics' (1976) 10 Social and Economic Administration 32, 32 and 44. 58 M Cullen, P Swain and J Wright, ‘Tax and Charities: A Government Discussion Document on Taxation Issues Relating to Charities and Non-Profit Bodies’ (New Zealand Policy Advice Division, Inland Revenue Department, Wellington, 2001). 244 The 2011 population census states that the Aboriginal and Torres Strait Islander population is approximately 2.5 per cent of the total Australian population.59 Research indicates that Australia’s Indigenous population suffers significant social exclusion due to a range of factors including cultural and racial discrimination and a legacy of displacement from land and oppression.60 An obvious means of comparison to the majority of the population is to consider the data on such indicators as employment, income, health, education and housing.
5.1.6 Employment
In 2008, Indigenous people aged 15-64 years were less likely to participate in the labour force than the civilian population61 of the same age group (65 per cent and 77 per cent respectively) and were also less likely to be employed (54 per cent compared to 73 per cent). The unemployment rate for Indigenous people was more than three times the unemployment rate of the civilian population (16.6 per cent and 5.0 per cent respectively).62 In 2004-05 a higher proportion of Indigenous people than non-
Indigenous people were employed in lower skilled occupations, including low level
59 Australian Bureau of Statistics, 'Census - Fact Sheet: Australia - People' 2011. 60 Kerry O'Halloran, Charity Law and Social Inclusion: An International Study (Routledge, 2007) 44; Lisa Palmer and Maureen Tehan, ‘From Remnant Lands to Sustainable Communities: Negotiating Spaces for Indigenous Land and Jurisdiction in Darwin and Vancouver’ in Marcia Langton et al (eds), Settling with Indigenous People (Federation Press, 2006) 231-256. 61 Australian Bureau of Statistics, ‘National Aboriginal and Torres Strait Islander Social Survey, 2008’ (Report No 4714.0, 2009) states that ‘The Australian civilian population was used for comparison as non-Indigenous estimates for August 2008 to April 2009 were not available at the time of publication’. 62 Australian Bureau of Statistics, ‘National Aboriginal and Torres Strait Islander Social Survey, 2008’ (Report No 4714.0, 2009). 245 clerical, sales and service workers and labourers (26 per cent compared to 16 per cent).63
5.1.7 Income
As discussed in Chapter 4, Indigenous Australians continue to experience much higher levels of poverty than non-Indigenous people. Australian Government Reports for 2008 and 2012, referring back to 2006 data state that as at August 2006, 41.4 per cent of
Indigenous people were reported as earning a low weekly income of $249 or less.64
Australian Bureau of Statistics (ASB) data reports that the median personal weekly income of Indigenous Australians in 2011 was $362 compared to $582 for non-
Indigenous persons (62 per cent of non-Indigenous weekly income).65
5.1.8 Health
Australian Indigenous people are more likely to experience disability and significantly lower quality of life due to poorer health, and to have shorter life expectancies than the rest of the Australian population.66 These patterns are reflected in Australian data on mortality, life expectancy and birth weights; hospital separation rates; hospitalisation
63 Steering Committee for the Review of Government Service Provision, 'Overcoming Indigenous Disadvantage: Key Indicators 2007' (Productivity Commission, 2007) 57. 64 Steering Committee for the Review of Government Service Provision, 'Report on Government Services 2008 - Indigenous Compendium' (Productivity Commission 2008) 285. The 2006 figures are also used in the Steering Committee for the Review of Government Service Provision, 'Report on Government Services 2012 - Indigenous Compendium' (2012). 65 Australian Bureau of Statistics, ‘2011 Census of Population and Housing Australia: Aboriginal and Torres Strait Islander Peoples (Indigenous) Profile’(Report No 2002.0, 2011) I04. 66 Steering Committee for the Review of Government Service Provision, ‘Overcoming Indigenous Disadvantage: Key Indicators’ (Productivity Commission 2007) 98. 246 rates for diabetes, infectious pneumonia; foetal, neonatal and peri natal death rates; and suicide.67
A consideration of mortality rates in 2001-2005 for the Northern Territory, Western
Australia, South Australia and Queensland indicates that the overall rates of mortality for Indigenous people in these four jurisdictions were around twice as high as mortality rates for non-Indigenous people.68 Indigenous infant mortality rates are also markedly higher than the average for all Australians.69
5.1.9 Educational attainment
Employment outcomes and income are closely linked to the education and skill levels of individuals. In 2008, just over two in ten (21 per cent) of Indigenous people aged 15-64 years had completed Year 12, in comparison to more than five in ten (54 per cent) of non-Indigenous people.70 The ABS reports that by 2011 this had increased to 24 per cent.71 In 2008 33 per cent of Indigenous Australians aged 15-64 had a non-school qualification compared to 54 per cent of non-Indigenous people in the same age group.
Of Indigenous people aged 25-64 years (which mostly includes people who have
67Ibid 98. 68 Ibid 98-109. 69 Ibid 109. 70 Australian Bureau of Statistics, ‘National Aboriginal and Torres Strait Islander Social Survey, 2008’ (Report No 4714.0, 2009). 71 Australian Bureau of Statistics, ‘2011 Census of Population and Housing Australia: Aboriginal and Torres Strait Islander Peoples (Indigenous) Profile’ (Report No 2002.0, 2011) I01 and I04. The ABS report states that there were 330,508 Indigenous Australians aged between 15-64 years and that 81,556 had completed year 12 or equivalent. 247 completed their studies), 40 per cent had a non-school qualification, compared to 61 per cent of non-Indigenous people in the same age group.72
5.1.10 Housing
Indigenous people tend to live in inadequate and overcrowded housing particularly in remote areas. In 2004-05, 25 per cent of Indigenous people aged 15 years and over lived in overcrowded housing.73 In 2008, Indigenous people aged 15 years and over were much less likely to live in a dwelling that was owned with a mortgage or owned outright than non-Indigenous people (29 per cent and 72 per cent respectively). Indigenous people were correspondingly more likely to be living in rented dwellings (69 per cent compared to 26 per cent).74 Between 2002 and 2008, the home ownership rate reduced for Indigenous Australians (10 per cent in 2002 and 8 per cent in 2008).75 By 2011 the
ABS reported that 11.8 per cent of dwellings occupied by Indigenous Australians needed one or more extra bedrooms compared to 3.2 per cent of dwellings occupied by non-Indigenous Australians.76
72Australian Bureau of Statistics, ‘National Aboriginal and Torres Strait Islander Social Survey, 2008’ (Report No 4714.0, 2009). 73 Steering Committee for the Review of Government Service Provision, 'Overcoming Indigenous Disadvantage: Key Indicators 2007' (Productivity Commission, 2007) 56. 74 Australian Bureau of Statistics, ‘National Aboriginal and Torres Strait Islander Social Survey, 2008’ (Report No 4714.0, 2009). 75 Ibid. 76 Australian Bureau of Statistics, ‘2011 Census of Population and Housing Australia: Aboriginal and Torres Strait Islander Peoples (Indigenous) Profile’ (Report No 2002.0, 2011) I04. 248 5.1.11 Summary of Indigenous Australian Disadvantage
These statistics provide a snapshot of Indigenous social and economic disadvantage which is supported by judicial narrative77 and government statements.78 There are submissions from many areas that this disadvantage needs to be overcome and that
Indigenous Australians require a means of connecting with the broader non-Indigenous community in a way that appreciates their cultural, social and historical needs.79 I argue that in view of this disadvantage Indigenous Australians should, if they choose, be able to access charitable structures or some other form of income tax exempt structure.
Through the use of these entities they maximise the benefits they receive from mining agreements and are able to reinvest the original money and any further income into their communities.
5.1.12 The Role of NFPs and Charities in Indigenous Capacity Building and
Economic Development
The concept of culturally sensitive and efficient capacity building is seen as essential by some researchers working with Indigenous groups and people.80 Researchers advise that
77 Northern Land Council v Commissioner of Taxes [2002] NTCA 11 [33]-[34] (Mildren J); Toomelah Co-Operative Limited v Moree Plains Shire Council [1996] 90 LGERA 48. 78 Council of Australian Governments, ‘National Integrated Strategy for Closing the Gap in Indigenous Disadvantage’ (2008). 79 Wendy Scaife, 'Challenges in Indigenous Philanthropy: Reporting Australian Grantmakers' Perspectives' (2006) 41 Australian Journal of Social Issues 437, 439; Rupert Gerritsen, ‘Community Capacity Building’ (Discussion Paper, ATSIC, 2001); Steering Committee for the Review of Government Service Provision, 'Overcoming Indigenous Disadvantage: Key Indicators 2007' (Productivity Commission, 2007) ch 11; Ken Henry, Secretary to the Treasury, ‘Addressing Extreme Disadvantage Through Investment in Capability Development’ (Paper presented at the Institute of Health and Welfare Conference Australia’s Welfare 2007, Canberra, 6 December 2007) 2. 80 Wendy Scaife, 'Challenges in Indigenous Philanthropy: Reporting Australian Grantmakers' Perspectives' (2006) 41 Australian Journal of Social Issues 437, 439; David Martin, ‘Rethinking 249 an effective approach to capacity building must be community-centred and stem from an understanding of history and an appreciation of the community’s assets in its own cultural context. The process should enhance the quality of life, create equal resource access and partner the community to foster strategic and progressive social change towards a just society.81 Utilising NFPs is one approach that can ensure the reinvestment of wealth into communities without direct individual gain together with protection and enhancement of cultural values through the articulation and implementation of appropriate organisational goals.
Jon Altman recognises that cultural and traditional characteristics of Australian
Indigenous peoples need to be taken into account and absorbed and blended into any business model approach to Indigenous economic development.82 David Martin also stresses the significance of engaging with culture and its importance when attempting to
83 improve Indigenous economic development.
In its submission to the Australian Government inquiry into the definition of charities, which was conducted in 2000 and which resulted in the Report of the Inquiry into the
Definition of Charity and R elated Organisations (Sheppard Report),84 the Northern
the Design of Indigenous Organisations: The Need for Strategic Engagement’ (Discussion Paper No 248, CAEPR, 2003) 9-10. 81 Alliance for Nonprofit Management, Cultural Competency: Concepts and Definitions (2003) Alliance for Nonprofit Management
In 2004 a House of Representatives inquiry into capacity building and service delivery in Indigenous communities supported both a management and community development approach to capacity building.86 The community development approach focused on the empowerment of communities so that they can participate in their own policy-making and implementation, in the development of their own effective and culturally informed governance structures, and in developing skills to take responsibility and control of their specific issues and future.87
The role of charities and NFPs in public policy campaigning for land rights and to overcome Indigenous disadvantage is also significant to Indigenous Australians.88 This argument is supported by the submissions made by Indigenous entities to the National
Inquiry into the Definition of Charity and Related Organisations which were particularly concerned with any limitation on public policy campaigning when attempting to gain charitable status.89 These submissions support the argument that charities that are controlled by and which represent Indigenous Australians have an
85 Northern Land Council, Submission to Australian Government, Inquiry into the Definition of Charities and Related Organisations, January 2001. 86 House of Representatives, Standing Committee on Aboriginal and Torres Strait Islander Affairs, Many Ways Forward, 2004, 14-15. 87 Rupert Gerritsen, ‘Community Capacity Building’ (Discussion Paper, ATSIC, 2001); Steering Committee for the Review of Government Service Provision, Overcoming Indigenous Disadvantage: Key Indicators 2007 (Productivity Commission, 2007) ch 11. 88 Kerry O'Halloran, Charity Law and Social Inclusion: An International Study (Routledge, 2007) 142. 89 Northern Land Council, Submission to Australian Government, Inquiry into the Definition of Charities and Related Organisations, January 2001; Central Land Council, Submission to Australian Government, Inquiry into the Definition of Charities and Related Organisations, 25 January 2001; Lumbu Indigenous Community Foundation, Submission to Australian Government, Inquiry into the Definition of Charities and Related Organisations, January 2001. 251 essential role in lobbying about policies that impact on Indigenous issues. For governments that wish to engender and develop a sense of participative and representative democracy charities are also an important means of stimulating community involvement in local politics.90
There is however tension in the native title context in the interplay between the PBC holding land according to traditional laws and customs which must also interact with the broader non-Indigenous community. Marcia Langton and Angus Frith warn that a significant vulnerability of PBCs is to maintain and transmit traditional laws and customs across generations when also dealing with the non-indigenous aspects of mining agreements for the provision of employment, education, training and business development.91 They argue that successful implementation of business models and commercial practices:
may hasten the demise of the customary basis of the native title and accelerate its
incorporation into, and commitment to, a social organisation and lifestyle based on free
market principles, such as labour market freedom rather than kinship, and income-
generating personal attributes, such as individualist wealth generation, rather than
collective sharing of material assets.92
The use of collective ownership, input and reinvestment of income into the organisation which underpins the legal structure of NFPs is a potential way to prevent the demise of
90 Kerry O'Halloran, Charity Law and Social Inclusion: An International Study (Routledge, 2007) 142. 91 Marcia Langton and Angus Frith, ‘Legal Personality and Native Title Corporations: The Problem of Perpetual Succession’ in Lisa Strelein (ed), Dialogue About Land Justice (Aboriginal Studies Press, 2010) 173, 181. 92 Marcia Langton and Angus Frith, ‘Legal Personality and Native Title Corporations: The Problem of Perpetual Succession’ in Lisa Strelein (ed), Dialogue About Land Justice (Aboriginal Studies Press, 2010) 173, 181-182. 252 customary approaches. Cooperative structures are a form of organisation that may be employed to accommodate cultural factors. The cooperative form of organisation is also one way that indigenous communities can engage with the economically dominant sphere without compromising their own socially important structures.93 In his examination of the disability sector in Northern Ireland, Acheson found that government programs undermined the local governance and belief systems of local movements.94
He argued that this was due to the government need for a general solution for social issues which he suggested denied the local definition of the problem. Furthermore, he found that the administrative and accountability structures required by government undermined the democratic approaches that tended to work well in local movements. He concluded that the government relationship meant that fewer alliances between local similar organisations were formed. Such alliances could have benefitted the local organisations and their outcomes.95 The benefits of self-reliance in capacity building, particularly centred on leadership and culture, are also expounded in other research.96
Furthermore, it is important for Indigenous Australians who have been impacted by
93 Ben Jacobsen and Roy Wybrow, 'Property Rights, Individual Incentives and Remote-Area Aboriginal Economic Development' 13 (2007) Third Sector Review 21, 28; Ben Jacobsen, Craig Jones and Roy Wybrow, ‘Indigenous Economic Development Policy: A Discussion of Theoretical Foundations’ (Paper presented to the Social Change in the 21st Century Conference, Queensland University of Technology, Brisbane, 28 October 2005). 94 Nicholas Acheson, 'Local Community Governance: Government Funding, and Social Movements in Northern Ireland: The Disability Movement and the Third Party State ' (Paper presented at the Association for Research and Nonprofit Organizations and Voluntary Action Conference, Montreal, Canada, 2002). 95 Nicholas Acheson, 'Local Community Governance: Government Funding, and Social Movements in Northern Ireland: The Disability Movement and the Third Party State ' (Paper presented at the Association for Research and Nonprofit Organizations and Voluntary Action Conference, Montreal, Canada, 2002). 96 Suzanne Feeney, 'Leadership and Cultural Influences on Capacity Building: A Case Study of a Hispanic Nonprofit Organisation ' (Paper presented at the Association for Research on Nonprofit Organizations and Voluntary Action, Denver, Colorado, 20-22 November 2003). 253 injustice, to be empowered by being decision-makers, otherwise they risk having their goals diluted.97
The Lumbu Indigenous Community Foundation argued that a more balanced approach to community development is needed and that this includes using charitable and philanthropic organisations.98
Some Indigenous organisations support the use of NFPs in assisting them to engage with the broader non-Indigenous community and ‘close the gap’99 between Indigenous economic disadvantage and mainstream Australia. A good example is the Australian
Indigenous Education Foundation which is a private sector-led charity, focused on educating Indigenous children in financial need.100 It was established with a commitment from the Federal Government of $20 million to be matched by private donations of $20 million and provides, amongst other things, scholarships to Indigenous children to attend independent boarding schools.
The Koorie Heritage Trust Inc is another example.101 It is an Indigenous community organisation that aims to protect, preserve and promote the living culture of Aboriginal people of south-eastern Australia. One of its projects, the Woor Dungin Philanthropy
Partnership Project is specifically targeted at relationship building for Indigenous organisations. This project aims to initiate a mutual mentoring program between the
97 Ira Silver, 'Buying an Activist Identity: Reproducing Class through Social Movement Philanthropy ' (1998) 41 Sociological Perspectives 303. 98 Lumbu Indigenous Community Foundation, Submission to Australian Government, Inquiry into the Definition of Charities and Related Organisations, January 2001. 99 This is a term used when referring to overcoming Indigenous disadvantage; see Council of Australian Governments, National Integrated Strategy for Closing the Gap in Indigenous Disadvantage, 2008. 100 Australian Indigenous Education Foundation http://www.aief.com.au/. 101 Koorie Heritage Trust Inc, http://www.koorieheritagetrust.com/. 254 philanthropic sector and Indigenous organisations.102 Along the same lines the Lumbu
Indigenous Community Foundation has stated that ‘a key feature of a balanced community development model in Indigenous Australia will be the presence of healthy, active, Indigenous controlled philanthropic organisations’.103
The Australian courts have also recognised the importance of the role of charitable entities such as Land Councils in protecting Indigenous culture and tradition from the cultural dominance of non-Indigenous society.104 In 2002 Mildren J of the Court of
Appeal of the Northern Territory stated in holding that the Northern Land Council was a
PBI that:
In some cases, the core functions of Land Councils may be seen and recognised as
designed to relieve poverty...in other cases the needs are more fundamental and lie in
the preservation of Aboriginal spirituality, culture and tradition and protecting
Aborigines from the cultural dominance of non-Aboriginal society. This cultural
dominance is well known and has been recognised by the Courts, particularly in relation
to authority figures.105
Earlier, Angel J in Tangentyere Council Incorporated v Commissioner of Taxes106 held that the Tangentyere Council was a PBI. In coming to this conclusion his Honour
102 Koorie Heritage Trust Inc, Woor Dungin Philanthropy Partnership Project http://www.koorieheritagetrust.com/projects/woor_dungin_share. 103 Lumbu Indigenous Community Foundation, Submission to Australian Government, Inquiry into the Definition of Charities and Related Organisations, January 2001; see public statements of the Koori Heritage Trust Inc and projects that it is engaged in including the Woor Dungin Philanthropy Partnership Project http://www.koorieheritagetrust.com/projects/woor_dungin_share; see Australian Indigenous Education Foundation http://www.aief.com.au/. 104 Northern Land Council v Commissioner of Taxes [2002] NTCA 11 [33]-[34] (Mildren J). 105 Ibid [34]. 106 (1990) 21 ATR 239. 255 recognised the importance of the Council assisting its beneficiaries to maintain their traditional culture.107
Gary Banks, Chairman, Australian Productivity Commission argues that certain factors are relevant to activities that have been successful in overcoming Indigenous disadvantage. Two of these are cooperative approaches between Indigenous Australians and government often involving NFPs and the private sector, and community involvement in program design and decision making.108 He considers that community input is essential for programs to be effective.109
In summary, I argue that the advantages of the NFP sector are that they reinvest and use all surpluses in accordance with the stated aims of the entity, are controlled by their members and can ensure through their aims and objectives an equitable and targeted use of funds throughout a community. Furthermore, the often smaller scale of philanthropic organisations, their connections to various members and classes of society, and their flexibility and capacity to engage private initiative in support of public purposes are significant benefits.110 In addition, NFPs have an important role in representing minority groups and lobbying for social change. A strong NFP sector is said to give identity and voice to the marginalised and for bringing about important reforms.111
107 Ibid [23]. 108 Gary Banks, Chairman Productivity Commission ‘Are We Overcoming Indigenous Disadvantage?’ (Paper presented at the third lecture in Reconciliation Australia’s ‘Closing the Gap Conversations’ Series, National Library, Canberra, 7 July 2009) 14-15. 109 Ibid. 110 Lester M Salamon, S Wojciech Sokolowski and Regina List, 'Global Civil Society: An Overview' (Centre for Civil Society Studies, Johns Hopkins University, 2003) 2. 111 Mark Lyons, Third Sector: The Contribution of Nonprofit and Cooperative Enterprises in Australia (2001) 204; Susan D Phillips and Steve Rathgeb Smith, ‘Between Governance and Regulation: Evolving Government-Third Sector Relationships’ in Susan D Phillips and Steve Rathgeb Smith (eds), Governance and Regulation in the Third Sector (Routledge, 2011) 1-29. 256 Research also suggests that these organisations contribute to the bonds of trust and reciprocity between members that are critical for economic and democratic growth.112
As part of the NFP sector charities inhabit a unique space due to their focus on a moral mission to improve the circumstances of the economically and socially disadvantaged.
This flows from their activities in such areas as education, illness, relief of hardship, religion and other important community roles that are of significant benefit to society.113 Charities are also considered to differ from many NFPs in their strong adherence to the public benefit principle.114
This discussion leads to the next part of this Chapter which details three case studies of resource arrangements with Indigenous Australians. It analyses the use of charities in each of these arrangements. The case studies all use different forms of the model agreements analysed in Chapter 2 and are examples of arrangements under either the
NTA or ALRA.
Part 2
5.2 Case Studies of Three Agreements between Indigenous Australians and Mining
Companies
I have chosen three case studies to demonstrate the application of income tax principles and the use of a charitable entity to three very different arrangements between mining
112 Refer for example to Robert Putnam, Making Democracy Work: Civic Traditions in Modern Italy (Princeton University Press, 1993) 83-116, 163-185; James S Coleman, Foundations of Social Theory (First Harvard University Press,1990) 300-321; Mark Lyons, Third Sector: The Contribution of Nonprofit and Cooperative Enterprises in Australia (2001) 207. 113 Kerry O’Halloran, Charity Law and Social Inclusion: An International Study (Routledge, 2001) 24. 114 Kerry O’Halloran, The Politics of Charity (Routledge, 2011) 24. 257 companies and Indigenous Australians under either the NTA or ALRA. These case studies demonstrate the use of charitable entities and provide examples of the types of situations that they have been used in and the use of funds and the activities of each charity. I have chosen each case study for the following reasons. First, each of the mining agreements has been in place for more than five years and therefore it is possible to analyse developments that are occurring under each agreement. Second, details of each agreement are publicly available and there is some research surrounding the progress of the agreements that I have accessed in order to analyse this progress and the income streams generated. Third, each agreement uses a charitable entity as the recipient of mining payments under the agreement or arrangement. Each charity represents the interests of the Indigenous Australians on whose land mining is taking place. Fourth, each agreement represents a very different situation and is an exemplar of each situation and the operation of either the NTA or ALRA. The first case study, the
Western Cape Communities Co-existence Agreement with Comalco, is a mining agreement over native title land. It is however very different from the Tanami agreement as it covers a wider group of Indigenous Australians. It is also different as it is an example of where native title has been extinguished or surrendered as part of the agreement. The second case study is the Tanami mining agreement over a native title determination area in the East Kimberley region of Western Australia which involves one PBC and a relatively small Native Title Group (91 members). The third case study, the Ranger and Jabiluka Uranium Mining Arrangement with Gundjeihmi, is an example of mining payments made pursuant to the ALRA in the Northern Territory, which were discussed in detail in Chapters 3 and 4.
258 5.2.1 Case Study 1: Western Cape Communities Co-existence Agreement with
Comalco over Native Title Land in North Queensland
This case study is an example of an Indigenous Land Use Agreement (ILUA) under the
NTA that is in respect of a wide group of Indigenous peoples and which covers a large region in far north Queensland, the Western Cape York area. This area is the west part of the Cape York Peninsula of far north Queensland. The township of Weipa has been in existence in Cape York since at least 1960 and was built as a company town for the original mining company. Bauxite was discovered near the site of this town in 1955 and the Commonwealth Aluminium Corporation (which became Comalco) was established in 1957 to commence mining. In 1965 the Queensland Government granted a mining lease covering 5,500 square kilometres to Comalco. This lease has subsequently reduced in area and has a term extending to 2041.115 The establishment of the mining operation at Weipa occurred without consultation with the local Indigenous peoples and in controversial circumstances.116
This ILUA is also an example of where native title is extinguished or surrendered as part of the agreement.117 The ILUA is officially titled the Western Cape Communities
Co-existence Agreement however it is commonly referred to as the Comalco ILUA.118
115 Peter Crooke, Bruce Harvey and Marcia Langton, ‘Implementing and Monitoring Indigenous Land Use Agreements in the Minerals Industry: The Western Cape Communities Co-existence Agreement’ in Marcia Langton et al (eds), Settling with Indigenous People (Federation Press, 2006) 95, 100. 116 Veronica Klimenko and Robin Evans, ‘Bauxite Mining Operations at Weipa, Cape York: A Case Study’ Chapter 29 in Northern Australia Land and Water Science Review Full Report (2009) 5. 117 The Tribunal Summary adds the proviso that surrender only occurred to the extent that any native title survived at the time of the agreement, National Native Title Tribunal, Registered ILUA Summary, Comalco ILUA http://www.nntt.gov.au/Indigenous-Land-Use- Agreements/Search-Registered-ILUAs/Pages/Comalco_ILUA_QIA2001002.aspx. 118 Ibid. 259 The Comalco ILUA involves financial payments by Comalco (now Rio Tinto Alcan) and the Queensland Government in respect of bauxite mining. The Comalco ILUA was registered as an ILUA under the NTA with the National Native Title Tribunal (the
Tribunal) on 24 August 2001.119 It should be noted that the full details of the Comalco
ILUA are not publicly available however there is an executive summary available on the relevant webpage of the Native Title Tribunal.
5.2.1.1 Details of the Comalco ILUA
Northern Territory
North West Queensland
Map 1: Map of Area subject to Comalco ILUA120
The area covered by the Comalco ILUA is shown in the map121 above and located in the
Weipa region. In total it covers an area of about 4,135 sq km. The ILUA area includes mining leases ML6024 and ML7024 and, in parts, coastal waters of the State of
Queensland. The land falls within the local government areas of the Town of Weipa and the Shire of Cook.122
119 Ibid. 120 Agreements Treaties and Negotiated Settlements Project, Comalco ILUA
Indigenous community councils (Aurukun, Napranum, Mapoon and New Mapoon),
Comalco Aluminium Limited and the Cape York Land Council on behalf of the Native
Title Groups. The Queensland Government is also a signatory and agreed to provide additional financial benefits on registration of the agreement as an ILUA.124 The number of Indigenous Australians living in the area covered by the Comalco ILUA is approximately 3,000.125
Under the Comalco ILUA the parties agree to validate any acts that are defined in the
ILUA as part of the ‘Comalco Interests’ and ‘Other Interests” and ‘Comalco Activities’ in the area. The ‘Comalco Interests’ are defined as including ‘the Mining Leases and various property interests’ and ‘any right or interest granted under the Commonwealth
Aluminium Corporation Pty Limited Agreement Act 1957 (Qld)’. ‘Other Interests’ are defined as the area of any Special Perpetual Mining Purpose Lease (SPMPL) granted within the Weipa Township. This includes land where the SPMPL has been converted to other interests.126
The Comalco ILUA specifies that the right to negotiate, which would usually apply under the NTA to any future act affecting native title from 1994 onwards does not apply
123 Ibid; the eleven Native Title Groups are Alngith, Anathanangayth, Ankamuthi, Peppan, Taepadhighi, Thanikwithi, Tjungundji, Warranggu, Wathayn, Wik and Wik-Waya, and Yupungathi; see also Western Cape Communities Trust
As part of the ILUA a number of ‘Aboriginal Communities’ (as identified in the actual agreement which is not publicly available) also consent to the shipping of goods in and out of Weipa and the construction, maintenance and repair of facilities in the Weipa
Township for public purposes. These facilities include roads, bridges, schools hospitals, pipelines and communication facilities. The other major part of the ILUA is that these same Aboriginal Communities consent to the grant of any rights over the area covered by the ILUA to enable the supply of gas to the ‘Weipa Operations’ and the laying of any related gas pipelines or provision of storage facilities.128 This final part of the ILUA is stated to be ‘subject to the payment of compensation and other conditions’ however there are no details in the extract of the ILUA on the Native Title Tribunal Register of the amounts of any payments and exactly what aspects of the ILUA they relate to.
It is reported that the signing of the agreement was a historically and politically significant event. Harvey states:
In the speeches of senior Comalco staff, the company apologised for taking forty years
to formally recognise Aboriginal land connections. The Minister for Transport, Steve
Bredhauer, representing the Premier, spoke on behalf of the Queensland Government
and apologised for the coerced removal of Aboriginal people from the area in 1963. In
127 Ibid 4. 128 Ibid 5. 262 many respects the acknowledgment, the apologies and the ceremony were worth as
much as the agreement and the benefits. They represented a recognition of history that
had formerly been denied.129
5.2.1.2 Financial Arrangements under the Comalco ILUA
As already stated the complete ILUA is not publicly available. The extract from the
Native Title Tribunal does not include any amounts for financial payments or any reference to such payments except for the comment regarding compensation referred to above. There is however secondary material on the arrangement.
O’Faircheallaigh in a 2003 paper states that the Comalco ILUA involves a one off payment on the signing of the agreement, set annual payments for a number of years
(although not the lifetime of the mine) and unit royalties.130 Subsequent researchers who were contracted to evaluate the implementation of the ILUA five years after signing provide further details of the financial payments. They advised that the Comalco ILUA provided for annual payments by Rio Tinto Alcan of $2.5 million and the Queensland
Government of $1.5 million. These payments are indexed to mine revenue and the
Consumer Price Index.131
The one off payment is an example of a Model 1 agreement identified by
O’Faircheallaigh discussed in Chapter 2. Specified annual payments are an example of a
129 Bruce Harvey, ‘Rio Tinto’s Agreement Making in Australia in a Context of Globalisation’ in Marcia Langton et al (eds), Honour Among Nations (Melbourne University Press, 2004) 237, 244. Mr Harvey was at this time an employee of Rio Tinto. 130 Ciaran O’Faircheallaigh, ‘Financial Models for Agreements Between Indigenous Peoples and Mining Companies’ (Aboriginal Politics and Public Sector Management Research Paper No 12, January 2003) 21. 131 Peter Crooke, Bruce Harvey and Marcia Langton, ‘Implementing and Monitoring Indigenous Land Use Agreements in the Minerals Industry: The Western Cape Communities Co-existence Agreement’ in Marcia Langton et al (eds), Settling with Indigenous People (Federation Press, 2006) 95, 100. 263 Model 2 agreement.132 The overall provisions of the ILUA represent a combination of
Models 1, 2, 3 and 4 as discussed in Chapter 2.133
In addition to the annual payments and royalty type payments the ILUA provided for other monetary and property payments as follows:
(i) $500 000 managed by Rio Tinto Alcan to run employment and training programs for
Indigenous peoples as endorsed by the Western Cape Communities Coordinating
Committee (the Western Committee);134
(ii) $150 000 was allocated to a cultural awareness fund; 135
(iii) Sudley Station, a 1325 square kilometre pastoral property, was transferred to the
Yupungathi clan one of the Native Title Groups; and
(iv) Parts of the mining leases no longer needed for mining were agreed to be progressively relinquished to the Queensland Government for return to Indigenous ownership.136
132 Ciaran O’Faircheallaigh, ‘Financial Models for Agreements Between Indigenous Peoples and Mining Companies’ (Aboriginal Politics and Public Sector Management Research Paper No 12, January 2003) 10. 133 Ibid. 134 Peter Crooke, Bruce Harvey and Marcia Langton, ‘Implementing and Monitoring Indigenous Land Use Agreements in the Minerals Industry: The Western Cape Communities Co-existence Agreement’ in Marcia Langton et al (eds), Settling with Indigenous People (Federation Press, 2006) 95, 100; Western Cape Communities Trust and Western Cape Communities Coordinating Committee http://www.westerncape.com.au/index.html. 135 Ibid. 136 National Native Title Tribunal, Registered ILUA Summary, Comalco ILUA; Western Cape Communities Trust and Western Cape Communities Coordinating Committee http://www.westerncape.com.au/index.html. 264 The ILUA also provides for access over the native title land and the building of infrastructure on the land in order for the mining company to transport mining material, for the supply of gas and the building of a gas pipeline.137
5.2.1.3 Possible Damage to Native Title and the Physical Land through Mining
With specific regard to bauxite mining, a range of threats to the environment have been identified. During the mining phase there will be deforestation and habitat destruction, threats to biodiversity including aquatic biodiversity, erosion, acid soil drainage, dust and pollution.138 Bauxite mining is characterised by a relatively large physical disturbance to the land as compared to other mining that involves metalliferous hard rock operations.139 It does however also provide more opportunities for rehabilitation.
At the end of 2006 it was reported that 10,000 hectares had been disturbed since the
Weipa mining commenced however approximately 9,000 hectares were in the process of being rehabilitated.140 This is out of a total land holding of 264,667 hectares. It is further reported that the rehabilitation process aims to return the mined land back to near pre-mining conditions or at least to a condition that is suitable for alternative land use as agreed under the Comalco ILUA.141
137 National Native Title Tribunal, Registered ILUA Summary, Comalco ILUA. 138 Jan H Mol et al, ‘Fishes of Lely and Nassau Mountains, Suriname’ in (2007) RAP Bulletin of Biological Assessment 107-249; Owen G Nichols and Flora M Nichols ‘Long Term Trends in Faunal Recolonization After Bauxite Mining in the Jarrah Forest of Southwestern Australia’ (2003) 11 Restoration Ecology 261-272. 139 Veronica Klimenko and Robin Evans, ‘Bauxite Mining Operations at Weipa, Cape York: A Case Study’ Chapter 29 in Northern Australia Land and Water Science Review Full Report (2009) 11. 140 Ibid. 141 Ibid. 265 As well as the extinguishment and impairment of native title, the building of a town and then actual mining in the area clearly result in changes to the land. It may also mean that sacred sites have been destroyed or compromised. Apart from changes to the land this loss of sacred sites is important to the Native Title Groups’ culture and is viewed as a significant loss by Indigenous Australians.142
5.2.1.4 Income Tax Analysis
The Comalco ILUA states that native title is either extinguished or surrendered with the intention that it is extinguished in respect of the ‘Other Interests’, any new mining leases and any minerals previously taken from the mining leases or within those leases.143 It is not however possible to obtain from any of the publicly available literature whether the ILUA includes an actual amount that is ‘compensation’ for this extinguishment.
The payments are in accordance with models 1, 2, 3 and 4 discussed in Chapter 2 and the income tax results are as discussed there. Under the Comalco ILUA there is effected or recognised extinguishment of native title in respect of some areas as detailed above.
It seems plausible that the one-off payment referred to by O’Faircheallaigh (although no amount is given) is in respect of this extinguishment. If this is the case then it is arguable that the payment is capital and not ordinary income as it is compensation for loss of a capital asset (the native title). Furthermore, again as discussed in Chapter 2, if
CGT event C2 applies then the ‘look through’ approach adopted by the ATO in TR
95/35 results in no CGT being payable in respect of amounts that relate to an underlying
142 See Peter R Grose, ‘A Reconciliation Odyssey: Negotiation Towards 2001’ (2000) Queensland University of Technology Law Journal 81, 91. 143 National Native Title Tribunal, Registered ILUA Summary, Comalco ILUA, 4. 266 asset that was acquired prior to the introduction of CGT in September 1985. As the asset in this situation is the native title which was acquired prior to the introduction of CGT the application of this tax ruling means that there are no CGT consequences.
With respect to annual payments the argument can be made that they are, to some extent at least, in respect of the past or future damage to native title and sacred sites. If this is the case then the same arguments apply as for a one-off payment discussed above and in more detail in Chapter 2. Such analysis also follows the reasoning in the Nullaga and
Barrett Cases discussed in Chapter 2. The contrary argument is that the linking of the annual payments to mine production (making them similar to royalties) together with their periodical and regular nature gives them an overarching income characteristic. I argue that at least for the first few years of the ILUA there is a significant compensatory nature to the payments and that after that there is a stronger argument for their income character.
It is possible that any payments in respect of land access are income as the equivalent of rent as they are arguably payments for use of a capital asset. This follows the reasoning of the Cape Flattery Case discussed in Chapter 2 which granted the mining company a deduction for payments in respect of sand mining, not on the basis of these payments being royalties, but rather a form of rental. Depending on the terms of the ILUA it may however be difficult to ascertain what amounts are specifically for this access. As discussed in Chapter 2 if a lump sum is paid that represents income and capital and it cannot be dissected into these components then the entire amount is treated at common
267 law as capital.144 This would refer us to the CGT provisions D1 and H2 discussed below.
With respect to the creation of contractual rights or the granting of an easement under the ILUA it is possible that CGT event D1 applies as discussed in Chapter 2. D1 occurs if the taxpayer creates a contractual or other legal or equitable right in another entity.145
The legislation provides as an example a restrictive covenant. However it should be noted that this CGT event requires actual capital proceeds so that if no amount is specified in respect of the event then there is no ability to substitute a market value.
Also as discussed in Chapter 2 CGT event H2 applies if an act, transaction or event happens in respect of an asset that the taxpayer owns. Although entering into the ILUA is an act, transaction or event that happens in respect of the native title which is possibly
‘owned’ by the Native Title Group, its extinguishment means that the cost base is reduced which means that C2 would instead apply. It therefore seems arguable that H2 will not apply. Nor can H2 apply if another CGT event, such as C2 or D1 will, even though there is no capital gain from these events. Finally, even if H2 does apply there would need to be specific capital proceeds in respect of this event for there to be a capital gain. It therefore seems unlikely that H2 will apply to the ILUA.
The $500,000 managed by Comalco to run employment and training programs for
Indigenous peoples, as endorsed by the Western Committee is arguably not income of the Native Title Groups. The money is managed by Rio Tinto Alcan in accordance with the advice of the Committee and then it is paid to entities that conduct employment and
144 McLauren v Federal Commissioner of Taxation (1961) 104 CLR 381 and Allsop v Federal Commission of Taxation (1965) 113 CLR 341. 145 ITAA97 s 104-35(1). 268 training programs. It will be income to these entities if it is paid in return for services, either as an individual or through a business. The $150 000 allocated to a cultural awareness fund is also not income of the members of the Native Title Groups on the same basis.
5.2.1.5 The Charity: The Western Cape Communities Trust
The Western Cape Communities Trust (the Western Cape Trust) is an income tax exempt charity,146 and was established to assume responsibility for the administration, investment, allocation and custody of funds sourced from Rio Tinto Alcan and the
Queensland State Government under the Comalco ILUA. Although I was not able to establish whether any one party to the ILUA had required a charitable trust it is clear from the documentation surrounding the ILUA and subsequent comments in reports that the rationale was that the funds payable pursuant to the ILUA would be used for regional community development and to provide for intergenerational benefits.147 As has been demonstrated in Chapter 2 of this thesis, the income tax treatment of payments under resource agreements is complex and uncertain. An attractive feature of the use of a charity is that it provides certainty of taxation and that any amounts it receives are exempt from income tax. This maximises the use of the funds for community purposes.
The Western Cape Trust and the Western Committee were established by the ILUA.
The Western Cape Trust and the Western Committee are not parties to the ILUA, but
146 The Western Cape Trust is a charitable institution and also endorsed as a Deductible Gift Recipient (DGR) from 1 October 2002. It is covered by Item 1 of the table in section 30-15 of ITAA97. See Australian Government ABN Lookup www.business.gov.au. 147 Agreements, Treaties and Negotiated Settlements Project, Comalco ILUA; Peter Crooke, Bruce Harvey and Marcia Langton, ‘Implementing and Monitoring Indigenous Land Use Agreements in the Minerals Industry: The Western Cape Communities Co-existence Agreement’ in Marcia Langton et al (eds), Settling with Indigenous People (Federation Press, 2006) 95, 100. 269 rather they were created by the ILUA and they serve very different roles.148 The aim of the Trust is regional development. The trustees have agreed that the majority of the funds (60 per cent) are to be placed in long-term investments to provide a sustaining base for all beneficiaries and future generations.149 The balance is to be used for current expenditures, and to be disbursed for specific purposes to three Sub-Regional Trusts that are also charities (Sub-Regional Charity).150 The Western Cape Trust invests and disburses the funds and the Western Committee’s role is to monitor, implement and review the objectives of the Comalco ILUA to ensure that all parties’ obligations under the agreement are met.151
The Western Cape Trust has a Board of Directors that consists of:
• three directors from each Sub-Regional Charity;
• a director from each of the four Indigenous shire councils;
• one independent director to be elected; and
• an invitee from each of Rio Tinto Alcan, the Queensland State Government and the
Cape York Land Council.152
148 Western Cape Communities Trust
Education includes assistance to local schools through the provision of books and school equipment and assistance to students through scholarships and bursaries. With regard to the environment, work is being undertaken in respect of mining site clearance for sacred sites, management of heritage, management of land and sea, ranger programs and protocols established for relinquishment of land.154
Each Sub-Regional Charity receives one-third of 35 per cent of the total received from the agreement and the return on the investments for the year and has drafted specific grant making criteria. As part of this 35 per cent, each of the three local Aboriginal councils receives a share and is required to spend it on particular specified projects. For example, for the 2011-2012 year the Napranum Aboriginal Shire Council received
$200,000 for its capital works program and a further $50,000 in 2011 for cemetery fencing from the Sub-Regional Charity.155 For the same period the Mapoon Aboriginal
Shire Council was allocated $300,000 for grave restoration and $100,000 for its capital works program from the Northern Sub-Regional Charity.156 The Southern Sub-Regional
Charity allocated $60,000 to the Aurukun Shire Council for its capital works program.157 In the 2011-2012 years each Sub-Regional Charity made grants available to
153 Western Cape Communities Trust and Western Cape Communities Coordinating Committee http://www.westerncape.com.au/. Mapoon Aboriginal Shire Council, Western Cape Communities Coexistence Agreement http://www.mapoon.com/27.html. 154 Ibid. 155 Western Cape Communities Trust, Central Sub-Regional Trust Grant Funding Guidelines 2011-2012, 5. 156 Western Cape Communities Trust, Northern Sub-Regional Trust Grant Funding Guidelines 2011-2012, 5. 157 Western Cape Communities Trust, Southern Sub-Regional Trust Grant Funding Guidelines 2011-2012, 5. 271 community organisations for such things as gravesite restoration, assistance to local sporting clubs to pay for uniforms and equipment, for community festivals and to local churches to pay for books, musical instruments and kitchen items.158 The guidelines for each Sub-Regional Charity grants program specifically state that no individual payments are made and moneys are not available for motor vehicles or rent or for
Indigenous businesses. Essential home whitegoods (washing machines and refrigerators) and furniture (a bed, tables, chairs and so on) are available to a maximum value of $4,500 for each household and subject to certain criteria.159
The examination of this ILUA and its inclusion of four charitable entities demonstrate how these entities can be used to manage large amounts of mining payments that are also payable over a significant number of years. The payments are held in a central charitable trust structure that represents the various parties to the arrangement and acts on their behalf. Its management committee is large enough to represent a diverse group of Indigenous Australians but small and flexible enough to cater to their particular social, economic and geographical needs. There is the ability to enable input from outside the Indigenous communities but all the Native Title Groups control the main charity and how it invests and uses the income it generates. Each of the three regions that are covered by the ILUA is represented by their own charity which can therefore utilise its income in accordance with the particular needs of the region that it represents.
Each Sub-Regional Charity has representatives of the area’s Native Title Groups on its
158 Western Cape Communities Trust and Western Cape Communities Coordinating Committee, Central, Northern and Southern Sub-Regional Trust Grant Funding Guidelines 2011-2012 http://www.westerncape.com.au/. 159 Ibid. 272 board together with a shire council representative.160 Again these charities are controlled by the Indigenous Australians that they represent. The charities also provide for longevity and intergenerational benefits in an income tax exempt manner, as charitable trusts are not required to comply with the rule against perpetuities.161 The longevity of the trust means that it can continue indefinitely to provide for future generations. Furthermore, the income tax exemption maximises the benefits that are gained from the income.
Although the Western Cape Trust engages in significant community development it does not intend to carry on business activities or engage in investment in Indigenous businesses.162 Such activity is potentially difficult for charities and is a limitation of the use of charities which will be discussed in Chapter 6.
5.2.2 Case Study 2: Mining Agreement between the Tjurabalan People and
Tanami Gold NL over Native Title Interests in the Kimberley Region of Western
Australia
The subject of this case study is a mining agreement163 over native title land in the
Kimberley Region of Western Australia. I have chosen to examine this agreement as the native title interest is one of the first determinations of native title on the Australian
160 Western Cape Communities Trust and Western Cape Communities Coordinating Committee, Strategic Plan (2009-2012) 5. 161 The rule against perpetuities at common law requires that all trusts, other than charitable trusts, have a vesting date that is no further in the future than a specified human life, the life in being, plus 21 years; see Denis S K Ong, Trusts Law in Australia (Federation Press, 2007) 700. The rule against perpetuities is discussed in detail in Chapter 6. 162 Western Cape Communities Trust and Western Cape Communities Coordinating Committee, Strategic Plan (2009-2012) 5. 163 Although Lisa Strelein states that it is an ILUA in ‘Taxation of Native Title Agreements’ (Native Title Research Monograph No 1, AIATSIS, 2008) 19 there is no record of this with the Native Title Tribunal or the ATNS Project website. Tanami describes it as the Tjurabalan Native Title Coyote Project Agreement in Tanami Gold NL, Annual Report (2011) 60. 273 mainland164 and it involves a single PBC under the NTA representing a relatively small
Native Title Group of around 90 members.165
The determination is a consent determination granting exclusive possession over most of the claim area in favour of the Tjurabalan people. It is only the third consent determination in Western Australia166 and was ratified by the Federal Court on 20
August 2001.167
Northern Territory
Western Australia
Map 2: Map of Determination Area168
The Determination Area is shown on the map above169 and described as Paruku (Lake
Gregory) near Halls Creek, Western Australia. It covers some 26,000 square kilometres of land and waters in the Tanami desert region.170
164 See Wayne Bergmann, Kimberley Land Council ‘Native Title in the Kimberley’ (Paper presented at AIATSIS National Native Title Conference, Darwin, 24-25 May 2006). 165 The Tjurabalan General Report states there are 91 members; see ORIC, Tjurabalan, General Report (2010) 10-14. 166 National Native Title Tribunal, ‘Tjurabalan Achieve Native Title Recognition-The 3rd Consent Determination in WA’ (Media Release, 20 August 2001). 167 Ngalpil v State of Western Australia [2001] FCA 1140. 168 Agreements, Treaties and Negotiated Settlements Project, Ngalpil v State of Western Australia. 169 Ibid. 170 National Native Title Tribunal, ‘Tjurabalan Achieve Native Title Recognition-The 3rd Consent Determination in WA’ (Media Release, 20 August 2001). 274 5.2.2.1 Details of the Native Title Determination
The determination provides that the native title rights and interests held by the common law holders in relation to the determination area are the right to possess, occupy, use and enjoy the land and waters of the area to the exclusion of all others.171 In other words they have exclusive possession which is similar to freehold, although, as discussed in
Chapter 2, it is not the same. The rights under this determination specifically include:
• The right to live on the area;
• The right to make decisions about the use and enjoyment of the area;
• The right to hunt and gather, and to take water and other traditionally accessed
resources (including ochre) for the purpose of satisfying personal, domestic, social
cultural, religious and communal needs;
• The right to control access to, and activities conducted by others on, the land and
waters of the area;
• The right to maintain and protect sites which are of significance to the common law
holders under their traditional laws and customs, and
• The right as against any other Indigenous group or individual to be acknowledged as
the traditional Indigenous owners of the area.172
These native title rights and interests are exercisable in accordance with the traditional laws and customs of the common law holders.173 The determination agreement also defines the Native Title Group as follows:
171 Ngalpil v State of Western Australia [2001] FCA 1140, 3. 172 Ibid. 275 The common law holders known as the "Tjurabalan People" are those people who hold
in common the body of traditional law and culture governing the Determination Area
and who:
(a) are members of the Walmajarri, Jaru or Nyininy language groups; and
(b) have a common and inclusive cultural and geographic association with the
Determination Area which includes: Gregory Salt Lake (Paruku) and Sturt Creek
(Tjurabalan) and the adjacent portions of the Tanami Desert (Ngaluwan) and Gardiner
Range (Lirrankarni).174
The Native Title Group is therefore comprised of three language groups who have a common cultural and geographic association with the native title land. It is also important for the purposes of this thesis to note that the native title interests include the right to ochre but not any other minerals or petroleum.175 This is in accordance with the decision of Western Australia v Ward176 and the way that state mining legislation and mineral royalty payments operate.
Subsequently, a PBC, the Tjurabalan Native Title Land Aboriginal Corporation
(Tjurabalan) was incorporated to hold the native title on trust in accordance with the
NTA.177 The PBC, Tjurabalan, is the trustee of the Tjurabalan Native Title Land
173 Ibid; AIATSIS, Registered Native Title Bodies Corporate Profiles http://www.aiatsis.gov.au/ntru/docs/rntbc/profiles/Tjurabalan.pdf. 174 Ngalpil v State of Western Australia [2001] FCA 1140, Third Schedule. 175 Ibid 4. 176 Western Australia v Ward (2002) 213 CLR 1. These minerals are defined in the Mining Act 1904 (WA); Mining Act 1978 (WA); the Petroleum Act 1936 (WA) and the Petroleum Act 1967 (WA). 177 Ngalpil v Western Australia [2003] FCA 1098. 276 Aboriginal Corporation Trust (Tjurabalan Trust).178 This Trust was established as a result of the PBC entering into a mining agreement and was endorsed by the ATO as a charity from 29 August 2005.179 In view of the family relationships between the beneficiaries the charitable purpose of the Trust must be solely relief of poverty. This limitation will be discussed in detail in Chapter 6.
5.2.2.2 Tjurabalan Resource Agreement with Tanami Gold NL
On 20 April 2005, Tjurabalan and Tanami Gold NL180 (Tanami Gold) signed a resource agreement to deliver specific financial and other benefits to the Tjurabalan Native Title
Group.181 This agreement (the Tjurabalan Agreement) covers mining and exploration in the 26,000 square kilometres of Tjurabalan lands covered by the native title determination.182
The Tjurabalan Agreement has enabled the development of the Coyote Gold Project by
Tanami Gold at the Coyote mine.183 Tanami Gold is also involved in exploration agreements with Indigenous Australians and the Central Land Council relating to land
178 Australian Government, Office of the Registrar of Indigenous Corporations, Search of the Public Register of Indigenous Corporations, http://www.oric.gov.au/PrintCorporationSearch.aspx?corporationName=Tjurabalan&icn=. 179 Australian Government, ABN lookup. 180 Tanami Gold NL is a public company. NL in its name means that as well as being a public company it is it limited under the Corporations Act to mining activities only. 181 Tanami Gold NL, Annual Report (2011) 60. 182 Kimberley Land Council, Agreements, Tjurabalan http://www.bme.klc.org.au/agreements/tjurabalan/. 183 Tanami Gold NL, Annual Report (2008) 51. 277 in the Northern Territory close to the Tjurabalan lands184 and in March 2010 Tanami
Gold acquired the Central Tanami Gold Project from Newmont Mining Corporation.185
The Tjurabalan Agreement sets out the basis on which the Tjurabalan will consent to
Tanami Gold’s mining activity on their country. For the purposes of this Chapter the main points of the Agreement are:
(i) Native Title: Tanami Gold acknowledges the Tjurabalan people as the native title holders for the area, and that the Agreement does not affect this title.
(ii) Payments and Share Issues to Tjurabalan: Most payments to Tjurabalan are tied to production levels. Set annual payments are to be made if production levels reach 50,000 ounces per annum. Additional set payments are to be made when production levels reach further benchmarks. Shares in the company will be issued to Tjurabalan in relation to production levels. Tjurabalan can request that these payments be made by
Tanami Gold in equivalent value goods and services (eg grading roads, drilling bores, and so on).186
This agreement is a combination of Models 2 and 6 of the model agreements discussed in Chapter 2. The first financial report for the Tjurabalan Trust was lodged with ORIC in 2009. The reports state that in 2008 the payment from the mining company to the
184 Ibid. 185 Tanami Gold NL, Annual Report (2010) 29. Aspects of the mining agreements with the Central Land Council on behalf of the Warlpiri and Newmont Mining were discussed in Chapter 3. 186 Kimberley Land Council http://www.bme.klc.org.au/agreements/tjurabalan/; Wayne Bergmann, Kimberley Land Council ‘Successful Negotiation: A Kimberley Story’ (Paper presented at the AIATSIS National Native Title Conference, Perth, 4-5 June 2008) http://www.aiatsis.gov.au/ntru/nativetitleconference/conf2008/ntc08papers/BergmannW.pdf. 278 Tjurabalan Trust was $91,859, in 2009 $194,856 and in 2010 it was $224,699.187 It appears that there were payments prior to 2008 which is evidenced by the statement in the 2009 financial report that there are accumulated funds brought forward of $248,353.
These payments are relatively small compared to those made under the ALRA as discussed in Chapter 3, although such small amounts are considered common under many native title agreements.188 It also appears that the agreement has resulted in the funding of a corporate officer position within Tjurabalan, although it is not clear whether this is in addition to the payments detailed above.189 The reports also indicate that after payment of the Trust’s expenses for such things as audit fees and legal fees some funds have been distributed to beneficiaries and the balance then invested into managed funds. For the financial year ended 30 June 2011 and all subsequent years the payments are being made to the Kimberley Sustainable Development Charitable
Trust190 which is discussed below.
The payments, trust expenses, distributions and accumulated funds are summarised in the table below. This information is based on the details in the Tjurabalan Trust financial reports lodged with ORIC:
187 ORIC, Tjurabalan Native Title Land Aboriginal Corporation, Financial Report (2009) and (2010). 188 See Marcus Holmes, ‘Native Title Agreement Making’ (Paper presented at the Native Title Forum, Brisbane, 29 August 2011). 189 Lisa Strelein ‘Taxation of Native Title Agreements’ (Native Title Research Monograph No 1, AIATSIS, 2008) 19. 190 As advised by the Kimberley Land Council; see ORIC, Tjurabalan, General Report (2011) 14 which states that the income for this financial year is nil. 279 Table 1: The Tjurabalan Trust
Year 2008 2009 2010 Mining payment $91,859 $194,956 $224,699 Audit fees $3,700 $3,850 $3,850 Other expenses including $61,592 $9,303 $9,132 Trustee administration fees and travel Distribution paid to beneficiaries $110,017 $25,231 $5,607 Accumulated trust funds bought forward $248,353 $151,821 $301,874
According to the Tjurabalan General Report for 2010 there were 91 members of the
Native Title Group.191 If each beneficiary received an equal share of the 2008 $110,017 distribution then they would each receive $1,208.98. After this relatively large distribution to beneficiaries in 2008 the payments in 2009 and 2010 are small and if paid across all 91 members would result in payments of approximately $277 and $61 each for the 2009 and 2010 years. In view of my discussion in Chapter 4 highlighting the low income of Indigenous Australians in remote areas, I argue that even if these payments are included in the assessable income of members of the Native Title Group, in many cases the amount will not be sufficient for them to reach a taxable income.
5.2.2.3 Damage to Land through Gold Mining
The Tjurabalan Agreement covers gold exploration and mining over 26,000 square kilometers in the centre of Australia. It does not extinguish native title. The Agreement also provides that Tanami Gold will accept and comply with the position taken by the
Tjurabalan people on heritage issues and agree to an Aboriginal Heritage Protocol.192
191 ORIC, Tjurabalan, General Report (2010) 10-14. 192 Kimberley Land Council, Tjurabalan Agreement with Tanami, http://klc.org.au/agreements/tjurabalan/. 280 The Coyote mine conducted by Tanami Gold commenced in May 2006 as an open cut mine.193 The open cut or pit mine was closed in late 2008 and an underground mine commenced nearby in early 2008.194 In 2010 the company estimated that this underground mine had at least three more years to run although it was expected that it would last longer than this.195
Gold mining, like all mining, has an impact on the environment in which it occurs.
Generally, mining is destructive to the natural environment around mines, creates waste rock disposal problems and damage to the environment.196 In addition, gold mining uses harsh chemicals such as cyanide which can be significant sources of waste and harm to workers and nature.197
There are no independent environmental reports available in respect of the Tanami Gold mine as the mine has only been in existence since May 2006,198 although potential environmental impacts of a nearby gold mine have been identified.199 The major issues caused by that mine are fauna mortality due to cyanide poisoning and groundwater
193 Tanami Gold NL, ‘Decommissioning and Closure Plan, Coyote Gold Project’ (2010)12. 194 Ibid. 195 Ibid. 196 Jan H Mol and Paul E Ouboter, ‘Downstream Effects of Erosion from Small-Scale Gold Mining on the Instream Habitat and Fish Community of a Small Neotropical Rainforest Stream’ (2004) 18 Conservation Biology 201-214; George Yapao, Lee Godden and Steven Pettigrove, ‘Papua New Guinea: Conflicts, Customary Landholding and Resource Exploitation’ in Marcia Langton and Judy Longbottom (eds), Community Futures, Legal Architecture: Foundations for Indigenous Peoples in the Global Mining Boom (Routledge, 2012) 77, 85-6. 197 Department of Resources Energy and Tourism and Australian Centre for Sustainable Mining Practices, A Guide to Leading Practice Sustainable Development in Mining (2011) 99. 198 ABC News On-Line, ‘New Gold Mine Set for Official Opening’ 24 May 2006 http://abc.gov.au/news/2006-05-24/new-gold-mine-set-for-official-opening/1760804. 199 Department of Resources, Energy and Tourism and Australian Centre for Sustainable Mining Practices, A Guide to Leading Practice Sustainable Development in Mining (2011) 103. 281 contamination.200 An example of gold mining in Australia which has been carried on for many years is in Kalgoorlie, Western Australia. The Kalgoorlie mine is an open pit gold mine and has been in existence for over 20 years. It is commonly referred to as the
Super Pit. It is an open-cut pit measuring 3.6 kilometres long, 1.6 kilometres wide and
650 metres deep201 and is the largest gold mine in Australia.202 In 2007-08 the Super Pit was also one of Australia’s largest emitters of cyanide and the highest for mercury.203
The results of such emissions can be very damaging to the land and Indigenous
Australians’ culture and way of life. As Aubrey Lynch, a Wongatha elder, said of the
Super Pit:
Exploration is killing a lot of our country, and our cultural ways are being destroyed.
Wherever you go in the bush, you see mining pits and the land being cleared for miles
around. They destroy our sites; the Super Pit was developed over dreamtime tracks. Our
people are afraid to go hunting because they think the kangaroos and goannas are being
affected by mining activities – they think the meat will be poisoned.204
There are legal procedures in place for rehabilitation of the Coyote site once mining is completed;205 however, as pointed out in Chapter 2, most mining is for at least 10-15 years so that the length of time that the land will be unusable by the Native Title Group is significant.
200 Ibid 103. 201 Kathy Marks, ‘Tears of the Sun’ (2010) 28 Griffith Review 6, 6 http://www.griffithreview.com/edition-28-still-the lucky-country/. 202 Kalgoorlie Consolidated Gold Mines Pty Ltd http://www.superpit.com.au/default.aspx. 203 Kathy Marks, ‘Tears of the Sun’ (2010) 28 Griffith Review 6, 25 http://www.griffithreview.com/edition-28-still-the lucky-country/. 204 Kathy Marks, ‘Tears of the Sun’ (2010) 28 Griffith Review 6, 21-22 http://www.griffithreview.com/edition-28-still-the lucky-country/. 205 As detailed in Tanami Gold NL, ‘Decommissioning and Closure Plan, Coyote Gold Project’ (2010). 282 5.2.2.4 Income Tax Analysis
Although the full terms and conditions of the Tjurabalan Agreement are not publicly available, the extract discussed above states that there is provision for annual payments.
This is supported by the financial reports lodged with ORIC. As these payments are regular and periodic they exhibit an income character as discussed in Chapter 2.
Furthermore, the Agreement does not extinguish native title so the payments are not in return for extinguishment or surrender with the intention of extinguishment. There may however be impairment, suppression or regulation of the native title particularly due to the building of the mine and the related infrastructure. This infrastructure includes not only housing for equipment but offices and accommodation for workers together with roads and other access facilities and waste disposal units.
Applying the principles established in Chapter 2 of this thesis to the Tjurabalan
Agreement it is also arguable that the damage to the land from gold mining is significant both in terms of physical damage and long term prevention of use. Even though the native title interests are not extinguished under the Tjurabalan Agreement it is unlikely that the Indigenous people could continue to live and hunt in the specific areas that are subject to mining as in this area there is a landing strip, processing plant and the open pit mine and underground mine.206 Furthermore, it appears that the mining will last at least seven years and possibly longer. This indicates that there will be long term prevention of use of the land by the Native Title Group. In summary, the potential damage to the land due to mining, the inability of the Native Title Group to access a significant area of their native title (which may include sacred sites), and the fact that they will be prevented from accessing their interests for at least seven years if not longer
206 Ibid. 283 all support a conclusion that the payments are capital and not income. The contrary argument is that the regular nature of the payments gives them an income character.
The arguments discussed in respect of the Comalco ILUA with regard to CGT also apply to the Tjurabalan Agreement and it seems likely that if the amounts are not income then they are in reality in respect of damage to the underlying native title. In this situation CGT event C2 applies and no capital gain arises as discussed in Chapter 2.
The second financial aspect of the agreement, the issue of shares, is different and, as stated in Chapter 2, any dividends payable on shares will ordinarily be assessable income.
With regard to individual payments there are two possible results from an income tax perspective. First, these payments may in actual fact be distributions from the charity in furtherance of its charitable purpose. Provided that the distributions are in aid of the charity’s purposes rather than to individuals in their own right then these amounts are not income. For example, one of the charitable purposes of Tjurabalan as stated in its
Rule Book lodged with ORIC is to ‘preserve and maintain and enhance the traditional economic, social and cultural way of life of the Tjurabalan people, including their languages, cultural heritage and laws and customs’. Moneys distributed to pay for education of young people in Tjurabalan language and culture would fall within this objective and not be income. This situation is discussed in more detail in Chapter 6.
If, on the other hand, the amounts are paid to individuals in their capacity as individuals and not as charitable trust distributions then the amounts are likely income. The income tax law relating to trusts and trust distributions is found in Division 6 of the Income Tax
Assessment Act 1936 (Cth) (ITAA36). Beneficiaries of trusts are assessable on trust income to which they are presently entitled under s 97 ITAA36. Present entitlement is a 284 term defined through the common law to mean that the beneficiary has a vested and indefeasible interest in possession.207 If the trust is discretionary s 101 deems the beneficiary presently entitled once the money is distributed to the beneficiary or applied on their behalf. Once Tjurabalan, as trustee, makes a declaration that the money is to be paid to certain beneficiaries then they will be presently entitled and assessable to this amount which is included in their other assessable income under s 97. However, as per my discussion of Ronald in Chapter 4 and the small amounts that are involved as demonstrated above it is more likely than not that these beneficiaries would have a nil tax liability in view of their very low other income.
If no charity was involved, then any accumulated assessable income, in other words assessable income such as interest on moneys invested (excluding any gain which is exempt from CGT) to which no beneficiary is presently entitled is subject to income tax at the highest marginal tax rate under s 99A ITAA36. This would apply to any investment income or rent received by the trust. Thus the charity structure does mitigate the tax consequences for members of the Group but on a strict analysis their liability would not be great.
5.2.2.5 The Tjurabalan Charitable Trust and the Kimberley Sustainable
Development Charitable Trust
The main objectives of the PBC are to perform the functions of a PBC under the NTA, preserve, maintain and enhance the traditional economic, cultural and social way of life
207 Federal Commissioner of Taxation v Whiting (1943) 68 CLR 199, 215-216; Taylor v Federal Commissioner of Taxation (1970) 119 CLR 444, 451-452. 285 of the Tjurabalan people and hold and manage the traditional land and waters on their behalf.208
In 2006, Donovan Jenkins, a Tjurabalan member and PBC representative,209 advised the media that at that stage community resources arising under the Tjurabalan Agreement were being used to pay for funerals and his peoples’ medical expenses.210 He stated that the intention was that the mining money would go towards a dialysis machine, for education and to bring families together.211 It was reported in the same interview that payments under the mining agreement could only be spent on projects that would benefit the whole community.212 Tanami Gold’s Annual Report for 2008 states that central to the Agreement is the commitment to employment, training and business development.213 Tanami Gold’s Report also states that the money from the Tjurabalan
Agreement will be used to fund community benefits and investments.214 Similar statements are made in its 2009 and 2010 Annual Reports.215
The Kimberley Sustainable Development Charitable Trust is a subsidiary of the
Kimberley Land Council.216 As from 1 July 2011 all payments from the Tjurabalan
Agreement are made to this charitable trust. Representatives of the Kimberley Land
208 Australian Government, ORIC, Search of the Public Register of Indigenous Corporations, Tjurabalan Native Title Land Aboriginal Corporation, Rule Book, 3, 16. 209 ORIC, Tjurabalan, General Report (2010) 10. 210 ABC, ‘Tanami Gold Seals Deal with Kimberley’s Tjurabalan People’, Stateline Western Australia, 26 May 2006 (Donovan Jenkins). 211 Ibid. 212 ABC, ‘Tanami Gold Seals Deal with Kimberley’s Tjurabalan People’, Stateline Western Australia, 26 May 2006 (Donovan Jenkins). 213 Tanami Gold NL, Annual Report (2008) 51. 214 Tanami Gold NL, Annual Report (2008) 7. 215 Tanami Gold NL, Annual Report (2009) 15 and 54; Tanami Gold NL, Annual Report (2010) 24, 76. 216 ORIC, Kimberley Land Council, General Report (2011) 47. 286 Council advise that there are several reasons why Tjurabalan and other PBCs have decided that mining payments are made to the Kimberley Sustainable Development
Charitable Trust. First with relatively small amounts of annual payments it is considered more effective to pool these amounts and then invest them as a larger sum of money, thus potentially increasing investment income. Secondly, there are legal limitations to establishing charities that are for the benefit of family groups.217 This is discussed in detail in Chapter 6. Third commercial trustee companies’ fees are very high. This is demonstrated in Table 1 above where in 2008 trustee fees and travel expenses totalled over $61,000.
This case study demonstrates that even Native Title Groups with small memberships use charitable structures. Two major advantages to the Group are certainty in respect of the application of income tax law and the income tax exemption. Certainty is important for both the Native Title Group and the mining company that makes the payment. From the mining company’s perspective it requires certainty so that it knows that the gross payment is the amount that the Native Title Group can use to benefit their community.
From the Native Title Group perspective as this Group is small and does not have access to large amounts of income it is not necessarily in a position to obtain complex professional tax advice. The mining company may not wish to go to this expense either but may be concerned that any potential income tax liability should be factored into the amount of the payment. The use of a charity means that this advice is not required. The income tax exemption means that the Group can maximise the use of the funds and any further income. The other important advantage is that through the use of a charity the
217 See Fiona Martin, ‘Prescribed Bodies Corporate under the Native Title Act 1993 (Cth): Can they be Exempt from Income Tax as Charitable Trusts? (2007) 30 (3) University of New South Wales Law Journal 713. 287 limited amount of funds can be invested and ultimately focussed on community purposes such as the suggested payment of funeral expenses and the establishment of dialysis equipment. As will be shown in Chapter 6 the provision of medical facilities is a charitable purpose. On the other hand paying for funerals may not be and the dividing line between charitable purposes and community development will be discussed in detail in Chapter 6.
A further advantage from a Native Title perspective of establishing a charity is that this trust does not have to have a specified vesting date. It can therefore be used to provide long term benefits to the Indigenous community. Finally, by establishing an entity that is NFP and which has objectives that are to benefit a community rather than individuals the Native Title Group are agreeing that the moneys from mining should be used communally. This approach flows from the communal ownership of the native title interests.
5.2.3 Case Study 3: Ranger and Jabiluka Uranium Mining Arrangements with
Gundjeihmi
In Chapter 3 I introduced the mining arrangement made pursuant to the ALRA which relates to the Ranger and Jabiluka uranium mines. As discussed in Chapter 3 the original Aboriginal Company, the Gagudju Association (Gagudju) was established in
1980 to act on behalf of the Mirarr Indigenous community in the Northern Territory on whose land the Ranger and Jabiluka uranium mining sites are located.218 It was probably the first land rights association incorporated specifically to receive areas
218 Senate Committee into Uranium Mining and Milling in Australia, Report of the Senate Committee into Uranium Mining and Milling, Northern Territory (1997). 288 affected moneys under the ALRA arising from a mining agreement.219 In 1995
Gundjeihmi220 was incorporated and replaced Gagudju and it is Gundjeihmi that now receives statutory mining royalty equivalents (royalty equivalents) under ALRA.221
Gundjeihmi is an income tax exempt charity and represents the three Mirarr clans who hold beneficial freehold title to their country via the Kakadu and Jabiluka Land
Trusts.222 The members of these clans live in and around Jabiru and the Kakadu
National Park.
219 J C Altman, Aborigines and Mining Royalties in the Northern Territory (AIATSIS, 1983) 120. 220 Australian Government, Registrar of Aboriginal Corporations, Certificate of Incorporation of an Aboriginal Association, 14 July 1995. 221 Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow A Socioeconomic Update (2010) 99. 222 Mirarr http://www.mirarr.net/index.html. 289
Map 3: Map of Northern Territory showing Ranger and Jabiluka mines223
The first mining agreement over the Ranger mine was signed in 1977 with the Northern
Land Council representing the Mirarr.224 The original mining corporation was
Pancontinental however the site was purchased by Energy Resources Australia
(ERA)225 in 1991.226 In 1982 approvals for mining were received from the Northern
Land Council in respect of the Jabiluka mine which is near the Ranger mine however this was halted in 1983 due to a change in Federal Government policy on mining.
223 Australian Government, Department of Sustainability, Environment, Water, Population and Communities, D R Jones and A L Webb, ‘ERISS Research Summary’ (Supervising Scientist Report No 202, 2009-10) ix. 224 Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow A Socioeconomic Update (2010) 36. 225 ERA is a subsidiary of Rio Tinto; see ERA, Annual Report (2010). 226 Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow A Socioeconomic Update (2010) 40. 290 Subsequently, the mining site was developed and preliminary work commenced but it was not mined. In 1999 the mine was placed on standby pending further community discussion. In 2005 a Long Term Care and Maintenance Agreement was signed under which ERA is required to secure Mirarr consent prior to any further mining development of uranium deposits at Jabiluka.227 Mining by ERA at the Ranger mine continues and although some parts of the facility are being gradually closed down mining will continue into the foreseeable future.228
5.2.3.1 Payment of Royalties and Royalty Equivalents
ERA makes royalty payments to the Federal Government of 4.25 per cent of net sales revenue. This money goes into the Aboriginals Benefit Account (ABA) as discussed in
Chapter 3 and is then distributed in three different ways under the provisions of the
ALRA. In accordance with the provisions of the ALRA 30 per cent of the royalties is first paid to the Northern Land Council as areas affected moneys and then distributed to
Gundjeihmi. ERA pays an additional 1.25 per cent of net sales revenue to the Federal
Government and this is distributed to the Northern Territory Government.229 In 2009
ERA paid royalties of $42 m and in 2010 $26 m.230 In addition, annual land rental of
227 Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow A Socioeconomic Update (2010) 54; ERA ‘Traditional Owners’
• Protection of the environment, the health of local people and sacred sites while
promoting knowledge and understanding of, and respect for the traditions, language
and culture of the Indigenous people; and
• Rehabilitation of land disturbed at Ranger.232
The 2010 Gundjeihmi Report The Mirarr: Yesterday, Today and Tomorrow A
Socioeconomic Update states that it received royalty equivalents of $4,612,598 for the
2008 financial year and $7,869,047 for the 2009 financial year.233 The 2010 Northern
Land Council Annual Report has different figures due to different reporting periods and states that for 2010 the royalties rose to $9,118,000.234
231 Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow A Socioeconomic Update (2010) 99. 232 ERA ‘Traditional Owners’ http://www.energyres.com.au/ourapproach/1697_traditional_owners.asp 233 Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow A Socioeconomic Update (2010) 99. 234 Northern Land Council, Annual Report (2009-10) 184 states that for the 2009 year Gundjeihmi received royalty equivalents of $5,560,000 and for the 2010 year $9,118,000 under ALRA s 64(3) and s 35(3) into the ABA. 292 Table 2: ERA Royalty and Royalty Equivalent Payments
Year Total Royalties Total Royalties Distribution to MWT paid out paid by ERA paid into ABA Gundjeihmi net of ABA prior to of MWT receipt by Gundjeihmi235 2009 $42 m $32 m236 $7.8 m $1.28 m 2010 $26 m $20 m $9 m $0.8 m
There are some discrepancies in the figures due to differences in timing and rounding to the closest million.
5.2.3.2 Potential Damage to Land through Uranium Mining
As stated earlier in this Chapter environmental damage issues relating to all mining are the destruction of habitats, threats to biodiversity, deforestation due to mining and the mine infrastructure, erosion and general damage to the environment.237Apart from these matters the main additional environmental implication of uranium mining is the potential for radioactive contamination.238 The isotopes released by mining uranium are radioactive and have half lives of 26,000 and 1,600 years respectively.239 Traces of radioactive materials can be contained in water which is discharged from the mines as part of the mining process. The disposal of mineral tailings (radioactive waste products)
235 This figure is calculated as 4 per cent of the royalties paid by ERA under the ALRA. 236 Excludes 1.25 per cent paid to the Northern Territory Government as this is not paid to Gundjeihmi under ALRA. Also figures in the table are rounded to the closest million. 237 George Yapao, Lee Godden and Steven Pettigrove, ‘Papua New Guinea: Conflicts, Customary Landholding and Resource Exploitation’ in Marcia Langton and Judy Longbottom (eds), Community Futures, Legal Architecture: Foundations for Indigenous Peoples in the Global Mining Boom (Routledge, 2012) 77, 85-6; Gavin M Mudd, ‘Uranium Mining: Australia and Globally’ Fact Sheet No 6 (2006)
Some experts in the area consider that the high levels of radioactivity that uranium mining brings to the environment makes rehabilitation of uranium mines to a satisfactory level uncertain.241 It is recognised by Government and private sector researchers that disposal of radioactive waste is important and must be managed effectively.242
Furthermore, concerns have been consistently raised by the Mirarr Peoples regarding the long term damage that uranium mining may cause to their land and to their spiritual beliefs.243 In 2011 representatives of the Mirarr Peoples met with the European delegation into the environment of the United Nations in Australia. Speaking through an interpreter, Mirarr elder Annie Ngalmirama said the people’s key concerns included mine waste and water management, contamination threats and the long-term social and cultural impacts of mining. She said:
240 Department of Environment and Heritage, ‘Investigation of Tailings Water Leak at the Ranger Uranium Mine’ (Supervising Scientist Report No 153, 2000) vii, ix; United Nations Educational, Scientific and Cultural Organisation, Convention Concerning the Protection of the World Cultural and Natural Heritage, ‘Kakadu National Park Australia’ (1999). 241 Gavin M Mudd, ‘Radon Release from Australian Uranium Mining and Milling Projects: Assessing the UNSCEAR Approach’ (2008) 99 Journal of Environmental Radioactivity 288, 310; Philip Crouch, Richard S O’Brien and Geoffrey A Williams, ‘Rehabilitation of Uranium Mine Waste Sites in Australia’ Paper presented to Australian Radiation Protection and Nuclear Safety Agency, Victoria (2006); B G Lottermoser and P M Ashley, ‘Physical Dispersion of Radioactive Mine Waste at the Rehabilitated Radium Hill Uranium Mine Site, South Australia’ (2006) Australian Journal of Earth Sciences 485. 242 Australian Government, Department of Prime Minister and Cabinet, Uranium Mining, Processing and Nuclear Energy Review, Uranium Mining, Processing and Nuclear Energy – Opportunities for Australia, (2006) ch 5. 243 Mirarr http://www.mirarr.net/index.html. 294 We want them to understand what is involved in mining uranium on our land and the
effects it has on Aboriginal people. Because of our beliefs about the spiritual element of
the land, damage to the land affects our lives in a spiritual sense. We have many worries
and fears about our land and what’s happening to it, and we tried to convey those
concerns to the European delegation today, but we don’t know what they made of all of
this.244
5.2.3.3 Application of Income Tax Principles to the Mining Payments to
Gundjeihmi
For the reasons discussed in Chapters 2 and 3 and based on the facts outlined above I argue that the royalty equivalents (or at least part of them) are not ordinary income and therefore not assessable to income tax. My arguments are summarised as follows. First, although expressed under the ALRA as royalties the amounts are in actual fact royalty equivalents. They are paid via a statutory regime from the mining company to a government body (in this case the Federal Government). The Federal Government then pays out of an account established under statute, a statutorily set amount of 30 per cent of the mining royalties that relate to mining in the Mirarr area to the Northern Land
Council. The Council then pays this amount to Gundjeihmi. This conduit of payments and the artificiality of the 30 per cent results in a degree of remoteness between the income producing activity, the mining by ERA, and the payments received by
Gundjeihmi. I argue that this remoteness removes the connection between the mining and the receipt by Gundjeihmi of payments so that these payments are no longer royalties at common law as discussed in Chapter 2.
244 Tony Bartlett, ‘Kakadu Elders Reveal Ranger Mine Fears’, Sydney Morning Herald (Sydney), 25 February 2011. 295 Secondly, I argue that the payments, although expressed as statutory royalties are in reality compensation for the long term damage to the Mirarr land. This damage is summarised as follows. When determining the significance of the land usage, the area and the length of time that the land cannot be used by the Traditional Owners will be relevant. The long term damage to the land and the site rehabilitation prospects will also be relevant.245 In addition, whether or not the area surrounding the mine can also be used for the owners’ usual activities is relevant.246 Such a decision will depend on the type of mining activity undertaken. For example, in the case of uranium mining it seems arguable from the scientific research that there is the potential for long term damage to such an extent that the mined area will not be usable for Indigenous hunting and cultural activities in the foreseeable future. Exploration and some level of mining has taken place at or near the Ranger mine since the 1980s, which means that there has been disruption to the Mirarr way of life for over 30 years. It is also unclear how effective rehabilitation of the site will be.247 By contrast, in the case of other types of mining such as sand mining it may be possible to rehabilitate the site.248 It is therefore arguable that in the situation of uranium mining the long term damage to the land and the surrounding eco-systems are potentially so severe and repair so difficult that payments that take the form of royalties are in reality compensation for damage to the land.
245 Barrett v Federal Commissioner of Taxation (1968) 118 CLR 666. 246 Nullaga Pastoral Co Pty Ltd v Federal Commissioner of Taxation 78 ATC 4329. 247 House of Representatives, Standing Committee on Industry and Resources Australia’s Uranium – Greenhouse Friendly Fuel for an Energy Hungry World (2006) lxiii, 10; D Moliere, K G Evans and K Turner, ‘Effect of an Extreme Storm Event on Catchment Hydrology and Sediment Transport in the Magela Creek Catchment, Northern Territory’ (2008) Water Down Under 1595, 1595. The authors were with the Environmental Research Institute of the Supervising Scientist at this time. 248 Sand mining see Cape Flattery Silica Mines Pty Ltd v Federal Commissioner of Taxation 97 ATC 4552. 296 As discussed in detail in Chapter 2 such payments are capital and not income under general income tax principles. As capital payments the amounts might be caught under
CGT however, as explained in Chapter 2, the land was acquired by Gundjeihmi prior to
1985 I therefore argue that there is no CGT liability on the same basis as discussed in
Case Studies 1 and 2.
With respect to individual payments, in 1997 Gagudju was distributing approximately
$2,000 to each individual member annually.249 Annual distributions to Traditional
Owners for the years ended 30 June 2008 and 2009 by Gundjeihmi were $616,200 and
$921,400 which works out at approximately $3,851 and $5,759 each year for each member.250 These distributions also include an undefined share of the lease payments from the Ranger Mine of $192,000 per annum.251 If these amounts are income then their income tax treatment will be as discussed in Chapter 4. It was highlighted in that
Chapter that many persons living in the Kakadu area are in receipt of incomes below the taxable threshold. Therefore in some cases, even if these distributions are included in a
Traditional Owner’s income, due to their low other income and the application of the remote area tax offset it is likely that there will be a nil tax liability.
249 Senate Committee into Uranium Mining and Milling in Australia, Report of the Senate Committee into Uranium Mining and Milling, Northern Territory (1997) 2. 250 There are approximately 160 members of the Mirarr however Gundjeihmi also provides financial assistance to a further 200 Indigenous families in the area see Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow A Socioeconomic Update (2010) 17. 251 Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow A Socioeconomic Update (2010) 99; ERA (owned by Rio Tinto Ltd) the company that operates the Ranger uranium mine pays rental to Gundjeihmi for the land at Kakadu of $192,000 per annum; see Australian Uranium Association ‘ERA’s Ranger Mine Issues Briefing’ September 2009, 6. 297 5.2.3.4 Gundjeihmi as a Charity and the Use of its Royalty Equivalents
Gundjeihmi is endorsed as a charity by the ATO252 and the objectives of Gundjeihmi are stated in its corporate Rule Book.253 The Rule Book states that Gundjeihmi aims to:
(a) Relieve poverty, destitution, misfortune, disadvantage, distress, dispossession and
suffering among those Aboriginals entitled to be members ...including the provision of
housing, health care services, improving living standards, transportation and
communication services, land under secure title for dispossessed people and education
and training by all methods as [Gundjeihmi] deems appropriate; and
(b) Act as trustee of and support any trust which has the same objects as are referred to
in these rules or such other objects as are exclusively charitable within the legal
meaning of the word “charitable” and are for the benefit of Aboriginals.254
The members of Gundjeihmi are defined in clause 3 of the Rule Book as an Aboriginal or Torres Strait Islander person who is at least 18 years of age and a member of the
Mirarr Kundjeyhmi, Mirarr Mengerrdji or Mirarr Urningnank clans.255
Since the signing of the original agreement in 1977, Gagudju and now Gundjeihmi has engaged in a range of activities many of which are usually funded by the government and which are for community purposes.256 These include provision of garbage collection, medical services including the employment of a general practitioner and
252 Australian Government, ABN Lookup; Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow A Socioeconomic Update (2010). 253 ORIC, Gundjeihmi Aboriginal Corporation Rule Book http://www.orac.gov.au/document.aspx?concernID=102458. 254 Ibid. 255 Ibid 3. 256 J C Altman, Aborigines and Mining Royalties in the Northern Territory (AIATSIS, 1983) 124. 298 health worker, the construction and running of a school and the employment of teaching staff, the construction and maintenance of roads and access to out-stations, the provision of employment opportunities for all members of the association and construction and maintenance of housing.257
During 2009 seventy five per cent of Gundjeihmi expenses were for employment and operational costs which all related to community development.258 Gundjeihmi employs approximately 43 people259 and is engaged in operating businesses and building community housing.260 In 2009 Gundjeihmi acquired two local retail businesses,
Kakadu Boat Hire and Tackle and It’s Kakadu Gifts Souvenirs and Video Hire. It plans to run these businesses using local Indigenous people trained through the youth development, training and employment programs that it also operates.261 During the same financial year the association engaged in extensive renovation of the Kakadu
Youth Centre, commenced major housing and infrastructure upgrades and sponsored community events including the Mahbilil Festival and Blue Light Discos.262
Gundjeihmi therefore spends royalty equivalents on projects that are directed towards community development from a number of perspectives including health and support of youth, training and education.
257 Senate Committee into Uranium Mining and Milling in Australia, Report of the Senate Committee into Uranium Mining and Milling, Northern Territory (1997); see Australian Government, Impact of Uranium Mining on Aboriginal Communities in the Northern Territory, 1997, Irene Wilson. 258 Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow A Socioeconomic Update (2010) 99-102. 259 Ibid 77. 260 Ibid 77. 261 Ibid 53. 262 Ibid 76. 299 There are legal limitations to charitable status where even though the entity has a charitable purpose the benefit of that purpose is to a group defined through their family connection. As Gundjeihmi aims to benefit the three Mirarr clans it is possible that they are not a sufficient section of the community to satisfy the public benefit requirement of a charity. This limitation will be discussed in detail in Chapter 6.
A further issue that may impact on the use of a charity by the Mirarr People is the carrying on of businesses by charities. As a result of the decision of Commissioner of
Taxation v Word Investments Ltd263 the High Court held that a charity could carry on a completely commercial activity and retain its charitable status provided that its objects are all charitable. The nuances of this decision will be discussed in Chapter 6 however as a result the Federal Government has announced that it will enact legislation to tax what is termed ‘unrelated business income’ of charities. At this stage no draft legislation has been made public. This could cause difficulties for Gundjeihmi not only in imposing tax on some income but also in increasing its compliance costs in order to fulfil its responsibilities under this legislation.
5.3 Conclusion
In this Chapter I have demonstrated that there are five major reasons why Indigenous
Australians use charities to enter into resource agreements and receive mining payments. I have also demonstrated the significant differences between the NFP and charitable sector and the business and government sectors.
The case studies I have analysed demonstrate that charities are used by Indigenous
Australians to receive payments under resource agreements. Each Case Study is very
263 [2008] HCA 55. 300 different to the other in terms of the legislation or application of that legislation that the agreements arise under, the size of the Indigenous groups, the amounts of money receivable and yet they all use charities as the recipients of these payments. My discussion in this Chapter has established that there are many reasons for this use that include the income tax exemption, the co-operative nature of charitable structures, the fact that they are NFP and also the ability of charities to be used for community good.
I argue that charities that are developed by and managed by Indigenous peoples have an important role to play in overcoming their social and financial exclusion. I base my argument on the fact that charities use a legal and operational structure that may be employed to accommodate cultural factors and enable Indigenous communities to engage with the wider economy without compromising their own socially important relationships.264 Charities and NFPs offer a flexibility in size and operational structure which may allow them to represent small and large Indigenous groups. Their co- operative structure lends itself to working with groups that value a communal approach such as Native Title Groups and Traditional Owners. Furthermore, charities and NFPs have the advantages of being smaller, more flexible and more focused than government or many business entities.265 This is a particular advantage in the area of Indigenous land rights as there are many different groups of Indigenous Australians throughout
Australia who each need and require their own voice. The diversity of Indigenous groups that hold traditional lands was demonstrated by the case studies in this Chapter.
The size of the groups, their cultural and historical background, their geographical location, the type of mining and the mining agreements are different in each Case Study
264 Ben Jacobsen and Roy Wybrow, 'Property Rights, Individual Incentives and Remote-Area Aboriginal Economic Development' 13 (2007) Third Sector Review 21, 28. 265 Lester M Salamon, S Wojciech Sokolowski and Regina List, 'Global Civil Society: An Overview' (Centre for Civil Society Studies, The Johns Hopkins University, 2003), 2. 301 however each is using a charity as the entity to receive or use mining payments. In Case
Studies 1 and 3 the charity engages in significant community development activities.
The Indigenous people of Australia have long been the object of philanthropic intervention, yet within the modern affluent Australian community they remain comprehensively disadvantaged, impoverished, marginalised and culturally excluded.266
An effective philanthropic intervention requires a charity law and a taxation regime that fit contemporary social needs and assist the activities of organisations that are capable of aiding marginalised groups such as Indigenous Australians.267 It will be demonstrated in Chapters 6 and 7 of this thesis that the poor record of philanthropic intervention for
Indigenous Australians demonstrates not so much a failing of the goals of charities and the flexibility and vocational orientation of these entities but a problem with the legal framework of charity law and how this is applied to entities that hold traditional lands for Indigenous Australians.
266 Kerry O'Halloran, 'Social Inclusion and the Indigenous People of Australia: Achieving a Better Fit Between Social Need and the Charity Law Framework' (2004) 6(2) International Journal of Not-for-Profit Law 1, 2
Native Title Act and the Aboriginal Land Rights Act
6.1 Introduction
In Chapter 5 I demonstrated that there are five main reasons why Indigenous
Australians1 establish charitable entities to receive mining payments. In this Chapter I demonstrate that, although there are benefits there are also a number of significant legal limitations for Native Title Groups2 and Traditional Owners3 in establishing and using charities.
Charity law is a creature of the common law in Australia and, as mentioned in Chapter
5, has its antecedents in English common law that dates back several hundred years.
Over the last six years the High Court of Australia has considered this case law and confirmed its place as the foundation of the law of charity in Australia.4 The law, as stated in these cases is that Australia recognises that the words ‘charity’ and ‘charitable’ have a technical legal meaning that is based in the Preamble to the Charitable Uses Act
1601 (UK) (commonly referred to as the Statute of Elizabeth)5 and the subsequent case
1 This is the term used in this Chapter to refer in a generic sense to Indigenous Australian peoples. 2 This is the term used in this Chapter to refer to Indigenous Australians with a Federal Court determination of their native title interests and those who assert native title rights, whether as formal claimants under the NTA or otherwise. 3 This is the term used in this Chapter to refer to Traditional Aboriginal Owners defined in ALRA s 3. 4 Although in the case of Aid/Watch Inc v Federal Commissioner of Taxation [2010] HCA 42 the High Court overruled English precedent that prevented a charity having a political purpose. 5 43 Eliz I c 4. 303 law.6 In Central Bayside General Practice Association Limited v Commissioner of State
Revenue7 (‘Central Bayside’), Federal Commissioner of Taxation v Word Investments
Limited8 (‘Word Investments’) and Aid/Watch Inc v Federal Commissioner of Taxation9
(‘Aid/Watch’) the High Court confirmed that the Preamble and the guidelines set out in
Commissioners for Special Purposes of Income Tax v P emsel (‘Pemsel’s Case’),10 established the technical legal meaning of charity. Pemsel’s Case held that for an entity to be charitable it could be classified into a trust for either:
• The relief of poverty;
• advancement of education;
• advancement of religion; or
• other purposes beneficial to the community.11
As well as having charitable purposes or objects,12 the cases confirm that the entity must be not-for-profit (NFP)13 and be of benefit to the public.14 This public benefit
6 Eg Federal Commissioner of Taxation v Word Investments Pty Ltd [2008] HCA 55 [78], [162]. 7 (2006) 228 CLR 168, 178–9. 8 [2008] HCA 55 [78], [162]. 9 [2010] HCA 42 [13]. 10 [1891] AC 531. 11 Ibid 583. 12 The traditional term is ‘purposes’ which derives from the charitable trust structure as trusts have purposes. In the context of Australian corporations that are charities the reference is sometimes made to charitable objects as, prior to the Corporations Act 2001 (Cth) ss 124 and 125, corporations were required to have objects clauses in their Memorandum of Association; see Word Investments [2008] HCA 55 [17]. 13 Re Smith’s Wills Trusts; Barclays’ Bank Ltd v Mercantile Bank Ltd [1962] 2 All ER 563; Ann O'Connell, 'The Tax Position of Charities in Australia - Why Does It Have To Be So Complicated?' (2008) 37 Australian Tax Review 17, 24. 14 Royal National Agricultural and Industrial Association v Chester [1974] 3 ALR 486, 487. 304 requirement has two overlapping aspects. The purpose or object of the NFP must be
‘beneficial’ in itself and it must be of benefit to the community or a sufficient section of the community (with the exception of entities for the relief of poverty).15 The case law establishes that for the first three heads of charitable purposes ‘the court will assume it to be for the benefit of the community and, therefore charitable, unless the contrary is shown’.16
The following flowchart provides guidance on the law relating to charity and its potential application to NFPs established by Native Title Groups and Traditional
Owners. The references in brackets are to sections in the Chapter.
15 Hubert Picarda, The Law and Practice Relating to Charities (Butterworths, 3rd ed, 1999) 20. 16 National Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31, 65. 305 Flowchart 1
306 6.2 Summary of Legal Barriers to the Establishment of Charities by Native Title
Groups and Traditional Owners
There are several legal barriers to the establishment of charities by Native Title Groups and Traditional Owners. First, there is a legal impediment to establishing charities for the benefit of family groups (except where the charity is solely for the relief of poverty).
This arises from the requirement that a charity must be of benefit to the public. This impediment is inconsistent with the definition of Native Title Groups under the Native
Title Act 1993 (Cth) (NTA) and Traditional Owners under the Aboriginal Land Rights
(Northern Territory) Act 1976 (Cth) (ALRA). Second, a lack of clarity surrounds the law relating to NFP organisations that have been established for the benefit of Native
Title Groups and Traditional Owners. This lack of clarity involves two legal issues arising under charity law. These are first whether or not these NFPs demonstrate an overarching charitable benefit as required by charity law and second whether their purposes can fall within the fourth head of charitable purpose ‘other purposes beneficial to the community’.
There are also three major limitations to the use of charities by Indigenous Australians.
The first is the restriction on commercial activities undertaken by charities. In Word
Investments the High Court in 2008 defined the scope of this activity very broadly; however, the Australian Treasury subsequently announced that it would be reconsidering the breadth of charities’ ability to engage in business activities.17 The second is that there is uncertainty about whether charitable purposes can include
17 Australian Government, ‘Treasury’s Not-for-Profit Reform Newsletter’, Issue 1, 14 October 2011, 2; Australian Government, Treasury, A Definition of Charity: Consultation Paper, October 2011. 307 community development. Community development purposes provide important community benefits for Indigenous groups and this limitation is significant. The final limitation is that charities are not allowed to accumulate income for periods exceeding
10 years.18 Where the income is from a mining project (which can last in excess of 10 years) and relates to Indigenous communities, a significant goal of the community is often the setting aside of funds for intergenerational benefits. This goal was demonstrated in practice in all three case studies discussed in Chapter 5. This limitation causes problems for Native Title Groups under the NTA and Traditional Owners under
ALRA.
6.2.1 The Legal Meaning of Charity in Australia
In order to understand the legal impediments to the establishment of charities by Native
Title Groups and Traditional Owners it is necessary to explain the legal concept of charity in some detail. ‘Charity’ and ‘charitable’ are words that have a common or everyday meaning19 but they are also words that have a technical legal meaning that has been analysed and elaborated over the years by the courts.20 The previous Chapter noted that the history of the legal concept of ‘charity’ commenced many hundreds of years ago. For the purposes of this Chapter, this law is again discussed but in more detail in order to consider its application to NFPs that are established by or for the benefit of
Native Title Groups or Traditional Owners. For ease of reference NFPs established by
18 Australian Taxation Office, Income Tax and Fringe Benefits Tax: Charities, TR 2011/4, 12 October 2011, [40]. 19 Pemsel’s Case [1891] AC 531, 583 (Lord Macnaghten). 20 Ibid. In Australia, relevant High Court decisions include Word Investments, Aid/Watch and Central Bayside. Other Australian decisions include Re Hilditch deceased (1986) 39 SASR 469, 475 (O’Loughlin J); Alice Springs Town Council v Mpweteyerre Aboriginal Corporation (1997) 139 FLR 236, 251–2 (Mildren J). 308 Native Title Groups (both before and after determination of native title) will be referred to as Prescribed Bodies Corporate (PBCs) in this Chapter. 21
Significant advantages of charitable status are the exemption of a charity’s income from taxation and a charity’s longevity. The income of charitable institutions or funds is exempt from income tax in Australia under ss 50-1 and 50-5, items 1.1 and 1.5B of the
Income Tax Assessment Act 1997 (Cth) (ITAA97).22 Furthermore, charities are not subject to the rule against perpetuities.23 This means that charitable trusts can exist in perpetuity and can therefore last for many generations; non-charitable trusts must have a vesting date that is no further in the future than the date of death of a named person plus
21 years.24 In most Australian states this is now 80 years from settlement.25 The lack of a perpetuity period provides a benefit to Native Title Groups and Traditional Owners who wish to ensure that the assets and income they derive from traditional lands that are held in trust are used for future generations.
21 As discussed in Chapter 2, once a native title determination is made a representative of the Native Title Group is required to nominate a PBC in writing to the Federal Court, NTA ss 56 and 57. Once the details of a PBC are entered on the National Native Title Register, the body then has the status of a ‘Registered Native Title Body Corporate’: ss 253 and 193. For ease of reference, this Chapter uses the term PBC to cover both Prescribed Bodies Corporate and Registered Native Title Bodies Corporate. 22 This section was formerly s 23(e) of the Income Tax Assessment Act 1936 (Cth). 23 Re Compton; Powell v Compton [1945] Ch 123, 126 (‘Re Compton’). 24 Gino Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) [6.7]. 25 In the Australian Capital Territory and New South Wales, the perpetuity period is 80 years from the date of settlement: Perpetuities and Accumulations Act 1985 (ACT) s 8; Perpetuities Act 1984 (NSW) s 7. In Queensland, Tasmania, Victoria and Western Australia a settlor may adopt a period not exceeding 80 years instead of the common law rule: Property Law Act 1974 (Qld) s 209; Perpetuities and Accumulations Act 1992 (Tas) s 6; Perpetuities and Accumulations Act 1968 (Vic) s 5; Property Law Act 1969 (WA) s 101. In the Northern Territory the settlor may select an 80-year perpetuity period instead of the general law: Law of Property Act 2000 (NT). In South Australia the rule against perpetuities has been effectively abolished: Law of Property Act 1936 (SA) s 61. 309 There is no definition of ‘charity’ in the ITAA97 or in any Australian taxing regime such as the goods and services tax and local government rating legislation. This is despite the fact that a statutory definition was recommended by the 2001 Report of the
Inquiry into the Definition of Charities and Related Organisations (‘Sheppard
Report’).26 In 2011 the Australian Government initiated a further public consultation process (‘the 2011 Charity Consultation’) to consider a statutory definition.27
Subsequently, the Government announced that it will enact a statutory definition of charity28 but at the time of writing the legislation has not been introduced into
Parliament.
As stated at Section 1 of this Chapter the Australian common law of charity finds it source in the Preamble to the Statute of Elizabeth. The Preamble sets out the following charitable purposes:
• relief of the aged, impotent and poor;
• maintenance of sick and maimed soldiers and mariners;
• schools and scholars in universities;
• repair of bridges, ports, havens, causeways, churches, sea-banks and highways;
• education and preferment of orphans;
26 Report of the Inquiry into the Definition of Charities and Related Organisations, Ian Sheppard, Robert Fitzgerald and David Gonski, June 2001, 18 (Sheppard Report); Treasurer’s Press Statement, ‘Final Response to the Charities Definition Inquiry’, 11 May 2004
• marriages of poor maids;
• aid and help of young tradesmen and handicraftsmen;
• aid and help of persons decayed;
• the relief or redemption of prisoners or captives; and
• the aid or ease of any poor inhabitants concerning payment of fifteens, setting out of
soldiers and other taxes.29
According to W K Jordan, the statute did not actually create a concept of charitable purposes but rather codified ‘a body of law badly wanting classical statement.’30 The
Preamble was not considered, even at this time, to be exhaustive. Some obvious charitable areas were omitted, such as charities for the advancement of religion and of some educational institutions.31 Subsequently, the English courts ruled that for a purpose to be ‘charitable’ it had to be within the spirit and intendment of the Preamble and also for the public benefit.32
Nearly 300 hundred years after the enactment of the Preamble Lord Macnaghten, in
Pemsel’s Case stated that the legal meaning of ‘charity’ could be classified into four
29 Gareth Jones, History of the Law of Charity 1532–1827 (Cambridge University Press, 1969) 224. 30 W K Jordan, Philanthropy in England 1480–1660: A Study of the Changing Pattern of English Social Aspirations (Allen & Unwin, 1959) 112. 31 Hubert Picarda, The Law and Practice Relating to Charities (Butterworths, 3rd ed, 1999) 72; Frederick Maxwell Bradshaw, The Law of Charitable Trusts in Australia (Butterworths, 1983) 2. 32 Morice v Bishop of Durham (1805) 10 Ves 522. 311 separate divisions as stated in Section 1 of this Chapter.33 The classification of charitable purposes into these four areas has been consistently used as a guideline in by the judiciary in England and Australia ever since.34 Furthermore, in Australia the
English law of charity was applied ‘as part of the general body of common law and equity.’35
In 1974 the High Court of Australia confirmed the place of the Preamble in Australian law in its conclusion that in order for an institution to be charitable it must be:
• within the spirit and intendment of the Preamble to the Statute of Elizabeth; and
• for the public benefit.36
As stated at the beginning of this Chapter this approach has been reaffirmed more recently by the High Court in the cases of Central Bayside,37 Word Investments38 and
Aid/Watch.39
The Australian Taxation Office (ATO) also considers that these two criteria are necessary for an entity to be considered charitable. In its ruling Income Tax and Fringe
Benefits Tax: Charities, the ATO states that for a purpose to fall within the technical
33 [1891] AC 531, 583. 34 Word Investments; Aid/Watch; Salvation Army (Victoria) Property Trust v Shire of Fern Tree Gully (1952) 85 CLR 159, 173; Ashfield MC v Joyce (1976) 10 ALR 193. 35 Frederick Maxwell Bradshaw, The Law of Charitable Trusts in Australia (Butterworths, 1983) 6. 36 Royal National Agricultural and Industrial Association v Chester [1974] 3 ALR 486, 487. That this is the law in Australia was originally decided by the Privy Council in Chesterman v Federal Commissioner of Taxation (1925) 37 CLR 317. 37 (2006) 228 CLR 168, 178–9. 38 [2008] HCA 55 [78], [162]. 39 [2010] HCA 42 [13]. 312 legal meaning of ‘charitable’ it must be beneficial to the community, or deemed to be for the public benefit by legislation applying for that purpose; and within the spirit and intendment of the Statute of Elizabeth, or deemed to be charitable by legislation applying for that purpose.40 The ATO also accepts the four categories established in
Pemsel’s Case as an approach to identifying charitable purposes.41
For an institution or fund42 to be charitable under the ITAA97 its purposes must not only fall within one of the four divisions discussed by Lord Macnaghten in Pemsel’s
Case, but it must also be founded for the benefit of the public.43 This public benefit requirement has two overlapping aspects. The purpose or object must be ‘beneficial’ in itself and it must be of benefit to the community or a sufficient section of the community (with the exception of entities for the relief of poverty).44
It is also important to note that for an entity to be charitable all its purposes must be charitable.45 This is, however, subject to the proviso that non-charitable supporting or
40 Australian Taxation Office, Income Tax and Fringe Benefits Tax: Charities, TR 2011/4, 12 October 2011, [10]. 41 Ibid [12]. 42 Under the ITAA97 a charity must be either an institution or a fund. Whether or not an entity is an institution or fund is a question of fact. An institution is an establishment, organisation or association, instituted for the promotion of an object, especially one of public or general utility: Stratton v Simpson (1970) 125 CLR 138, 157–8. It may be a company, unincorporated association or trust. The idea is that it is an entity called into existence to translate a defined purpose into a living and active principle. A fund must be a trust and, as opposed to an institution, does not engage in activities: Australian Taxation Office, Income Tax and Fringe Benefits Tax: Charities, TR 2011/4, 12 October 2011, [41]–[45]. 43 Re Compton [1945] Ch 123; Gilmour v Coats [1949] AC 426; Dingle v Turner [1972] AC 601; Applied in Australia in Re Hilditch deceased (1986) 39 SASR 469; Royal National Agricultural and Industrial Association v Chester [1974] 3 ALR 486. The exception to this is a line of cases that indicate that charities for the relief of poverty do not require a public benefit; see Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297, 308 (Lord Simonds); Dingle v Turner [1972] AC 601, 622–5 (Lord Cross). 44 Hubert Picarda, The Law and Practice Relating to Charities (Butterworths, 3rd ed, 1999) 20. 45 Word Investments [2008] HCA 55 [17]; Stratton v Simpson (1970) 125 CLR 138, 159; Royal National Agricultural and Industrial Association v Chester [1974] 3 ALR 486, 489. 313 ancillary purposes will not cause the forfeiture of the entity’s charitable status.46 In
Victorian Women Lawyers’ Association v Commissioner of Taxation (‘Victorian Women
Lawyers Case’) French J then of the Federal Court stated that:
It is also settled law that whether a particular corporate body is a charitable institution
depends on the central or essential object of the institution as determined by reference to
its constitution and activities … If the main purpose of such a body is charitable, it does
not lose its charitable character simply because some of its incidental or concomitant
and ancillary objects are non-charitable.47
In this case, the social activities of the organisation were held to be ancillary or supportive of its main charitable purpose of removing barriers and increasing opportunities for participation by and advancement of women in the legal profession in
Victoria.48
In the subsequent High Court case Word Investments the Court explained that in order to determine if an entity’s objects were charitable it was required to scrutinise the objects of the NFP as a whole together with how it implemented those objects in its activities. The majority stated:
It is necessary to examine the objects, and the purported effectuation of those objects in
the activities, of the institution in question. In examining the objects, it is necessary to
see whether its main or predominant or dominant objects, as distinct from its
concomitant or incidental or ancillary objects, are charitable.49
46 Maclean Shire Council v Nungera Co-operative Society Ltd (1994) 84 LGERA 139. 47 [2008] FCA 983 [132]. 48 Ibid [138]. 49 [2008] HCA 55 [17]. 314 6.3 Charity Must Include a Public Benefit: A Two Step Approach
The requirement of public benefit has two overlapping aspects50 although these are not always clearly articulated in the case law. The purpose(s) must benefit society generally.51 This I will refer to as public benefit in the first sense. The second requirement is that for an entity to be a charity or have a charitable purpose it must be of benefit to the public or a section of the public.52 I will refer to this as public benefit in the second sense.53
These requirements raise several questions. First, what does the case law state? Second, what criteria do the courts apply when determining whether or not an entity is for the public (or what is more difficult, a section of the public)? Third, are there any exceptions? And finally, how do legal scholars and courts determine what new charitable purposes fulfill these criteria? This Part of the Chapter will consider these critical legal questions in the context of NFPs established for the benefit of Native Title
Groups and Traditional Owners.
6.3.1 The Purpose must be of Actual Benefit to the Community: Public Benefit in the First Sense
In order to have a ‘charitable purpose’ there must be some actual public benefit resulting from the entity’s objectives although this extends beyond material benefit to
50 Independent Schools Council v Charity Commission for England and Wales [2011] UKUT 421 [44]. 51 Ibid. 52 Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297. 53 Following the expression of these two aspects of the public benefit test in Independent Schools Council v Charity Commission for England and Wales [2011] UKUT 421 [44]. 315 other forms including social, mental and spiritual.54 The case law establishes that for the first three heads of charitable purposes ‘the court will assume it to be for the benefit of the community and, therefore charitable, unless the contrary is shown’.55 It is therefore usually where the charitable purpose falls within the fourth heading, ‘other purposes beneficial to the community’ that argument surrounding charitable benefit in the first sense arises.
An example of a finding of charitable benefit under the fourth head is the 1997 New
Zealand case Commissioner of Inland Revenue v Medical Council of New Zealand.56
This case held that a registration system for medical practitioners provided a charitable public benefit. This was because it ensured that medical practitioners met an appropriate standard and therefore protected the public by making sure that those practitioners were adequately qualified. In Australia, in The Incorporated Council of Law Reporting of the
State of Queensland v The Commissioner of Taxation,57 the High Court held that the production of law reports was a matter that was beneficial to the community in a charitable sense. Chief Justice Barwick stated:
The sustenance of the law is a benefit of a material kind which enures for the benefit of
the whole community. Is not its administration, with regularity, and with as much
consistency as a system based on human judgment can attain, as socially fundamental as
the instances which I have taken from the preamble? Surely it is...
54 Gino Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) [3.37]. 55 National Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31, 65. 56 Commissioner of Inland Revenue v Medical Council of New Zealand [1997] 2 NZLR 297. 57 (1971) 125 CLR 659. 316 Thus, to my mind, without seeking any analogy in cases which have gone before, the
production of law reports of a superior court is within the equity and the spirit and
intendment of the preamble and thus capable of forming a charitable purpose.58
The benefit must be real or substantial59 even though not limited to the purely material.60 The concept of charitable benefit is not interpreted narrowly and may also be indirect. For example, it is the indirect benefit to the community that has allowed the courts to find that NFPs for the prevention of cruelty to animals are charitable.61 In 1949 however the English House of Lords refused to recognise the public benefit of prayer and the example of pious lives of an order of Roman Catholic contemplative nuns. In
Gilmour v Coates it was held that these activities were too vague and incapable of proof to be a benefit in the charitable first sense.62 As Lord Simonds stated:
It is in my opinion sufficient to say that this is something too vague and intangible to
satisfy the prescribed test. The test of public benefit has, I think, been developed in the
last two centuries. Today it is beyond doubt that that element must be present. No Court
would be rash enough to attempt to define precisely or exhaustively what its content
must be. But it would assume a burden which it could not discharge if now for the first
time it admitted into the category of public benefit something so indirect, remote,
58 Ibid 669. 59 Re Pinion (deceased); Westminster Bank Ltd v Pinion [1964] 1 All ER 890. 60 Gino Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) [3.37]. 61 Re Wedgewood [1915] 1 Ch 113, 122; National Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31, 44. 62 Gilmour v Coats [1949] All ER 848, 855 (Lord Simonds). This type of entity is now deemed to have a public benefit under s 5 of the Extension of Charitable Purpose Act 2004 (Cth). Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) [10.47] suggests that this case would not be viewed favourably by modern Australian courts. 317 imponderable and, I would add, controversial as the benefit which may be derived by
others from the example of pious lives.63
It is also important to recognise that the courts’ acceptance of what is of charitable benefit to the public can and arguably should change over time with evolving values of society and its changing needs. The majority of the High Court in Aid/Watch cited with approval Lord Wilberforce in Scottish Burial Reform and C remation Society Ltd v
Glasgow City Corporation: ‘the law of charity is a moving subject which has evolved to accommodate new social needs as old ones become obsolete or satisfied.’64 In
Aid/Watch the Court held that the public benefit was satisfied by a purpose that generated an intangible benefit. This was the benefit of the value of free speech in a democratic society such as Australia.
An entity’s purpose is not beneficial if its aims are contrary to public policy,65 unlawful or for a lawful purpose that is to be carried out by unlawful means.66
63 Ibid. 64 Aid/Watch [2010] HCA 42 [18]. In fact, the decision in Gilmour v Coates regarding closed and contemplative religious orders is now arguably bad law in Australia and New Zealand; see Joyce v Ashfield Municipal Council [1975] 1 NSWLR 744, 750; Crowther v Brophy [1992] 2 VR 97, 100; Gino Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) [10.47]; section 5 of the Extension of Charitable Purpose Act 2004 (Cth) deems a public benefit for contemplative religious orders. 65 Perpetual Trustee Co (Ltd) v Robins and others (1967) 85 WN (Pt. 1) (NSW) 403, 411; see also Thrupp v Collett (No.1 ) (1858) 53 ER 844; Re MacDuff; MacDuff v MacDuff [1895–1899] All ER Rep 154, 162–3; Re Pieper (deceased ); The Trustees Executors & Agency Co. Ltd v Attorney-General (Vic.) [1951] VLR 42. 66 Auckland Medical Aid Trust v Commissioner of Inland Revenue [1979] 1 NZLR 382, 395. 318 6.3.2 Do NFPs Established for the Benefit of Native Title Groups and Traditional
Owners Demonstrate a Charitable Beneficial Purpose in the First Sense?
No court has specifically held that an NFP established by a Native Title Group or
Traditional Owners has a charitable benefit in the first sense. The following is an analysis of the judicial narrative that has however considered the public benefit requirement in the context of NFPs established for the broader benefit of Indigenous
Australians. It should be pointed out that the cases do not always clearly distinguish between the public benefit in the first and second sense.
In the 1950s, O’Bryan J of the Victorian Supreme Court considered the validity of a trust to be used by the trustee ‘in his discretion for the benefit of the Australian
Aborigines.’67 His Honour concluded that Australian Aborigines are a class that is generally speaking in need of protection and assistance.68 He then referred to legislation which recognised the special needs of ‘Aboriginal people’, and continued that ‘such a class, in my opinion, is analogous to those mentioned in this statute [Statute of
Elizabeth] as “the aged, impotent and poor people; support, aid and help of people decayed; education and preferment of orphans”.’69 His Honour held that as the trust was for the benefit of a class which itself was within the ambit of the Statute of Elizabeth, it was necessarily a valid charitable trust. Thus his Honour appeared to be treating the purpose of benefitting ‘Aboriginal people’ analogously to ‘relief of poverty’. As relief of poverty is a charitable purpose and therefore by implication has a public benefit an organisation in aid of ‘Aboriginal people’ also has a charitable benefit. This case was
67 Re Mathew [1951] VLR 226. 68 Ibid 232 (O’Bryan J). 69 Ibid. 319 however decided in 1950 and is that of a single judge, so it is important to analyse what more recent decisions and higher authorities tell us.
Some obiter comments were made by Handley JA on behalf of the Full Court of the
Supreme Court of New South Wales in Maclean Shire Council v Nungera Co-operative
Society Ltd70 in 1994 which support the view. His Honour stated that:
The requirement that any land be held in perpetuity for the use and benefit of
Aborigines makes it clear that such land must be held on a charitable trust. In my
opinion the current disadvantaged position in Australia of Aboriginals is such that any
valid charitable trust for their benefit must also be for public benevolent purposes.71
This decision was however in the context of determining whether the Nungera Society was a Public Benevolent Institution (PBI). PBIs are NFP institutions organized for the direct relief of poverty, sickness, suffering, distress, misfortune, disability or helplessness.72 PBIs are charities73 but not all charities are PBIs. Furthermore, the case is nearly twenty years old. A decision of a single judge of the Supreme Court of the
Northern Territory, two years later in 1996, supports the view that the general advancement of Australian Indigenous culture is charitable. Flynn v Mamarika,74
(‘Flynn’s Case’) dealt with how a charitable trust in respect of the Indigenous peoples on Groote and Bickerton Islands was to be executed. Chief Justice Martin stated that the
70 (1994) 4 LGERA 139. 71 Ibid 143. 72 Perpetual Trustee Company Ltd v Federal Commissioner of Taxation (1931) 45 CLR 224, 232. 73 Australian Taxation Office, Taxation Ruling TR 2003/5 Income tax and Fringe Benefits Tax: Public Benevolent Institutions, 4 June 2003. The ruling states that for the purposes of income tax a PBI is a charitable institution [24]. 74 (1996) 130 FLR 218. 320 preservation, advancement and maintenance of traditional Aboriginal culture (including spiritual beliefs) and way of life of the community were charitable purposes.75
In 2007, the Full Court of the Supreme Court of Western Australia made obiter comments that indicate a willingness to find the advancement of Australian Indigenous peoples to be a separate charitable purpose. In Shire of Derby–West Kimberley v
Yungngora Association Inc76 the Court was required to determine whether or not certain grazing land held by the Yungngora Association was exempt from local government rates on the basis that it was used exclusively for charitable purposes. Although the
Association was unsuccessful,77 Newnes AJA on behalf of the Court commented that:
The Land is used in some respects for the improvement of the economic and social
position of the community and may thereby be used for charitable purposes – for
instance, in the training and employment of some members of the community in the
pastoral enterprise, and to provide housing and other facilities for the community.78
Other cases have expressed similar views although all in the context of whether or not the organisation was a PBI.79
There is therefore support for the argument that an entity that has as its purposes the advancement of Indigenous Australians as a people, or the encouragement of their social cohesion, cultural identity and spirituality is of overarching charitable benefit. It
75 Ibid 223. 76 [2007] WASCA 233. 77 The terms of the statutory provision required that the land was used exclusively for charitable purposes and the Association was unable to prove this [60]. 78 Ibid [60]. 79 Toomelah Co-operative Limited v Moree Plains Shire Council [1996] 90 LGERA 48; Gumbangerrii Aboriginal Corporation v Nambucca Council (1996) 131 FLR 115; Northern Land Council v The Commissioner of Taxes [2002] NTCA 11. 321 is also arguable that this line of reasoning can be extended to the purpose of gaining and maintaining native title interests and ‘Aboriginal land’ for Traditional Owners. The reclaiming of lands is of considerable significance to the cultural traditions of
Indigenous Australians80 and also a crucial aspect of the reconciliation between
Indigenous Australians and the dominant white Australian culture.81 It therefore seems reasonable to suggest that such reconciliation is of actual benefit to the community in a charitable sense within the first aspect.82
Except for Re Mathew83 and Flynn’s Case the comments are generally either obiter or in the context of deciding that the entity is a PBI so that whilst persuasive, they are not conclusive. A further point that needs highlighting is that all the cases are in the context of entities that assisted ‘needy’ Indigenous Australians. The finding of charitable benefit may therefore have been within the context of the charitable head relief of poverty where the charitable benefit (in the first sense) is presumed. It is still therefore uncertain
80 Mabo v Queensland (No 2) (1992) 175 CLR 1; Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009). 81 See Report of the Commonwealth of Australia, Aboriginal Land Rights Commission (Woodward Report) [769]; Jenny Macklin, Minister for Families, Housing, Community Services and Indigenous Affairs, ‘Beyond Mabo: Native Title and Closing the Gap’ (Paper presented at the 2008 Mabo Lecture, James Cook University, 21 May 2008)
6.3.3 Public Benefit in the Second Sense: The Benefit must be for the Public or a
Sufficient Section of the Public
The legal concept of charity carries with it an altruistic or public benefit concept. This has been said to stem from the very nature of ‘charity’.84 As early as the late 18th century the English courts considered that for a gift to be charitable it must be of general public benefit.85 Lord Simonds in Williams’ Trustees v I nland Revenue
Commissioners86 said that ‘a trust in order to be charitable must be of a public character.
It must not be merely for the benefit of particular private individuals.’87 This public benefit ideal clearly takes the concept of ‘charity’ outside the everyday or popular meaning because it indicates a purpose that must somehow add to or advantage the community rather than individuals. More recently, the status and benefits afforded charities have been seen as a social covenant between the charities and society.
Charities bring public benefit and in return are accorded high levels of trust and
84 Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297; Commonwealth Taxation Review Committee, Full Report (1975) ch 25 (Asprey Report); Treasury, Australia's Future Tax System: Report to the Treasurer (2009) pt 2, ch B, B3 (the Henry Review); Debra Morris, ‘The Long and Winding Road to Reforming the Public Benefit Test for Charity: A Worthwhile Trip or “Is Your Journey Really Necessary?”’ in Kerry O’Halloran and Myles McGregor-Lowndes (eds), Modernising Charity Law: Recent Developments and Future Directions (Edward Elgar Publishing, 2010) 103, 103. 85 Jones v Williams (1767) 2 Amb 651. 86 [1947] AC 447. 87 Ibid 457. 323 confidence and the considerable benefits of charitable status.88 Not only do charities enjoy significant tax benefits, they are also able to access many government grants that are not available to other NFPs,89 as well as volunteers’ time and donors’ money.
From a tax policy perspective, the benefits are rationalised on the basis that through benefiting the community, charities are taking on a quasi-governmental role. It would therefore be inappropriate to tax charities because they are providing what are recognised as essential and/or worthwhile services to the community.90 However, where the services or benefits are to a family then the concern is that private individuals might take advantage of the favourable tax position available to charities for what is essentially a private purpose.91 Lord Greene certainly considered the tax advantages of charities a strong consideration when deciding that a trust for the education of
88 Charity Commission for England and Wales, Charities and Public Benefit. The Charity Commission’s General Guidance on Public Benefit, 2008, 3. 89 For example, under the grant system of the Sidney Myer Foundation grants are only made to entities that are endorsed as charities by the ATO. This is common in other countries such as New Zealand; see David Brown, ‘The Charities Act 2005 and the Definition of Charitable Purposes’ (2005) 21(4) New Zealand Universities Law Review 598, 620 who states that in New Zealand marae were not able to access grants from community trusts because before the 2003 reforms they could not gain charitable status’; also see Craig Fisher, ‘Is the Definition of Charitable Purpose Relevant to New Zealand Society in 2012?’ (Paper presented at New Zealand Charities Commission Charitable Purpose Forum, Wellington, New Zealand, 17-18 April 2012) 1, who states that ‘Many funding providers use registered charitable status as a means to cull or limit applications to them.’ 90 Asprey Report ch 25; Debra Morris, ‘The Long and Winding Road to Reforming the Public Benefit Test for Charity: A Worthwhile Trip or “Is Your Journey Really Necessary?”’ in Kerry O’Halloran and Myles McGregor-Lowndes (eds), Modernising Charity Law: Recent Developments and Future Directions (Edward Elgar Publishing Limited, 2010) 103, 103; Michael Chesterman, Charities, Trusts and Social Welfare (Weidenfeld & Nicholson, 1979); The Henry Review, pt 2, ch B, B3. 91 Re Compton [1945] Ch 123, 136; Perpetual Trustee Co (Ltd) v Ferguson (1951) 51 SR (NSW) 256, 263 (Sugerman J). 324 descendants of a named person was really a family trust and not charitable because it was not for the benefit of the community.92
However the public benefit test can be met where there is a limited class of beneficiaries because the case law has accepted that a ‘sufficient section of the public’ will suffice.93
The rationale is that not all charities are for the benefit of the entire community.
Charitable purposes are often motivated by the need to assist a section of the community with special needs or disadvantages.94 As Manisty J stated:
On the one hand it is said that whether the charity is ‘public’ depends on whether it is
universal, and that if the objects are confined to a particular class the charity is deprived
of its public character. I cannot accept that argument. If that were so, what would
become of charities unquestionably public, as the many institutions for the deaf, dumb,
and blind?95
The Chief Justice of the High Court of Australia in 1959 expressed it clearly in
Thompson v Federal Commissioner of Taxation when he said that the public benefit test can be determined ‘by reference to locality, to conditions of people, to their disabilities, defects or misfortunes and by reference to many other attributes of men and things, yet the trusts may retain their “public” character.’96
92 Re Compton [1945] Ch 123, 136. 93 Dingle v Turner [1972] AC 601, 623 (Lord Cross); Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297. 94 Gino Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) [3.5]-[3.6]; Debra Morris ‘The Long and Winding Road to Reforming the Public Benefit Test for Charity: A Worthwhile Trip or “Is Your Journey Really Necessary?”’ in Kerry O’Halloran and Myles McGregor- Lowndes (eds), Modernising Charity Law: Recent Developments and Future Directions (Edward Elgar Publishing Limited, 2010) 103, 107–08. 95 Hall v The Urban Sanitary Authority of the Borough of Derby (1885) 16 QBD 163, 171. 96 (1959) 102 CLR 315, 321 (Dixon CJ). 325 This raises the question of how the courts have determined which characteristics or factors should be taken into account in determining whether or not a charitable purpose is also for the benefit of a ‘sufficient section of the public.’ When we consider the legal narrative, a number of factors appear to be relevant. These may be summarised as: the requirement that beneficiaries must not be numerically negligible; the potential beneficiary class; whether or not the organisation is open to the whole community; the nature of the entity; the activities it undertakes; and the relationship (degree of connection) between the beneficiaries.97
6.3.3.1 Number of Beneficiaries
I turn now to a discussion of the relevant factors identified in the case law for determining whether or not the entity in question demonstrates a benefit to a section of the public. I do this in the context (where possible) of Australian case law that has looked at this issue in respect of NFPs for the advancement of Indigenous Australians.
When discussing whether or not a charity is for the benefit of a section of the community, the cases have consistently referred to an appreciably important class of the community98 and the fact that the beneficiaries must not be numerically negligible.99
Looking at the public benefit requirement as a matter of numbers can, however, be
97 Verge v Somerville [1924] AC 496,499 (‘Verge’); Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297, 306 (Lord Simonds); Australian Taxation Office, Income Tax and Fringe Benefits Tax: Charities, TR 2011/4, 12 October 2011, [142]. This ruling states at [142] that ‘Limiting the number of people who can benefit can also be consistent with the public benefit requirement unless the number is numerically negligible’; Australian Taxation Office, Income Tax and Fringe Benefits Tax: Public Benevolent Institutions, TR 2003/5, 4 June 2003. This ruling provides that family or contractual connections among beneficiaries means that the entity fails the public benefit test; however, it also states that ‘The number of people in the group may be relevant but is not determinative’ [81]; New Zealand Inland Revenue Department, Tax Information Bulletin Vol 15, No 5 (May 2003) 59–60. 98 Verge [1924] AC 496, 499. 99 Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297, 306 (Lord Simonds). 326 misleading. In one leading English case, Oppenheim v Tobacco Securities Trust Co
Ltd100 (‘Oppenheim’), the actual and potential beneficiaries numbered over 110,000 people. The requirement of a public benefit still failed because the benefit was not open to the general public. The charitable benefit of education was restricted to the children of current and former employees and, as not everyone was entitled to be an employee of the relevant company, the Court considered that there was no available benefit to either the public or a section of the public.101
6.3.3.2 Potential Beneficiaries
In further trying to clarify and explain this test, when discussing the number of beneficiaries the courts have pointed out that it is the number of potential beneficiaries that must not be small, not the number of actual beneficiaries at the time of the case.102
This principle is exemplified in a 2002 Australian case dealing with a trust for the benefit of Indigenous Australians who were barristers in New South Wales. In this case it was held that as the only restriction on the class of beneficiaries was that they were
Indigenous and disadvantaged this was sufficient to constitute a section of the public.103
All Indigenous people were able to study and, through hard work and intellectual ability, become barristers in New South Wales. The potential beneficiaries were numerous even though the actual beneficiaries numbered at the time only two.104 In this
100 [1951] AC 297. 101 Ibid 306 (Lord Simonds). 102 Dingle v Turner [1972] AC 601, 624 (Lord Cross); Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297. 103 Trustees of the Indigenous Barristers’ Trust v Federal Commissioner of Taxation 51 ATR 495, 504 [13] (Gyles J). 104 Ibid. At the time the case was decided there were only two possible beneficiaries (being two Indigenous barristers practising in New South Wales). 327 case the judge accepted that Indigenous Australians were a sufficient section of the community.
6.3.3.3 Type and Activities of the Entity
In some situations it may be possible to show that benefiting a small section of the community benefits the community as a whole. The Charity Commission for England and Wales105 stated in 2008 that an organisation directed at relieving the suffering caused by a rare disease would still benefit the public even though the actual and potential beneficiaries were small in number.106 The New Zealand Government has commented that if there is a benefit to the public then a charity for a small number of beneficiaries would still meet the test.107
The way researchers look at it is that the group must constitute a recognisable section of the community. In other words, there must be some connecting (but impersonal) link between all the beneficiaries of the charity.108 In order for this section, however small, to satisfy the public benefit requirement it is essential that this connecting link is not family or employment.109
105 The Charity Commission for England and Wales is an independent organisation established under the Charities Act 2006 (UK) c 50. For a full description see Fiona Martin, ‘Is it Time for an Independent Regulator of the Non Profit Sector in Australia? (2009) 12 Tax Specialist 148. 106 Charity Commission for England and Wales, Analysis of the Law Underpinning Charities and Public Benefit, December 2008 [3.25]. 107 New Zealand Inland Revenue Department, Policy Advice Division, Taxation of Maori Organisations, A Government Discussion Document (August 2001) [8.16]. 108 Debra Morris, ‘The Long and Winding Road to Reforming the Public Benefit Test for Charity: A Worthwhile Trip or “Is Your Journey Really Necessary?”’ in Kerry O’Halloran and Myles McGregor-Lowndes (eds), Modernising Charity Law: Recent Developments and Future Directions (Edward Elgar Publishing, 2010) 103, 107. 109 Dingle v Turner [1972] AC 601; Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297; P S Atiyah, ‘Public Benefit in Charities’ (1958) 21 Modern Law Review 138. 328 6.3.3.4 The Family Connection between Beneficiaries
As introduced in the previous discussion, the public benefit test requires that the beneficiaries of a charitable purpose are linked by some criterion other than personal relationships. If benefits are restricted to family members or friends, the courts have considered that there is no public benefit.110 Although assistance to family members to complete their schooling might be a charitable thing to do, it is not considered to benefit the community at large; whereas donating money to a particular organisation that helps a section of the community gain an education has a public benefit.
In 1924, in Verge v Somerville111 (‘Verge’), Lord Wrenbury summarised the position:
To ascertain whether a gift constitutes a valid charitable trust…a first enquiry must be
made whether it is public – whether it is for the benefit of the community or of an
appreciably important class of the community. The inhabitants of a parish or town, or
any particular class of such inhabitants, may, for instance, be the objects of such a gift,
but private individuals, or a fluctuating body of individuals, cannot.112
Earlier cases also confirm this view. A Privy Council decision of 1875 relating to a trust for the observance of religious services for the testatrix and her late husband was held not to be charitable on the basis that there was no public benefit.113 The religious
110 Verge [1924] AC 496; Re Compton [1945] Ch 123; Yeap Cheah Neo v Ong Cheng Neo (1875) LR PC 381; Ip Cheung-Kwok v Sin Hua Bank Trustee Ltd [1990] 2 HKLR 499. 111 [1924] AC 496. 112 Ibid 499. 113 Yeap Cheah Neo v Ong Cheng Neo [1875] LR PC 381, 396. 329 services were only open to and in respect of family members. In fact, the cases referring to this limitation on the public benefit can be traced back to at least the 18th century.114
In 1945, in Re Compton, Powell v Compton115 (‘Re Compton’), the English Court of
Appeal refused to find a public benefit in a trust to educate the descendants of three named persons because the beneficiaries were defined by reference to a purely personal relationship to those persons. It was considered ‘in its nature a private or family benefaction.’116 Lord Greene MR expressed the public benefit principle:
They do not enjoy the benefit, when they receive it, by virtue of their character as
individuals but by virtue of their membership of their specified class. In such a case the
common quality which unites the potential beneficiaries into a class is essentially an
impersonal one. It is definable by reference to what each has in common with the
others, and that is something into which their status as individuals does not enter.
Persons claiming to belong to the class do so not because they are AB, CD and EF but
because they are poor inhabitants of the parish. If, in asserting their claim, it were
necessary for them to establish the fact that they were individuals AB, CD and EF, I
cannot help thinking that on principle the gift ought not to be held to be a charitable gift,
since the introduction into their qualification of a purely personal element would
deprive the gift of its necessary public character.117
This family connection limitation applies in Australia. In Davies v Perpetual Trustee Co
Ltd118 the Privy Council was required to determine whether a trust for the education of
114 Jones v Williams (1767) 2 Amb 651, 652 (Lord Camden). 115 [1945] Ch 123. 116 Ibid 128. 117 Ibid 129–30. 118 (1959) 59 SR (NSW) 112. 330 descendants of Presbyterians from Northern Ireland who were alive on 21 January 1897 and who had settled in the Colony (New South Wales) was charitable. The Privy
Council held that even though the purpose of the trust was charitable because it was for the advancement of education, there was no public benefit because the class of persons to be benefited was defined through their descent from certain ancestors. In other words, there was a family relationship that defined the recipients of the charitable benefit which meant that there was no public benefit. This principle has also been applied in respect of
Indigenous Australians. In Aboriginal Hostels Ltd v Darwin City Council119
(‘Aboriginal Hostels Case’) Justice Nader of the Supreme Court of the Northern
Territory confirmed that in order to be a charity, the Aboriginal Hostels Ltd had to benefit a section of the community that was not defined through family relationships.
His Honour stated that ‘[t]he character that marks the potential beneficiary must not be a relationship to a particular person or persons such as one of blood or employment.’120
The case law therefore states that a NFP is not for the benefit of a section of the public if the quality that distinguishes the class of beneficiaries from other members of the public depends on their relationship to a person and it is impossible for anyone outside this relationship to enter.121 This means that there is no public benefit for an otherwise charitable purpose where the beneficiaries of this purpose are defined through descent from a common ancestor.122 An organisation for the benefit of persons in a particular geographic location may, however, be for the public benefit because here the quality
119 (1985) 75 FLR 197. 120 Ibid 209. 121 Re Compton [1945] Ch 123; Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297; Thompson v Federal Commissioner of Taxation (1959) 102 CLR 315. 122 Davies v Perpetual Trustee Co Ltd (1959) 59 SR (NSW) 112; Re Compton [1945] Ch 123, 136; Verge [1924] AC 496, 499. 331 that links the group is not their personal relationship but their physical location.123 This will depend on other factors such as how easily members of the public can access living in this location; however, as theoretically anyone can move to a particular location, the section of the public benefited is not restricted by something outside their control.124
Although the cases have accepted that Indigenous Australians are a sufficient section of the public, the family restriction poses a legal impediment to charities that are for the benefit of Native Title Groups and Traditional Owners. This is discussed in Section 4.3.
6.3.3.5 Contractual Relationships between Beneficiaries
In Re Income Tax Acts (No 1)125 Lowe J expressed the view that if an organisation is open to the public, even though not everyone joins, this group will be enough of a section of the public to pass the charitable purpose test. However, if the organisation sets up a test for membership such as many clubs, literary societies or trade unions do then the members cannot be considered a section of the public.126 The refusal to grant charitable status to an entity for the education of children of employees and former employees of a company, as discussed earlier in Oppenheim’s Case, is therefore based on the common law rationale that there is no benefit to the public or a section of the public. Although the entity had the charitable purpose of advancement of education, as the recipients of this benefit were determined through their contractual relationship with their employer there was no public benefit.
123 Re Compton [1945] Ch 123, 129–30; Verge [1924] AC 496, 499; The members of a particular village were considered a section of the public for charity law purposes in Goodman v Saltash (1881–1882) LR 7. 124 Verge [1924] AC 496; Dingle v Turner [1972] AC 601. 125 [1930] VLR 211, 223. 126 Ibid 222–3. 332 The judicial thinking is clearly influenced by the fiscal advantages that arise from being granted charitable status. Lord Greene MR makes several references to the tax-free status of charities in his comments in Re Compton as the rationale for restricting charities to those that benefit the public, as does Lord Cross in Dingle v Turner.127 The
ATO has also stated that a trust for the benefit of employees of a particular employer is not for the public benefit.128
6.3.4 No Public Benefit Requirement where the Charitable Purpose is the Relief of
Poverty
Where the charitable purpose is the relief of poverty, the requirement that a charity must be for the benefit of the public or a section of the public is not applied, or is applied less strictly. In Re Scarisbrick129 the court approved a charity for the relief of poor relatives and in Dingle v Turner the House of Lords granted charitable status to a trust for the relief of poor employees, even though this group was defined through their employment relationship. This approach has been accepted in a number of cases in England130 and
Australia.131
127 [1972] AC 601, 624–5. 128 Australian Taxation Office, Income Tax and Fringe Benefits Tax: Charities, TR 2011/4, 12 October 2011, [140]. 129 [1951] 1 Ch 622. 130 See Re Hobourn Aero Components Limited’s Air Raid Distress Fund [1946] Ch 194, 203–07 (Lord Greene MR); Re Scarisbrick [1951] 1 Ch 622, 649–52 (Jenkins LJ); Gibson v South American Stores [1950] Ch 177. 131 Alice Springs Town Council v Mpweteyerre Aboriginal Corporation [1997] 139 FLR 236, 252. 333 There are two main reasons given for this exception.132 In Re Compton Lord Greene considered that because the exception had been in existence for many generations and a significant number of trusts had been founded with the exception in mind, it was too late for the principle to be overturned.133 Secondly, Lord Greene stated that there may be some special quality in gifts for the relief of poverty that put them in a class by themselves. He felt that the relief of poverty may be of such benefit to the community that this outweighs the fact that the relief is confined to family members.134
In the context of Indigenous Australians, in Alice Springs Town Council v Mpweteyerre
Aboriginal Corporation (‘Mpweteyerre’) the Court of Appeal of the Northern Territory commented that where the gift was the relief of poverty the class benefited need not be the public or an appreciable section of the public.135
The relaxation of the public benefit test does not, however, mean that a trust for a very restricted group of poor beneficiaries will be charitable. In Re Scarisbrick136 Jenkins LJ stated that a gift to a narrow class of near relations in need would not be a gift for the relief of poverty in the charitable sense.137 One commentator argues that while a benefit to the public or a section of the public is still required for charities established to relieve
132 Re Compton [1945] Ch 123, 139; Gino Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) [8.23]. 133 Re Compton [1945] Ch 123, 139. 134 Ibid. 135 [1997] 139 FLR 236, 252. 136 [1951] 1 Ch 622. 137 Ibid 650–1. 334 poverty, distinct groups of persons may be considered as sections of the public in cases dealing with poverty where they might not be considered thus in other circumstances.138
In the context of trusts for the relief of poverty, the main issue will usually be ensuring that the ultimate beneficiaries satisfy the judicial criterion of ‘poverty’.139 For the application of the common law concept of charity, ‘poverty’ is not the equivalent of
‘destitution’.140 The case law states that poverty is considered to be a situation where a person is unable to sustain a modest standard of living in Australia.141 There are, however, limitations on the extent of aid that can be provided to beneficiaries of such a charity. It is considered that the beneficiaries of a charity for the relief of poverty can only receive financial assistance, payment of their medical expenses142 and accommodation.143
The relaxation of the public benefit requirement for poor relations and poor employees has come under considerable judicial and public criticism. Lord Jenkins stated in Re
Scarisbrick that this exception ‘cannot be accounted for by reference to any principle.’144 Commentators consider that as developed nations have a state welfare
138 P S Atiyah, ‘Public Benefit in Charities’ (1958) 21 Modern Law Review 138, 143. 139 For the legal meaning of ‘poverty’ in this context see Gino Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) [8.7]. 140 Trustees of Mary Clark Home v Anderson [1904] 2 KB 645, 655 (Channell J); Flynn v Mamarika (1996) 130 FLR 218, 223 (Martin CJ). 141 Ballarat Trustees Executors and Agency Co v Federal Commissioner of Taxation (1950) 80 CLR 350, 385 (Kitto J). 142 Australian Taxation Office, Income Tax and Fringe Benefits Tax: Charities, TR 2011/4, 12 October 2011, [316]. 143 Re Niyazi’s Will Trusts [1978] 3 All ER 785. 144 [1951] 1 Ch 622, 649; Lord Greene in Re Compton stated that the line of reasoning was ‘far from satisfactory’ [1945] Ch 123,139. 335 safety net, this exception seems outdated and inconsistent with public policy.145 The
Sheppard Report recommended that the public benefit test be applied equally to all charitable purposes including relief of poverty.146 The 2011 Charity Consultation into the definition of charity has identified that this is an issue in view of the Sheppard
Report’s strong statement that the exception should be removed. However, the
Consultation Paper also notes the problem the public benefit requirement poses for
Native Title Groups and Traditional Owners147 as identified in publications by the author of this thesis commencing in 2006.148
6.4 Charitable Purposes that are of particular relevance to Indigenous Australians
Pemsel’s Case established that charitable purposes can be categorised under four headings and subsequent case law has followed this approach although still referring back to the Preamble. My examination of the case law relating to charities for
Indigenous Australians has found that the NFPs in question generally had ‘relief of poverty’ as either their only charitable purpose or one of their purposes. In some cases there was also the possibility that the purposes of the organisation fell within the fourth head ‘other purposes beneficial to the community’.149 It is therefore appropriate that I
145 D Brown, ‘The Charities Act 2005 and the Definition of Charitable Purposes’ (2005) 21(4) New Zealand Universities Law Review 598, 621; A Rahmatian, ‘The Continued Relevance of the “Poor Relations” and the “Poor Employees” Cases Under the Charities Act 2006’ (2009) Conveyancer and Property Lawyer 12, 20. 146 Sheppard Report, 14. 147 Australian Government, Treasury, A Definition of Charity: Consultation Paper, 2011, 10. 148 Fiona Martin, ‘What’s Public Benefit got to do with it? How the Law in Australia relating to the Public Benefit Requirement of “Charitable” applies to Charities for the Benefit of Aboriginal People’(Paper presented at the AIATSIS National Native Title Conference, Darwin, 24–25 May 2006); Fiona Martin, ‘Prescribed Bodies Corporate Under the Native Title Act 1993 (Cth): Can they be Exempt from Income Tax as Charitable Trusts?’ (2007) 30(3) University of New South Wales Law Journal 713. 149 Eg Flynn’s Case. 336 discuss the attributes of these two charitable purposes and how they have been interpreted in the context of NFPs for the benefit of Indigenous Australians.
6.4.1 Relief of Poverty
The charitable class of relief of poverty clearly covers relief of absolute destitution, although it is not confined to this situation.150 The term is broader and also includes assistance to the aged and impotent and those who are physically and mentally weak, injured, or temporarily or permanently incapacitated.151 Poverty is regarded as a relative term and does not need to be abject poverty or destitution.152 For example, in Re
Niyazi’s Will Trusts a gift to establish a working men’s hostel was held to be for the relief of poverty.153 In Australia, those lacking the resources to obtain what is necessary for a modest standard of living in the Australian community may be accepted as suffering poverty.154
To relieve poverty implies that the people in question have a need attributable to their condition which requires alleviating, and which those people cannot alleviate or would have difficulty alleviating by themselves.155 It is irrelevant whether the relief of poverty is through direct means (such as donating money or providing goods and services) or
150 Re Gillespie (deceased) [1965] VR 402, 406. 151 Hilder v Church of England Deaconess’ Institution Sydney Ltd [1973] 1 NSWLR 506, 511. 152 Re Gillespie (deceased) [1965] VR 402, 406; Re Coulthurst [1951] Ch 661, 666 (Evershed MR). 153 [1978] 1 WLR 910. 154 Ballarat Trustees Executors and Agency Company Limited v Federal Commissioner of Taxation (1950) 80 CLR 350. 155 Joseph Rowntree Memorial Trust Housing Association Ltd v Attorney-General [1983] 1 All ER 288, 295. 337 through indirect means (such as donations to entities that assist the poor or that provide accommodation).156
The disadvantaged position of Australian Indigenous people – economically, culturally and legally – has been recognised in a number of judicial decisions as discussed earlier.157 Recent statistics that confirm this disadvantage were detailed in Chapter 5.
The cases discussed in Section 3.1.2 of this Chapter all support the argument that NFPs established for the relief of poverty of Native Title Groups or Traditional Owners will be able to obtain charitable status under the current law. Relief of poverty is a charitable purpose in the first sense. Furthermore, where the constituting documents and resulting activities of the NFP are all consistent with the purpose of relief of poverty the family limitation on the public benefit criterion will not apply (or is at least relaxed). The result is that these NFPs can be for the benefit of persons who are defined through descent from a common ancestor and, at present, obtain charitable status.
There are, however, problems with this scenario. First, NFPs for Native Title Groups or
Traditional Owners may want to have objectives that are broader than relief of poverty.
Furthermore, as was discussed in Chapter 2 of this thesis PBCs have particular statutory roles and functions that may make it impossible for them to be construed as being established solely for the relief of poverty. Third, the exception to the family limitation where a charity is for the relief of poverty may not continue if the Australian
Government enacts a statutory definition of charity, as it has proposed (this will be discussed later in this Chapter). Finally, as stated at 3.3, the aid that can be given to
156 Re White’s Will Trusts [1951] 1 All ER 528. 157 Re Mathew [1951] VLR 226, 232; Re Bryning [1976] VR 100; Aboriginal Hostels Ltd v Darwin City Council (1985) 75 FLR 197, 211; Northern Land Council v Commissioner of Taxes [2002] NTCA 11. 338 beneficiaries of a charity for the relief of poverty is limited to financial assistance, payment of their medical expenses158 and accommodation.159 This may not suit the objectives of some NFPs representing Indigenous Australians.
6.4.2 Other Purposes Beneficial to the Community
The fourth head of charity is a ‘catch-all’ residuary category that recognises charitable purposes not otherwise falling within the first three heads.160 For a purpose to be charitable under this head, it must not only be of benefit to the public or a significant section of it, it must also be within the spirit and intendment of the Statute of
Elizabeth.161 The process of reasoning by analogy to determine whether a purpose is within the spirit of the Statute of Elizabeth was described by Lord Reid in 1968 as follows:
The courts appear to have proceeded first by seeking some analogy between an object
mentioned in the preamble and the object with regard to which they had to reach a
decision. And then they appear to have gone further and to have been satisfied if they
could find an analogy between an object already held to be charitable and the new
object claimed to be charitable. And this gradual extension has proceeded so far that
there are few modern reported cases where a bequest or donation was made or an
institution was being carried on for a clearly specified object which was for the benefit
158 Australian Taxation Office, Income Tax and Fringe Benefits Tax: Charities, TR 2011/4, 12 October 2011, [316]. 159 Re Niyazi’s Will Trusts [1978] 3 All ER 785. 160 Dal Pont [11.1]. 161 Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531, 583. 339 of the public at large and not of individuals, and yet the object was held not to be within
the spirit and intendment of the Statute of Elizabeth I.162
This fourth head of charity has been the catalyst for the development of charity law and is where we find cases that reflect changing societal needs. Examples of specific purposes that have been held to fall within the fourth head are assistance to visually,163speech or hearing impaired people;164 the mentally ill;165 the underprivileged166 and orphans;167 public works and services (eg the construction of public halls,168 bridges, community facilities and museums);169 protection of lives and property (eg rescue organisations,170 fire brigades,171 protection of historic buildings); preservation of public order (eg increasing police efficiency,172 increasing the efficiency of the armed forces);173 resettlement and rehabilitation (eg demobilised soldiers,174
162 Scottish Burial Reform and Cremation Society Ltd v Glasgow City Corporation [1968] AC 138, 146–7. 163 Re Inman (deceased) [1965] VR 238. 164 The President, Councillors and Ratepayers of the Shire of Nunawading v The Adult Deaf and Dumb Society of Victoria (1921) 29 CLR 98. 165 The Diocesan Trustees of Church of England in Western Australia v The Solicitor-General; The Home of Peace for the Dying and Incurable v The Solicitor-General (1909) 9 CLR 757. 166 Salvation Army (Victoria) Property Trust v Fern Tree Gully Corporation (1952) 85 CLR 159. 167 The Attorney General for New South Wales v The Perpetual Trustee Company Limited and others (1940) 63 CLR 209. 168 Monds v Stackhouse (1948) 77 CLR 232. 169 Re Gwilym (deceased) [1952] VLR 282. 170 Re Clarke (deceased); Bracey v Royal National Lifeboat Institution [1923] All ER Rep 607. 171 Re Wokingham Fire Brigade Trusts [1951] Ch 373. 172 Chesterman v Mitchell (1924) 24 SR (NSW) 108. 173 Re Driffill [1950] Ch 92. 174 Verge [1924] AC 496. 340 refugees, disaster funds);175 care of youth (eg correctional youth homes);176 the protection of the environment;177 and the protection or benefit of animals (eg animal refuges and protection societies).178
In the context of Indigenous Australians there is case law that supports the view that purposes of advancement of Indigenous Australians or that are aimed at maintaining their cultural and spiritual cohesion fall within ‘other purposes beneficial to the community’. This was the specific finding of Martin CJ in Flynn’s Case. In the subsequent case, Toomelah Co-operative Limited v Moree Plains Shire Council179
(‘Toomelah Co-operative Case’), the Co-operative was a community advancement society established under the Co-operation Act 1923 (NSW).180 It owned various houses, which it rented to needy Aboriginal families. One of its objects was the promotion of land rights and other legal and cultural rights of the Aboriginal community. Justice Stein stated that he considered the promotion of land rights as falling within the fourth and possibly the first (relief of poverty) categories of charitable purposes in Pemsel’s Case.181 The Toomelah Co-operative was held to be a PBI and a public charity in the context of local government legislation.
175 Re North Devon and West Somerset Relief Fund Trusts; Hylton (Baron) v Wright [1953] 2 All ER 1032. 176 The Attorney-General for New South Wales v The Perpetual Trustee Company Limited (1940) 63 CLR 209. 177 Attorney-General (NSW) v Sawtell [1978] 2 NSWLR 200. 178 Re Inman (deceased) [1965] VR 238. 179 (1996) 90 LGERA 48, 59. 180 Ibid 50. One of the other objects of the society was ‘(h) To promote Land Rights and other legal and cultural rights of the Aboriginal community’. 181 Ibid 59. 341 Subsequently, in Northern Land Council v Commissioner of Taxes182 (‘Northern Land
Council’) the Northern Territory Court of Appeal was required to consider whether or not the Northern Land Council was a PBI, which raises issues similar but not identical to those addressed when considering whether an entity is charitable. The Court noted that the Northern Land Council’s primary purpose was to provide a convenient administrative structure for traditional owners to acquire and hold Indigenous land and for the management of this land.183 The Land Council also had functions conferred on it as a representative Aboriginal/Torres Strait Islander Body under Part 10 of the NTA, and under s 203BB of the NTA the Council had power to facilitate and assist in the recognition of native title for Indigenous persons.184
The Court held that the Land Council was a PBI and stated:
The restoration and management of traditional Aboriginal land for the benefit of
Aboriginal people addresses the disadvantaged position of Aboriginal people arising
from dispossession and homelessness…The restoration of land, and with it the
promotion of cultural and spiritual integrity, have been recognised as benevolent
purposes.185
These cases offer a persuasive argument that the fostering and development of
Indigenous Australians culture and identity, which includes the restoration and management of native title interests and Aboriginal land under ALRA, are considered to be of charitable benefit to the public and that such a purpose falls under the ‘other purposes beneficial to the community’ category established by Pemsel’s Case.
182 [2002] NTCA 11. 183 [2002] NTCA 11 [28]. 184 Ibid [50]. 185 Ibid [75] (Thomas J). 342 6.4.3 Charitable Purposes: NFPs Established for the Benefit of Native Title Groups and Traditional Owners
For the purposes of this discussion I will assume that my arguments discussed in the preceding section are accepted, and advancing Indigenous Australians and promotion of their land rights is of general public benefit in a charitable sense, and may also fall within the fourth Pemsel head. The next issue is whether or not an NFP established for the benefit of Native Title Groups or Traditional Owners is considered to have a public benefit in the first sense as discussed in section 3.1. In order to analyse this aspect of the law of charities in respect of these entities it is necessary to understand their legal role and responsibilities. Looking first at NFPs established for the benefit of Native Title
Groups, this will commonly be the PBC. The role of the PBC has been discussed in
Chapter 2 so for the purposes of this Chapter it is summarised as follows.
Once the Court makes a determination that native title exists, the native title holders are required by the NTA to establish a body corporate to represent them as a group and manage their native title’s rights and interests.186 This is the PBC. Until 2011 the Native
Title (Prescribed Bodies Corporate) Regulations 1999 (Cth) (PBC Regulations) provided that all members of the PBC must be native title holders.187 This provision was amended in 2011 to allow for the inclusion of other Indigenous and non-Indigenous
Australians where the native title holders consent.188
186 NTA ss 55, 56 and 57. 187 Reg 4(2)(a) and (c). 188 Native Title (Prescribed Bodies Corporate) Amendment Regulations 2011 (Cth) sch 1. 343 The primary role of a PBC is to:
• protect and manage native title interests in accordance with the wishes of the
broader title holding group; and
• ensure certainty for government and other parties with an interest in accessing or
regulating native title lands and waters by providing a legal entity through which to
conduct business with the native title holders.
As discussed in Chapter 2, the functions of the PBC established under the NTA include: receiving what are termed ‘future act notices’, as well as advising native title holders about, or providing them with a copy of, such notices; exercising procedural rights afforded to native title holders under the NTA, including commenting on, objecting to and negotiating about proposed future acts; preparing submissions to the National
Native Title Tribunal or other arbitral bodies about right to negotiate matters, including whether negotiations have occurred in good faith and objecting to the application of the expedited procedure; negotiating, implementing and monitoring native title agreements; considering compensation matters and bringing native title compensation applications in the Federal Court; and bringing revised or further native title determination applications cases in the Federal Court.
An example of a PBC, that is a charity and which was discussed in Case Study 2 in
Chapter 5 is the Tjurabalan Native Title Land Aboriginal Corporation (Tjurabalan). The
Rule Book of Tjurabalan states that its ‘primary objective is to promote the relief of poverty, sickness, helplessness and distress amongst the members of the corporation’.189
It then sets out 14 ‘aims’ including such things as ‘to be and perform the functions of a
189 Tjurabalan Rule Book, 3 [2]. 344 prescribed body corporate’, ‘preserve and maintain and enhance the traditional economic, social and cultural way of life of the Tjurabalan’, ‘hold and manage the traditional land and waters of the Tjurabalan people’ and so on. The final aim is ‘to do anything incidental to the furtherance of these objectives’. The ATO has accepted that this entity has a general charitable purpose by granting charitable status. It also appears to me that the ATO has accepted that Tjurabalan has purposes that fall within two heads of charity ‘relief of poverty’ and ‘other purposes beneficial to the community’.
Not all corporations established by Native Title Groups that have charitable status will be a PBC. For example, the Western Cape Trust discussed in Case Study 1 in Chapter 5 is not a party to the Indigenous Land Use Agreement (ILUA) established under the
NTA but was created by the ILUA.190 The Trust is a recognised charity and its aim is regional development. The trustees have agreed that the majority of the funds (60 per cent) are to be placed in long-term investments to provide a sustaining base for all beneficiaries and future generations.191 In order to obtain and keep its charitable status this entity must also have a public benefit within the first sense. It is potentially easier to establish as the Western Cape Trust benefits 11 Native Title Groups and also
Indigenous residents of the Western Cape York Peninsula. It is arguable that by improving the health and living standards of Indigenous Australians in this area the general population’s health and wellbeing is benefited. The publicly available documents state that this Trust is for the benefit of Traditional Owners and the
190 Western Cape Communities Trust
Having more than one corporate entity does however increase legal, accounting and administration costs.
The functions of corporations established by Traditional Owners under the ALRA are not prescribed in the legislation,193 so these corporations can design purposes or objectives that are consistent with the needs of their communities. For example,
Gundjeihmi, which was discussed as Case Study 3 in Chapter 5, has as its objectives the relief of poverty, destitution, misfortune and so on of any member of the three Mirarr clans that it represents.194 It is a charity on the basis of the charitable purpose relief of poverty. If I consider examples of some of the royalty associations discussed in Chapter
3 that are also charities, I find that the purposes of Rirratjingu Aboriginal Corporation are also expressed as relief of poverty.195 The Rule Book of Groote Eylandt and
Bickerton Island Enterprises Aboriginal Corporation (GEBIE) also phrases its objectives in terms of relief of poverty and then expands on this by stating that they also include:
192 Western Cape Communities Trust, ‘Investment Strategy 2011-2022’. 193 When referring to these corporations I am not including Land Trusts that are established under ALRA. Land Trusts are established under s 4 of ALRA to hold title to land, including Aboriginal land. Furthermore, s 6 of ALRA states that these Land Trusts are not entitled to accept any money that is due or owing to them. Any money is payable to the relevant Land Council. These Land Trusts are therefore outside the discussion of corporations established by Traditional Owners to receive mining payments. 194 Gundjeihmi Aboriginal Corporation, ‘The Rule Book’, ICN 2458, 2010, 3 [2]. 195 The Rule Book of Rirratjingu Aboriginal Corporation, ICN 305, 2008, 1[3]. 346 To work with Governments and other organisations, to foster community development
and undertake infrastructure and economic programs to address issues such as poverty,
sickness, destitution, helplessness, distress, suffering and misfortune among
Wannindilyakwa residents and communities on Groote Eylandt and Bickerton Island.196
The Rule Book for Gumatj Aboriginal Corporation has 12 corporate objectives. These include: relief of poverty as well as ‘to assist the Gumatj People to initiate and create commercially and culturally sustainable enterprise[s] in order to promote economic independence…’197 and ‘to access and utilise traditional knowledge systems to promote ownership and empowerment in business enterprises for the purpose of advancing the interests of the Gumatj People’.198 Therefore this charity has charitable purposes of relief of poverty and other purposes beneficial to the community.
It is not necessary for the purposes of this thesis to examine the Rule Book or Trust
Deed of every entity that has been established for the benefit of Native Title Groups or
Traditional Owners. It is however highly likely that many will have as their objective the relief of poverty. This is consistent with the statistics I discussed on Indigenous disadvantage in Australia in Chapter 5. It is also possible that some NFPs will want to attain charitable status under the fourth Pemsel head, other purposes beneficial to the community. This is particularly so where the NFP is a PBC as its objectives of protecting and managing native title interests are arguably broader than relief of poverty. Furthermore, some NFPs may prefer not to be limited to only providing financial aid, medical assistance and housing which is the case if they are solely for the relief of poverty.
196 GEBIE, Rule Book, ICN 3897, 2012, 3 [2]. 197 The Rule Book of Gumatj Aboriginal Corporation, 2008, 2, [3.1(a)(vii)]. 198 Ibid, [3.1(a)(viii)]. 347 6.4.4 Defining the Section of the Public Benefited by NFPs established for the
Benefit of Native Title Groups and Traditional Owners
The previous discussion shows that defining the section of the public or community benefited will be crucial to attaining charitable status where the charitable objectives of the entity are not solely relief of poverty. With regard to PBCs, the authors in
Indigenous Legal Issues: Commentary and Materials point out that successful Native
Title Groups have defined themselves in a variety of ways and that ‘sociologically, there may be legitimately different ways for groups of people to present themselves as “native title holders’.199 Guidelines produced by the National Native Title Tribunal suggest that a prima facie case could be established by reference to biological descent or the adherence to a particular set of traditional laws and customs.200 Other researchers state that Native Title Groups vary depending on many factors including the extent of the claim and the region in which it is made.201 These groups may be identified through a variety of features including common ancestors, same language group, religious responsibility and participation and membership of a particular clan.202 One of the ways native title is established is through proving descent from a common ancestor who was
199 Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009) 342. 200 Jocelyn Grace, ‘Claimant Group Descriptions: Beyond the Strictures of the Registration Test’ (1999) 2(2) Land, Rights, Laws: Issues of Native Title 1. 201 Peter Sutton, Native Title in Australia: An Ethnographic Perspective (Cambridge University Press, 2003); Peter Sutton, ‘Aboriginal Country Groups and the Community of Native Title Holders’ (National Native Title Tribunal Occasional Paper Series No 01, 2001); Jocelyn Grace, ‘Claimant Group Descriptions: Beyond the Strictures of the Registration Test’ (1999) 2(2) Land, Rights, Laws: Issues of Native Title 1. 202 Peter Sutton, ‘Aboriginal Country Groups and the Community of Native Title Holders’ (National Native Title Tribunal Occasional Paper Series No 01, 2001) 15. 348 connected with the relevant native title area.203 Other approaches include demonstrating birthplace, conception, adoption, religious responsibilities and participation and marriage to a person connected to the area.204 It is therefore possible that the Native
Title Group is defined through a blood relationship. An example is the native title determination in the area around Alice Springs, which defines the Native Title Group as:
Those Aboriginals who are descended (by birth or by adoption) from the original
Arrernte inhabitants of the Mparntwe, Antulye and Irlpme estates who are recognised
by the respective apmereke-artweye and kwertengerle of those estates under the
traditional laws acknowledged and the traditional customs observed by them as having
communal, group or individual rights and interests in relation to such estates.205
The same issue of the family connection of potential beneficiaries applies to Traditional
Owners under ALRA. This flows from s 3(1) ALRA, which defines ‘traditional
Aboriginal owners’ as a ‘local descent group of Aboriginals who…have common spiritual affiliations to a site on the land, being affiliations that place the group under a primary spiritual responsibility for that site and for the land.’
Where the charity’s purposes are exclusively for the relief of poverty, the case law shows that the requirement that it benefit a section of the public is not as strictly applied. Furthermore, the courts have stated in several cases already discussed that
‘Australian Aborigines are notoriously in this community a class which, generally
203 Peter Sutton, Native Title in Australia: An Ethnographic Perspective (Cambridge University Press, 2003) 56. 204 Ibid. 205 Hayes v Northern Territory of Australia [2000] FCA 671 [2]. The PBC is Lhere Artepe Aboriginal Corporation. 349 speaking, is in need of protection and assistance.’206 Accordingly, if a PBC or NFP is solely for the relief of poverty of the Native Title Group or the Traditional Owners, it will still maintain its charitable status even though the beneficiaries of the charitable purpose are defined through a family relationship. This view was stated obiter in
Mpweteyerre where the Court of Appeal of the Northern Territory said that it followed the reasoning in Dingle v Turner that ‘in the case of charities falling within this class
[relief of poverty], it is not necessary for there to be any public benefit.’207
The requirement that charitable purposes outside the relief of poverty head must also be of benefit to a section of the community is however confirmed in case law relating to
NFPs for the benefit of Indigenous Australians. A case in point is the Aboriginal
Hostels Case, introduced earlier in this Chapter. Justice Nader of the Supreme Court of the Northern Territory confirmed that in order to be a charity the Aboriginal Hostels
Limited had to benefit a section of the community that was not defined through family relationships.208
Case law indicates that describing the section of the public as Indigenous Australians or
Indigenous Australians living in a particular geographical region is acceptable as an appreciable section of the community or public. The statements of Nader J in the
Aboriginal Hostels Case were approved by Stein J in the Toomelah Co-operative Case.
Justice Stein stated that a charitable objective for a class of Indigenous persons living in a certain geographical area was sufficient to meet the public benefit test for charitable
206 Re Mathew [1951] VLR 226, 232; Aboriginal Hostels Ltd v Darwin City Council (1985) 75 FLR 197, 211. Approved in Tangentyere Council Inc v Commissioner of Taxes (NT) 90 ATC 4352, 4357 (Angel J). A similar statement was made in Maclean Shire Council v Nungera Co- operative Society Ltd (1994) 84 LGERA 139, 144 (Handley JA). 207 (1997) 139 FLR 236, 252 (Mildren J). 208 Aboriginal Hostels Ltd v Darwin City Council (1985) 75 FLR 197, 209 (Nader J). 350 purposes, but that if they had been defined by their family relationship it would not have been.209 In this case the beneficiaries of the Co-operative were described as ‘members of the Aboriginal community of Toomelah and Boggabilla’ and this was considered sufficient to fulfill the public benefit requirement.210 The Court in the subsequent
Mpweteyerre Case211 also agreed with this reasoning.
In Northern Land Council, the Commissioner conceded in argument that ‘Aboriginal people in the Northern Territory are an appreciable section of the community’.212
Justice Thomas specifically stated that Traditional Owners under the ALRA were a disadvantaged and appreciable section of the community and that, as the Land Council was established for their benefit, the Council was a PBI.213 The beneficiaries of the
Land Council’s purposes were disadvantaged Indigenous Australians defined by geographical location rather than a personal relationship and this was considered a sufficient section of the community.
In Flynn’s Case Martin CJ of the Supreme Court of the Northern Territory held that a trust for the benefit of all Aboriginal persons permanently resident on Groote Eylandt or
Bickerton Island and who were members of any 12 of the clans identified in the trust deed, was a sufficient section of the public to fulfill this requirement for charitable purposes.214 These clans comprised 88 family groups215 and approximately 1,200
209 [1996] 90 LGERA 48, 55. 210 Ibid 55. 211 (1997) 139 FLR 236, 253 (Mildren J). 212 [2002] NTCA 11 [26]. 213 Ibid [78]. 214 (1996) 130 FLR 218, 223. 215 Ibid 226. 351 people.216 Clans were defined as ‘…a grouping of people of common descent and who share spiritual affiliation to a particular area of land (including seas) and have responsibility for the land and site with special significance on it.’217 The beneficiaries in this case were not confined to one tribe or clan and could therefore be considered a section of the public.
It seems clear from the discussion of the above cases that if a trust for Indigenous
Australians falls within the charitable category ‘other purposes beneficial to the community’ then it must be of benefit to a section of the community. A category of beneficiaries as needy Indigenous Australians or Indigenous Australians resident in a certain area or a number of clans (eg Flynn’s Case where there were 12 clans) meets this requirement. However, a trust for the benefit of members of one or a few
Indigenous clans or groups limited by blood relations or descended from one ancestor does not.218 This requirement causes problems for smaller Land Councils, PBCs and
NFPs representing Traditional Owners.219
That this is a serious and pervasive issue is demonstrated in the 2011 Charity
Consultation. This process asked as one of the consultation questions, whether it is
216 Ibid 220. 217 Ibid 219. 218 This is the approach taken by the ATO, as confirmed in my discussions with Ms Julie Martin ATO representative at the Taxation Institute of Australia Seminar ‘Not for Profit and Charitable Organisations – Practical Issues: Practical Aspects of ATO Endorsement’ Sydney, 15 November 2006. I have also been advised by representatives of several PBCs that this is the advice they have been given by the ATO. 219 Australian Institute of Aboriginal and Torres Strait Islander Studies, Submission to Treasury, National Inquiry into the Definition of Charities and Related Organisations (2001) 5
Australia (MCA) and the National Native Title Council (NNTC) identifies this as an issue with using charitable structures:
However, the use of charitable trusts for community benefit payments from resource
agreements poses a number of taxation and structural difficulties, including:
A charitable trust seeking to meet the community benefit arm of the definition must be
applied for the benefit of the ‘public’ or an appreciable section of it. A trust restricted to
a native title group or groups (particularly those identified by kinship) would ordinarily
fail this test according to the ATO.221
There is support for overcoming the family limitation in the context of native title holders in several submissions to the 2011 Charity Consultation.222 Similar views were expressed to the 2000–01 consultation on the definition of charities223 and the 2010
‘Native Title, Indigenous Economic Development and Tax Consultation Paper’ (‘Native
Title and Tax Consultation’).224
220 Australian Government, Treasury, A Definition of Charity: Consultation Paper, October 2011, 11. 221 MCA and NNTC, Joint Submission to Treasury, A Definition of Charity: Consultation Paper, 14 December 2011, 4. 222 University of Melbourne Law School, Not-for-Profit Project, Submission to Treasury, A Definition of Charity: Consultation Paper, 7 December 2011, 6; Australian Council of Social Service, Submission to Treasury, A Definition of Charity: Consultation Paper, December 2011, 7; Pilchconnect, Submission to Treasury, A Definition of Charity: Consultation Paper, 9 December 2011, 6. 223 Australian Institute of Aboriginal and Torres Strait Islander Studies, Submission to Treasury, National Inquiry into the Definition of Charities and Related Organisations (2001) 5
Chapter 7.
6.5 Commercial Activity and Charities
In order to undertake charitable activities, charities need some form of income that can be used to perform services and also reinvested to obtain capital for future activities.225
Often this money is from government and philanthropic grants, although this is not always the case because it is not always easy to obtain these grants. The public may also give donations and other support, but in these situations charities need to engage in fund-raising activities and not all are in the position to do this effectively.226 PBCs and
NFPs representing Traditional Owners often wish to establish businesses to gain income, but there are also other reasons. This is demonstrated in Case Study 3 in
Chapter 5. The Gundjeihmi Aboriginal Corporation has carried on three small businesses for several years227 and in 2011 acquired a new business, the Two Rivers
Treaties and Negotiated Settlements Project, Submission to Treasury, Native Title, Indigenous Economic Development and Tax: Discussion Paper, November 2010, 14. 225 Sheppard Report, 227–31. 226 Ibid. 227 Gundjeihmi Aboriginal Corporation, Financial Report (2011) 20. These are Kakadu Tackle & Boat Hire Store, It’s Kakadu Store and Marrawuddi Gallery. 354 Newsagency and Post Office.228 These businesses were established not only to raise funds to carry on its charitable activities, but also to train unemployed Indigenous locals in skills that will assist them for future employment.229 As the 2010 Gundjeihmi Report states: ‘[i]n addition to their economic value, it is anticipated that the operation of these premises will be fully integrated with the youth development, training and employment programs run by the Corporation.’230 The newsagency and post office is an example of a business that also provides an important service (news and post) to a remote area and the art gallery enhances and promotes Indigenous culture. Businesses may therefore perform multiple roles for Indigenous communities. My research has found other examples of Indigenous companies establishing businesses that perform many community functions. Another royalty association, GEBIE, which was discussed in
Chapter 3 and which is also a charity, operates the Dugong Beach Resort and several construction and engineering businesses.231 These businesses are important aspects of the communities in which they operate. They bring in funds that are then used for charitable purposes; they provide services that are needed in remote communities, eg engineering and construction or roads and housing; they provide training opportunities for community members; and through tourism and cultural activities they may enhance and develop cultural strength.
The Lhere Artepe Aboriginal Corporation (Lhere Artepe) a charity discussed earlier in this Chapter (which is the PBC for an area of native title around Alice Springs) owns,
228 Gundjeihmi Aboriginal Corporation, Financial Report (2011) 26. 229 Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow A Socioeconomic Update (2010) 24. 230 Ibid. 231 GEBIE, Financial Report (2011). 355 through a subsidiary corporation, the largest shopping centre in Alice Springs and several other commercial outlets.232 Lhere Artepe is also a charity.233
An example of a Native Title Group that is pre determination but which engages in significant construction work as well as training of Indigenous people is the Myuma
Group of corporations. Myuma Pty Ltd is an NFP and runs a construction company that not only engages in construction activity that is of benefit to its remote community in north-west Queensland (near the Northern Territory border), but also trains Indigenous members in the skills necessary for employment in construction and mining.234 Myuma, together with the Queensland Government and private sector partners, constructed large segments of the Barkly Highway, which joins Mt Isa to Camooweal where the community is based.235 It also offers apprenticeships and training programs for
Indigenous people in the area.236
232 Australian Government, Department of Finance and Deregulation, Office of Evaluation and Audit (Indigenous Programs), ‘Performance Audit of Centrecorp Aboriginal Investment Corporation Pty Ltd, November 2008, 18; Lhere Artepe Aboriginal Corporation, Financial Report (2011). 233 Lhere Artepe Aboriginal Corporation, Financial Report (2011). 234 Paul Memmott, ‘The Myuma Group, Georgina River Basin: Aboriginal Enterprise, Training and Cultural Heritage’ (2007) University of Queensland; Paul Memmott, ‘Demand-Responsive Services and Culturally Sustainable Enterprise in Remote Aboriginal Settings: A Case Study of the Myuma Group’ (Paper presented at the Indigenous Participation in Australian Economies Conference, Australian National University, Canberra, 9–10 November 2009). 235 Paul Memmott, ‘The Myuma Group, Georgina River Basin: Aboriginal Enterprise, Training and Cultural Heritage’ (2007) University of Queensland; Paul Memmott, ‘Demand-Responsive Services and Culturally Sustainable Enterprise in Remote Aboriginal Settings: A Case Study of the Myuma Group’ (Paper presented at the Indigenous Participation in Australian Economies Conference, Australian National University, Canberra, 9–10 November 2009). 236 Julie Collins, Minister for Indigenous Employment and Economic Development and Jan McLucas, Senator for Queensland, ‘68 Indigenous Jobs in Mining and Construction at Myuma and Dugalunji’ (Joint Media Release, 3 January 2012)
Planning237 the management of a public place for education and recreation and for the promotion of industry, commerce and art was held to be charitable. This was because there was no intention to further the interests of individuals engaged in trade, industry or commerce. However in Commissioners of Inland Revenue v Oldham Training and
Enterprise Council238 the Court held that the purpose of promoting the interests of individuals engaged in trade or commerce to make them more profitable so that employment prospects would improve in their area was not a charitable purpose. This purpose conferred private benefits on the business owners and the benefit to the community was too remote.
The fact that charities are exempt from many taxes has also led to the criticism that when they engage in commercial activities they gain an unfair advantage over for-profit competitors.239 This issue has been raised in many ways and in many forums in
Australia. One of the terms of reference of the 2010 Productivity Commission’s inquiry into the NFP sector was to ‘examine the extent to which tax exemptions accessed by the commercial operations of not-for-profit organisations may affect the competitive neutrality of the market.’240 The Sheppard Report recommended that commercial purposes should not deny charitable status where those purposes furthered or aided the charitable purposes of the organisation or where they were ancillary to the dominant
237 [1928] 1 KB 611. 238 (1996) 69 TC 231. 239 Sheppard Report, 224–6. Also argued in many submissions referred to in the Sheppard Report, ch 27; Productivity Commission Research Report, Contribution of the Not-for-Profit Sector (January 2010); Industry Commission, Charitable Organisations in Australia (1995). 240 Productivity Commission Research Report, Contribution of the Not-for-Profit Sector (January 2010) v. 357 charitable purpose.241 The Report commented that some charities may operate businesses that also have a public benefit, such as training and employment for homeless youths. On the other hand, other charities may operate commercial activities that have no connection with their charitable purposes and this may cause the public concern. These businesses may also be of concern to their competitors. However, the
Report concluded that ‘…prohibiting charities from engaging in commercial enterprises would be an unnecessarily heavy-handed way to address these concerns.’242
An earlier Government discussion of this area considered that the issue of an income tax exemption did not affect the output and pricing decisions to maximise a surplus or profit. It concluded that:
The income tax exemption does not compromise competitive neutrality between
organisations. All organisations which, regardless of their taxation status, aim to
maximize their surplus (profit) are unaffected in their business decision by their tax or
tax exempt status.243
This finding was supported by the 2010 Productivity Commission Report.244 The reasoning behind this perspective is that if the charity operates on commercial lines and maximises its profits through charging at commercial or market rates then competitive neutrality, at least from an economic viewpoint, is maintained. The price charged by the charity will be the same as its for-profit competitor and they will therefore be engaging in the market on a level playing field.
241 Recommendation 18, 17. 242 Sheppard Report 229. 243 Industry Commission, Charitable Organisations in Australia (1995), Appendix K, box 8.3. 244 Productivity Commission Research Report, Contribution of the Not-for-Profit Sector (January 2010) ch 8. 358 The common law of Australia confirmed that a charity that engaged in a business could still maintain its charitable status in the 2008 High Court decision of Word
Investments.245 The company, Word Investments Ltd, was established in 1975 as a company limited by guarantee by members of the Wycliffe Bible Translators Australia.
Wycliffe engaged in Christian evangelical purposes and was recognised by the ATO as a charity for the advancement of religion. The memorandum of association of Word
Investments allowed it to carry on business activities in connection with its other purposes (which were all clearly charitable as being for the advancement of religion).
Any funds from these activities were to go directly to Wycliffe and other entities to support the evangelical work and therefore the religious charitable purpose. Word engaged in the business activity of running a funeral business along commercial lines and distributed all surpluses towards its charitable purposes.
The crucial issue was whether an entity could still be considered charitable when it had the capacity to carry on a business, the funds from which would go towards its purposes, which were all charitable. The funeral business was conducted along commercial lines and was open to the general public. The majority in the High Court emphasised that Word’s powers to carry on business activities were a means to Word achieving its religious charitable purposes and therefore did not preclude charitable status.246 As the Court stated:
Word endeavoured to make a profit, but only in aid of its charitable purposes. To point
to the goal of profit and isolate it as the relevant purpose is to create a false dichotomy
245 [2008] HCA 55. 246 Ibid [24]. 359 between characterisation of an institution as commercial and characterisation of it as
charitable.247
As a result of the decision, the ATO issued a Decision Impact Statement that confined the decision to its facts.248 Then in the 2011 Federal Budget the Government announced that there would be reforms to the charities and NFP sector to ensure that any income tax exemption did not apply to unrelated business income.249 The Government stated that it would ensure that the income tax exemption was targeted only at those activities that directly further an NFP’s altruistic purposes. Under this measure, the NFP income tax concessions will only apply to profits generated by unrelated commercial activities that are directed back to a NFP entity to carry out its altruistic work. This means NFP entities will pay income tax on profits from their unrelated commercial activities that are not directed back to their altruistic purpose (that is, the earnings they retain in their commercial undertaking).
Commercial activities that further a NFP entity’s altruistic purposes, as well as small- scale and low-risk unrelated commercial activities, will not be affected by the reforms.
The Government has also announced that it will extend the start date for these new arrangements from 1 July 2011 to 1 July 2012, and that they will initially affect only new unrelated commercial activities that commenced after 10 May 2011.250 Draft
247 Ibid [24]. 248 Australian Taxation Office, Decision Impact Statement, Commissioner of Taxation v Word Investments Ltd, 26 May 2009. 249 Australian Government, Budget 2011–12, Not-for-profit sector reforms
This situation places charities for Native Title Groups and Traditional Owners in a difficult situation where they wish to maximise the outcomes (financial, social and cultural as highlighted above) by using mining payments to establish and carry on businesses. They may be placed in the situation of paying income tax on profits from business activities that they carry on such as local construction businesses, shops and tourist facilities whereas these ventures may, in many cases be a significant aspect of the overall charitable purpose of improving the economic independence of a remote
Indigenous community.
6.6 Indigenous Community Development as a Charitable Purpose
As stated earlier in this Chapter, the fact that an objective of an NFP is for the benefit of the community does not make it charitable. The common law has used the Preamble to the Statute of Elizabeth to build on the areas that are charitable through analogy to arrive at those within the fourth head. Subsequently, the courts have further built on the areas that by initial analogy have been included.252 At times this analogy is somewhat strained, for example in the Canadian case that held that the provision of free internet access was analogous to the provision of roads and highways and was therefore
Court held in the Victorian Women Lawyers Case that removing barriers and increasing opportunities for participation by and advancement of women in the legal profession in
Victoria was charitable.
The term community development is often used in respect of Indigenous communities; however, its actual meaning will vary from community to community. By itself it is not a charitable purpose and therefore it must fall within the fourth charitable heading. It can include a range of purposes and activities, some of which are charitable already and some of which are not. Kenny defines it as:
Processes, tasks, practices and visions for empowering communities to take collective
responsibility for their own development. The aim of community development is to
enable communities to have effective control of their own destinies. Effective control
requires the development of ongoing structures and processes by which communities
253 Vancouver Regional FreeNet Association v Minister of National Revenue [1996] 3 FC 880. 254 Scottish Burial Reform and Cremation Society Ltd v Glasgow City Corporation [1968] AC 138, 146-7 (Lord Wilberforce). 255 Re Foveaux [1895] 2 Ch 501. 256 Bourne v Keane [1919] AC 815. 362 can identify their own issues, needs and problems within their own terms of
reference.257
Australians for Native Title and Reconciliation (ANTaR) considers that successful community development in remote communities in the Northern Territory includes:
Tackling petrol sniffing, delivering health care, ensuring access to healthy foods,
building self-reliance in times of financial crisis, supporting people to budget and eat
well and delivering banking services to remote areas. Together, they offer an alternative
response to the challenges facing Aboriginal communities based on community
participation and leadership.258
As discussed in Chapters 3 and 5, the Central Land Council has established a community development unit.259 This unit engages in objectives for the relief of poverty and disadvantage in the community as well as improvement in the health and education of its members, all of which are charitable. However, it also uses funds for infrastructure needs, recreational pursuits and sporting facilities260 that may or may not be charitable purposes depending on the circumstances. Unless otherwise attached to recognised charitable objects, providing entertainment and recreational facilities and the encouragement of sport are not charitable,261 although they are important aspects of
257 S Kenny, Developing Communities for the Future (Thompson, 3rd ed, 2006) 10. 258 ANTaR, ‘A Better Way: Success Stories in Aboriginal Community Control in the Northern Territory’
Indigenous people can interact on a level playing field and in a positive way that enhances community development.263
In Case Study 3, discussed in Chapter 5 and earlier in this Chapter, I highlighted how
Gundjeihmi engages in community development work through the operation of small businesses and training of Indigenous people in workplace situations. By itself this may not be seen as a charitable purpose – training staff is very much a commercial activity – but when viewed in the context of also assisting disadvantaged and at-risk youth or those who have been out of the workforce for a substantial length of time to re-enter the workforce, it is a community purpose that arguably becomes a charitable purpose. It is certainly a purpose that will benefit the community in the long term.
Other community development objectives that foster cultural education and cohesion may also be charitable purposes, as either for the advancement of education or for other purposes beneficial to the community on the basis that maintenance of culture is part of good health.264
262 Many Indigenous festivals are a significant aspect of the life of the community and an important contributor to health and wellbeing; see Peter Phipps and Lisa Slater, Indigenous Cultural Festivals: Evaluating Impact on Community Health and Wellbeing, Report to the Telstra Foundation 2007, 10. In the area of sport, many different sports have been adopted enthusiastically in Indigenous remote communities, eg AFL is an important part of cultural life on the Tiwi Islands; see Amos Aikman, ‘For Tiwi’s, Life’s Goals Come from Sherrin’, The Australian, 19 March 2012; AFL is regularly played in many remote communities; see ABC Radio AM, ‘Indigenous Football Team to Play at the MCG’, AM Program, 2009 (Tony Eastley)
Ltd in its submission to both Treasury and the Attorney-General Department states that:
The charitable purposes test is not well understood and it is difficult to readily obtain
guidance about the test. The uncertainty as to what activities do validly fall within the
definition of charitable leads many groups to avoid certain activities, such as
community development activities, which would have meaningful community
benefits.265
This view is supported by several other submissions to the Native Title and Tax
Consultation. The joint submission of the University of Melbourne and AIATSIS highlights the problem of charitable purpose not extending to Indigenous community development and commercial purposes.266 So do other submissions such as that of the
MCA and the NNTC,267 the Law Council of Australia268 and Yamatji Marlpa
Aboriginal Corporation.269
265 Submission to Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper, 30 November 2010, 4; Submission to Attorney-General Department, Leading Practice Agreements: Maximising Outcomes from Native Title Benefits, 30 November 2010, 4. 266 Agreements, Treaties and Negotiated Settlements Project, Melbourne University and AIATSIS, Joint Submission to Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper, 2010, 13. 267 MCA and NNTC, Joint Submission to Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper, 2010, 30 November 2010. 268 Law Council of Australia, Submission to Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper, 30 November 2010. 269 Yamatji Marlpa Aboriginal Corporation, Submission to Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper, November 2010. 365 There have been several calls for clarity and reform in this area. In a 2007 Discussion
Paper, Adam Levin270 proposed a new form of income tax exempt entity, an Aboriginal
Community Foundation, which would be:
A Trust established by an Aboriginal Community…for the purpose of providing money,
property or benefits for the promotion, development, advancement and maintenance of
that Aboriginal Community, their Traditional Owners, their land and people, now and in
the future.271
The MCA, together with the NNTC, has proposed to the Australian Government that a new entity, an Indigenous Economic and Community Development Corporation, be legislated that has income tax exempt status and allows for an expanded area of objectives that include community development.272 This entity will be discussed in
Chapter 7.
6.7 Accumulation of Funds
The ATO in a 2011 Taxation Ruling indicates that an organisation can be charitable even where the organisation is accumulating profits, provided that the profits are being accumulated in order to increase the funds available to the organisation and for the
270 Taxation and Commercial Lawyer, Jackson, McDonald Lawyers, Perth, and also a member of the MCA, Working Party on Indigenous Economic Development. 271 Adam Levin, ‘Improvements to the Tax and Legal Environment for Aboriginal Community Organisations and Trusts’ (Paper presented at the Agreements, Treaties and Negotiated Settlements Workshop, 28 August 2007, AIATSIS and at the Indigenous Communities, Economic Development and Tax Policy Symposium, University of Melbourne, 26–27 February 2008). 272 MCA and NNTC, Joint Submission to Treasury, A Definition of Charity: Consultation Paper, 14 December 2011, 5–8. The author of this thesis is a member of the drafting working party. 366 organisation to carry out its charitable purpose.273 The ATO, however, restricts this view with the following statement: ‘[a]n institution that accumulates all or most of its profits for a number of years may find it difficult to sustain that it is truly established for a charitable purpose.’274 Many organisations and commentators consider that the ATO has restricted the ability to accumulate funds of charities to no more than 10 years.275
In 2012 the High Court handed down its decision on the alleged maladministration of trust funds in Commissioner of Taxation v Bargwanna.276 The Court accepted the
ATO’s submission that funds of a charity must be used for the charitable purposes of the entity and that accumulation can only occur if this is in order to further those purposes.277 In coming to this conclusion the High Court specifically rejected the taxpayers’ argument that it was acceptable that the funds were ‘substantially’ used for the charitable purposes.278 Some commentators consider that this decision supports the
ATO view that it has very broad powers over a charity’s ability to accumulate.279
This is a significant limitation for Indigenous charities in receipt of mining payments because in many cases, as can be seen from the three case studies in Chapter 5, the
273 Australian Taxation Office, Income Tax and Fringe Benefits Tax: Charities, TR 2011/4, 12 October 2011, [39]. 274 Ibid [40]. 275 See MCA and NNTC, Joint Submission to Treasury, A Definition of Charity: Consultation Paper, 14 December 2011, 4–8; Adam Levin, ‘Improvements to the Tax and Legal Environment for Aboriginal Community Organisations and Trusts’ (Paper presented at the Agreements, Treaties and Negotiated Settlements Workshop, 28 August 2007, AIATSIS and at the Indigenous Communities, Economic Development and Tax Policy Symposium, University of Melbourne, 26–27 February 2008). 276 [2012] HCA 11. 277 Ibid [31], [44]. 278 Ibid [44]. 279 Matthew Turnour and Myles McGregor-Lowndes, ‘Taxing Charities: Reform Without Reason?’ (2012) Taxation in Australia 74, 75. 367 mines will last for over 10 years and the charities wish to ensure that some of the mining funds provide intergenerational benefits. As the MCA and NNTC state:
Disappointingly, the ATO may seek to limit tax concession charity status to a relatively
short accumulation period (eg 10 years), requiring a subsequent review by the ATO to
extend the Tax Concession Charities (TCC) status of the trust. This hinders the ability
of Traditional Owners to provide for future generations. This is particularly important in
the native title context where agreements affect intergenerational rights. It is also
significant where agreements are in respect of mining and the life of the mine is
commonly 20–30 years. In such cases it is important for the Traditional Owners to
accumulate funds for a significant period of the mine’s life so that the funds can be
appropriately managed, taking into account the current needs and intergenerational
requirements.280
6.8 Conclusion
In this Chapter, I have demonstrated that there are important benefits to the use of charities by Native Title Groups and Traditional Owners; however there are also significant legal impediments when using this structure to receive mining payments. In order to establish charitable status, the objects of the organisation must fall within a charitable purpose as established by the common law. As well, the charity must have a charitable benefit and must benefit the public or a sufficient section of the public.
The benefit concept for charities is a two-step test, although these concepts overlap and the case law does not always clearly differentiate them. Firstly, the benefit must be an actual benefit to the public; secondly, the charitable objectives of the organisation must
280 MCA and NNTC, Joint Submission to Treasury, A Definition of Charity: Consultation Paper, 14 December 2011, 4. 368 benefit the community or a sufficient section of it. The case law demonstrates that organisations that are established to relieve the poverty of Indigenous Australians are clearly charitable within both aspects of the benefit criterion. It is also arguable that
NFPs established to protect and manage native title interests and Aboriginal land under
ALRA may also fall within the charitable benefit category in the first sense. Turning to the second step in the process of determining charitable status, the case law is not clear on whether the protection and management of native title interests and Aboriginal land is a separate charitable purpose within the fourth category ‘other purposes beneficial to the community’.
If the NFP’s sole purpose is the relief of poverty, then its objects can be limited to members of only one clan or beneficiaries who are related by blood ties and this would not disqualify it from being a charity. The entity would, however, need to be careful to establish that the gift was not intended to be for private individuals but was actually for the relief of poverty amongst a class of persons, although very narrowly defined.281 The type of distributions it could make would also be restricted. If, on the other hand, the entity’s purposes fall under the fourth category, it must also fulfill the requirement that it benefit the public or a sufficient section of the public. A description of beneficiaries as those Indigenous Australians living in a certain area seems to suffice, but not a description that limits them by means of strict family ties. This creates difficulties in situations where land rights belong to a group of Indigenous Australians by virtue of their membership of a clan that is defined by blood ties or descent from common ancestors as, for example, may be required by the application of the NTA and ALRA.
281 Gino Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) [8.25]. 369 I have also demonstrated that there are three other major limitations to the use of charities by Indigenous Australians. The first is the restriction on commercial activities undertaken by charities. Although the High Court defined the scope of this activity in
Word Investments very broadly, the Australian Treasury subsequently announced that it would be reconsidering the breadth of charities’ ability to engage in business activities.282 The second limitation, which is connected to this, is that there is uncertainty about whether charitable purposes include community development purposes. Community development can provide meaningful community benefits for
Indigenous groups. Many organisations representing Indigenous Australians are seeking new approaches to community development.283 Some organisations suggest that establishing Indigenous controlled charities and philanthropic bodies is an important aspect of this new approach.284 In view of this, it is essential that charitable purposes extend to community development in Indigenous communities and that NFPs that have been established for the purpose of community development know clearly whether or not they fall within the legal concept of ‘charitable’.
282 Australian Government, ‘Treasury’s Not-for-Profit Reform Newsletter’, Issue 1, 14 October 2011, 2; Australian Government, Treasury, A Definition of Charity: Consultation Paper, October 2011. 283 See Anthony Smith, ‘Indigenous Development-Without Community, Without Commerce’ Australian Review of Public Affairs, 4 September 2006
Indigenous cultures, it has been argued that activities that build social capital and develop community cohesion are an appropriate area for the benefit of charitable concessions.287 These might include community development, support for Indigenous small businesses and encouragement of Indigenous sport. In its submission to the
2000-01 Inquiry into the Definition of Charities the Lumbu Indigenous Community
Foundation argued:
The scale and nature of challenges in Indigenous communities requires proactive,
creative initiatives that build social capital and leverage financial resources.
Unfortunately though under the current definitions ‘charity’ is confined to consequences
after the fact. Prevention is better than cure – yet the medicine cabinet remains locked
under a legal definition that belongs in another century and another world.288
285 See the Lumbu Indigenous Community Foundation Submission to the National Inquiry into the Definition of Charities and Related Organisations (2001) 7
The final limitation is that charities are not allowed to keep accumulating ‘profits’ indefinitely and must distribute income within certain, although unspecified, time periods.290 Where the income is from mining (which often lasts in excess of 10 years) and relates to Indigenous communities, a significant goal is the setting aside of funds for intergenerational benefits. A second goal is investment of those funds to increase capital and be able to provide community benefits in a more meaningful way. The Tjurabalan and Comalco Case Studies in Chapter 5 are examples of investment strategies where money is invested for the future of the current Native Title Group and their descendants.
The discussion in this Chapter and of the public documents referred to, such as the submission from the MCA and NNTC to the 2011 Charity Consultation, demonstrate that the limitation on accumulation is a significant barrier to the effective use of charitable structures by Indigenous groups.
The conclusions of this Chapter lead to the analysis in Chapter 7 of five approaches to overcoming the barriers and limitations posed by the current law relating to charities.
Each approach has been suggested by the Australian Government, organisations
289 Woodward Report [769]; Jenny Macklin, Minister for Families, Housing, Community Services and Indigenous Affairs, ‘Beyond Mabo: Native Title and Closing the Gap’ (Paper presented at the 2008 Mabo Lecture, James Cook University, 21 May 2008)
373 Chapter 7: Five Legal responses to the Barriers identified by the use of
Charitable Entities: Their Respective Strengths, Weaknesses and other
Implications
7.1 Introduction
As demonstrated in Chapters 3 and 5 of this thesis it is common practice for Native
Title Groups1 under the Native Title Act 1993 (Cth) (NTA) and Traditional Owners2 under the Aboriginal Land Rights (Northern Territory) Act 1976 (Cth) (ALRA) to establish charities as an income tax exempt structure to receive moneys payable under mining agreements. As described in Chapter 5 one of the rationales for this is the need to obtain certainty about the income tax situation when resource agreements are entered into and optimise the amount of financial benefits received under these agreements.
It was demonstrated in Chapter 2 and 5 that there is a large degree of complexity and uncertainty surrounding the application of income tax principles to mining payments to
Native Title Groups. Not only is the current situation of uncertainty a motivating factor in the establishment of charities by these Groups but it was recognised by the Native
Title Working Party established by the Commonwealth Attorney-General’s Department that the multiple tax burdens that arise through the life of native title agreements are placing a high compliance burden on Indigenous communities.3 In fact it has been reported that tax obligations and the complexity of the application of income tax in this
1 This is the term used throughout this Chapter to refer to native title claimants under the NTA both before and after a determination of native title. 2 This term is used in this Chapter when referring to traditional Aboriginal owners as defined in s 3 ALRA. 3 Australia, Attorney-General’s Department, Optimising Benefits from Native Title Agreements: Discussion Paper (2008) 15. 374 area is placing onerous burdens on companies established under the NTA to manage native title.4 It is further suggested that there are serious risks for industry if prescribed bodies corporate (PBCs) established under the NTA are not appropriately resourced, including increased costs and substantial delays in industry agreement-making.5 The complex and uncertain tax situation adds to the drain on resources from several angles including the high cost of tax advice as well as the failure to enter into agreements due to the high tax burden.6 I argue that these problems are exacerbated by the lack of knowledge about what this burden might be and apprehension regarding the risks that follow from this lack of knowledge and uncertainty. The uncertainty may also be leading Native Title Groups and mining companies to structure agreements in what they perceive to be the most tax effective manner, eg lump sums or non-monetary benefits, rather than agreeing to terms that they actually prefer.
Two other important reasons for the use of charities are the maximisation of investment income through the income tax exemption and the desire to use the payments and any further income derived for community and intergenerational benefit.
The discussion in Chapter 6 has highlighted the legal difficulties that face Indigenous
Australians7 when they attempt to establish charitable structures. In light of this discussion and the discussion in Chapters 2 to 5 this Chapter evaluates five legal
4 Lisa Strelein and Tran Tran, ‘Taxation, Trusts and the Distribution of Benefits under Native Title Agreements’ (Native Title Research Report No 1, Australian Institute of Aboriginal and Torres Strait Islander Studies (AIATSIS), 2007) [1.5]. 5 Toni Bauman and Tran Tran, ‘First National Prescribed Bodies Corporate Meeting: Issues and Outcomes’ (Native Title Research Report No 3, AIATSIS, 2007) 39. 6 Lisa Strelein and Tran Tran, ‘Taxation, Trusts and the Distribution of Benefits under Native Title Agreements’ (Native Title Research Report 1, AIATSIS, 2007) [1.5]. 7 This term is used throughout this Chapter to refer to Native Title Groups and Traditional Owners and other Indigenous Australians generally. 375 responses that may assist in dealing with the uncertain taxation situation and the limitations faced by Native Title Groups and Traditional Owners in establishing and using charitable entities.
In my discussion of each proposal I have considered the following criteria as a framework against which to evaluate them. These criteria have been identified from my discussions in Chapters 5 and 6 as being important to Native Title Groups and
Traditional Owners that receive mining payments. Not every criterion is however necessarily relevant to each response.
1. Income tax exemption of all mining payments and also of the investment income generated;
2. The need for certainty in the taxation of mining payments, from the taxpayer, mining company and revenue perspective;
3. The balance between the competing ideals of public benefit and customary law support for family and kinship;
4. Whether the entity can have commercial and community development objectives and activities;
5. The ability of an entity to accumulate income so that a capital fund can be established for the benefit of future generations; and
6. The ability of the entity to have perpetual succession.
The following is a summary of each proposal.
376 Proposal One: That the Income Tax Assessment 1997 (Cth) (ITAA97) is amended to exempt from income tax mining payments to Native Title Groups and Traditional
Owners.
Proposal Two: Legislative amendment, so that entities that are charities for the benefit of persons defined through their family relationships under the NTA and ALRA are still able to satisfy the public benefit requirement.
Proposal Three: That the ITAA97 is amended to introduce a new income tax exempt entity called an Indigenous Community/Economic Development Corporation (IED
Corporation). This entity would be able to act for Native Title Groups and Traditional
Owners, engage in commercial and community development activities for Indigenous
Australians and also accumulate income for the benefit of future generations.
Proposal Four: That Indigenous Australians make use of the existing income tax exempt entity the ‘community service provider’ for specific community development activities to benefit their communities.
Proposal Five: That a mining withholding tax (MWT) be introduced in respect of mining payments arising under the NTA along the lines of the current MWT that applies in respect of ALRA mining payments and which was discussed in Chapters 3 and 4 of this thesis.
The following sections discuss each of these proposals in detail.
377 7.2 Proposal One: Amendment to the ITAA97 to Exempt from Income Tax Native
Title Payments and Mining Payments payable under the ALRA
My first proposal is that the ITAA97 is amended to ensure that mining payments arising under the provisions of the NTA including any Indigenous Land Use Agreements are exempt from income tax. I also propose that mining payments as defined in Division
11C of the Income Tax Assessment Act 1936 (Cth) (ITAA36) are exempted from income tax. This means that the MWT should be abolished.
I have demonstrated in Chapters 2, 3 and 5 of this thesis that many groups of Indigenous
Australians establish a charitable structure in order to gain the income tax exemption and also to ensure certainty from an income tax perspective when they enter into resource agreements. I have also demonstrated that mining companies often require the establishment of a charity in order to maximise the benefit of the mining payments to the community and provide them with certainty from a taxation perspective. An exemption from income tax would mean that Indigenous Australians would establish charities for reasons relating to the purposes of their endeavours rather than because of the tax regime.
Furthermore, in Chapter 2 I demonstrated that there are some payments pursuant to the
NTA such as lump sums for extinguishment of native title that are, on an application of income tax law principles, unlikely to be subject to income tax (including capital gains tax (CGT)). There are other types of payments where the liability to income tax is unclear, such as annual payments over a short period and where under the agreement the native title is not extinguished. It is certainly arguable, as shown in Chapter 2, that in many of these situations the payments would not be liable to income tax. Rather than
378 leave the legal uncertainty and complexity concerning this issue in place, it is desirable to confirm the absence of income tax liability by legislative action.
It is also clear that there are persuasive arguments for exemption from income tax of these payments from a public policy perspective. These policy reasons were discussed in Chapter 2 and are summarised as the disadvantages suffered by Indigenous
Australians both historically and currently as a result of the loss of and diminution of their entitlement to native title, the continuing damage to their land and culture through the proximity of mining and the need to optimise any benefits from mining agreements so that there is more money for more community and economic development.
On 6 June 2012, the Attorney-General announced that the Government will amend the tax legislation to make it clear that native title payments and other non-cash benefits are not subject to income tax. Specifically, the tax reforms will provide that a payment or non-cash benefit provided under the NTA or under an agreement made under an
Australian law to the extent that that payment or benefit relates to native title, will not be subject to income tax.8
This approach is a significant move forward and is consistent with the income tax exemption I have argued for.9 Draft legislation was released for comment,10 an amended Bill has been introduced into the House of Representatives and is now subject
8 Attorney-General’s Department, ‘Native Title Reform, Amendments to Tax Legislation’ http://www.ag.gov.au/Indigenouslawandnativetitle/NativeTitle/Pages/Nativetitlereform.aspx#act 9 See Fiona Martin, ‘Native Title Payments and their Tax Consequences: Is the Federal Government’s Recommendation of a Withholding Tax the Best Approach?’ (2010) 33(3) University of New South Wales Law Journal 685. 10 Treasury, ‘Exposure Draft, Tax Laws Amendment Bill 2012: Tax Treatment of Native Title Benefits’. 379 to inquiry by the House of Representatives, Standing Committee on Economics.11 It sets out a new cl 59-50 of the ITAA97 which excludes from assessable income and exempt income ‘native title benefits’ provided to an ‘Indigenous person’ or ‘Indigenous holding entity’.
Clause 59-50 (5) states that 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.
Clause 59-50(5)(b) is clear in its application to compensation under Division 5, Part 2 of the NTA. However, the first part of the definition which is contained in cl 59-50(5)(a) may be less straightforward and subject to legal constraints. As discussed in Chapter 2, native title agreements can arise in different ways. Many will be made under the NTA eg Indigenous Land Use Agreements (ILUAs), however some may not be. Subclause
(a) only applies to payments in respect of agreements or ancillary agreements under
11 On 29 November 2012 the Tax Laws Amendment (2012 Measures No 6) Bill 2012 was referred to the House of Representatives Standing Committee on Economics for inquiry and report. 380 legislation. This potentially means that only agreements that are legislatively provided for such as ILUAs will be covered. In order to fall within the exempting provision
Native Title Groups may be de facto required to enter into agreements such as ILUAs.
This may not always be in their best interests or what they require, and brings what otherwise might have been a private commercial arrangement within the auspices of government control. For example, the Tjurabalan Agreement which is the subject of the case study in Chapter 5 is not pursuant to an ILUA. Furthermore, the phrase ‘to the extent that the payment 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’ possibly requires some sort of link between the payment, the act and its impact on native title. This potentially restricts the types of payments that are captured by the provision and may not be a true reflection of the breadth of payments that are made in the native title domain and which have been discussed in Chapters 2 and 5. A final problem is that there may be situations where the native title was extinguished many years ago; an ILUA has now been entered into under the NTA with a payment as part of the agreement. The payment may not ‘relate’ to native title as this has already been extinguished. These agreements are still with
Indigenous groups and often arise from the fact that there may have been or may still be native title but the parties do not wish to go through the protracted process of proving this.
An important continuing issue is that the proposed provisions will not extend to the investment income that is generated by mining payments. As demonstrated in Chapters
2 and 5 many Native Title Groups are effectively investing mining payments and establishing businesses to provide for future generations and assist their community.
The provisions will not exempt the income generated from these activities and therefore 381 will not be useful in optimising the benefits from resource agreements particularly for future generations.
Furthermore, the current political situation, with a lack of a majority in both Houses of
Parliament for either major political party and thus uncertainty about the Government’s capacity to get its proposed legislation passed or at least enacted in an unamended form makes the outcome of this proposal uncertain.
Mining payments as defined in Division 11C of the ITAA36 should also be income tax exempt. As I have argued in Chapters 3 and 4, mining payments that are referred to as areas affected moneys are not income but in reality compensation for damage to a capital asset that is pre CGT or alternatively statutory amounts that are not royalties but royalty equivalents. Beneficial payments are for government grants and do not fall within the concept of income as they do not exhibit any income characteristics.
Distributions to Land Councils to cover their annual operating expenditures are not income but payments to cover the Council’s running costs.
The definitional issue that is problematic in the native title area does not apply in respect of mining payments under ALRA. The current MWT applies to mining payments that are clearly defined in Division 11C and it would be relatively simple for the legislative drafters to exempt these payments. However the lack of income tax exemption for the generation of future income from mining payments is a problem, although this can be addressed by the reforms suggested as proposals two and three.
382 7.3 Proposal Two: Amendment to the ITAA97 to allow a ‘Family Connection’ for
Indigenous Charities established to receive Mining Payments
As identified in Chapter 6, a major issue for Native Title Groups and Traditional
Owners that wish to use a charitable structure is the interpretation of the public benefit requirement.12 This is a legal barrier to the establishment of charities for the benefit of
Native Title Groups and Traditional Owners who are defined in accordance with their traditional cultures and practices which involve family relationships. New Zealand followed the common law on this issue until it reviewed the taxation of Maori organisations in 2001 and the law relating to charities.
The Australian Government announced in 2011 that it would consult the general community regarding a statutory definition of charity.13 This came at the same time as the Government introduced a new legislative body, the Australian Charity and Not-for-
Profit Commission (ACNC) to regulate the charity and Not-for-Profit (NFP) sector.14
12 Australian decisions specifically relating to Indigenous Australians include Alice Springs Town Council v Mpweteyerre Aboriginal Corporation (1997) 139 FLR 236, 251-252 (Mildren J); Aboriginal Hostels Limited v Darwin City Council (1985) 75 FLR 197; see Fiona Martin, ‘Prescribed Bodies Corporate under the Native Title Act 1993 (Cth); Can they be Exempt from Income Tax as Charitable Trusts?’ (2007) 30(3) University of New South Wales Law Journal 713-730; Australian Taxation Office, Income Tax and Fringe Benefits Tax: Public Benevolent Institutions, TR 2003/5, 4 June 2003. This ruling provides that family or contractual connections amongst beneficiaries mean that the entity fails the public benefit test. It also states that ‘The number of people in the group may be relevant but is not determinative’ [81]. 13 Bill Shorten, Assistant Treasurer and Tanya Plibersek, Minister for Human Services and Social Inclusion, ‘The Definition of Charity Finally Enters the 21st Century’ (Joint Media Release, 28 October 2011. 14 Australian Government, Australian Charities and Not-for-Profits Commission: Implementation Design: Discussion Paper, 9 December 2011. The ACNC commenced on 3 December 2012 and all charities will eventually be required to register with it. Once registered, a charity will be accepted by the Australian Taxation Office for the purposes of income tax exemption subject to its meeting specific tax related requirements such as that it mainly operate in Australia. 383 The consultation regarding a statutory definition of charity has progressed to the
Government stating that it will enact a statutory definition. It announced that draft legislation would be publicly available in the second half of 201215 however as at 31
December 2012 there was no draft legislation available. This is an opportune moment for the Government to follow the lead of New Zealand and recognise the difficulties faced by Indigenous Australians that are holders of traditional land and that wish to establish charities. The following is a discussion of the history and legal development in
New Zealand which I then use as the basis for my argument for a similar amendment to the ITAA97 in Australia.
7.3.1 The New Zealand Experience: The Income Tax Exemption for New Zealand
Charities
The Income Tax Act 2007 (NZ) (ITANZ) provides that business and non-business income of trustees of charitable trusts and societies and institutions with exclusively charitable purposes is exempt from income tax provided that certain other requirements are met.16 The jurisprudence surrounding the legal concept of charity is mainly found in the case law dealing with this income tax exemption. However a statutory definition of charitable purpose was incorporated into the ITANZ in 2003 and subsequently the
Charities Act 2005 (NZ) (Charities Act) was enacted which includes a statutory definition of charity. The definition of charitable purpose in s YA 1 ITANZ is essentially a restatement of the common law with an important exception relating to family relationships. Section YA 1 states:
15 Australian Government, Office for the Not-for-Profit Sector, Events: Anticipated Government Consultations, 2012. 16 ITANZ ss CW41 and 42. 384 Charitable purpose includes every charitable purpose, whether it relates to the relief of
poverty, the advancement of education or religion, or any other matter beneficial to the
community, and –
(a) the purpose of a trust, society, or institution is charitable under this Act if the
purpose would meet the public benefit requirement apart from the fact that the
beneficiaries of the trust, or the members of the society or institution are related by
blood. (author’s emphasis).
The background to this amendment is found in the context of uncertainty regarding the
New Zealand common law about the application of the public benefit test, the review of the taxation of Maori organisations and a general review of the law relating to charities.
Prior to these legislative developments the case law in respect of the legal concept of charity had essentially followed the common law of England and Australia. In 1981 the
New Zealand Court of Appeal17 confirmed that the reference in the New Zealand tax legislation to charitable purpose was in effect the legal meaning of charity as established by the English and Australian cases.18 Justice Somers stated on behalf of the Court that reference in the income tax legislation to ‘charitable’ was a reference to a purpose that fell within one or more of the four headings in Commissioners for Special Purposes of
Income Tax v P emsel19 (Pemsel’s Case)20 and that in addition any charitable purpose must be of benefit to the public (at least for headings two, three and four).21 That New
17 Then New Zealand’s highest court. 18 Molloy v Commissioner of Inland Revenue [1981] 1 NZLR 688, [9]; New Zealand Society of Accountants v Commissioner of Inland Revenue [1986] 1 NZLR 148; see David Brown, ‘Charities and Public Benefit’ (2001) New Zealand Law Journal 69. 19 [1891] AC 531. 20 Molloy v Commissioner of Inland Revenue [1981] 1 NZLR 688, [9]. 21 Molloy v Commissioner of Inland Revenue [1981] 1 NZLR 688, [22]. 385 Zealand followed the traditional English common law concept of charity for tax purposes was confirmed by the Inland Revenue Department (IRD) in 1997.22
The issue of the public benefit of charities for Maori came before the court system in
1961. In Arawa Maori Trust Board v Commissioner of Inland Revenue23 (the ‘Arawa
Case’) the Court held that members of a Maori tribe and their descendants did not meet the public benefit requirement of being a sufficient section of the community and consequently the trust’s purpose was not classified as charitable. Magistrate Donne made the following comments to explain his reasoning:
Now, the beneficiaries of the appellant Board are “the members of the Arawa Tribe and
their descendants”...To qualify as an Arawa one must trace one’s ancestry to someone
living in a defined area. The area is fixed and accepted by anthropologists as being
exclusively populated by the members of the Arawa Tribe from the time of its landing
in New Zealand up to 1840. In my view, therefore, the nexus between the beneficiaries
is “their personal relationship to the several propositi”, ie to certain persons living in the
defined area prior to 1840...I am satisfied that the beneficiaries here are a “fluctuating
body of private individuals” and for that reason also hold that the trust administered by
the appellant is not a charitable one.24
There was no appeal from this decision. It did however lead to the amendment of the
Maori Trusts Boards Act 1955 (NZ) (MTBA) to deem income from the trusts of Maori
22 Inland Revenue Department, Maori Trust Boards: Declaration of Trust for Charitable Purposes made under Section 24B of the Maori Trust Boards Act 1955, BR Pub 97/8 (rewritten as BR Pub 01/07 and 08/02), 10-11. 23 (1961) 10 MCD 391. 24 Ibid 396. 386 Trust Boards25 exempt from taxation as income from a trust for charitable purposes where the trust falls within the list of purposes set out in the MTBA.26 The IRD subsequently issued a ruling confirming that income derived by a Maori Trust Board would be considered charitable and therefore exempt from income tax as long as all the other elements necessary for a charitable trust were present.27 The income tax law was not however amended and other Maori organisations and entities that had charitable purposes were still subject to the public benefit requirement.
This case shows that in 1961 the New Zealand courts were following the English common law. It also indicates the move by the New Zealand Parliament to amend the law where its application to Maori was not in accordance with the Government’s intention to benefit them in a way that was also income tax exempt.
7.3.1.1 Judicial Criticism of the Public Benefit Test in New Zealand
In 1986 in New Zealand Society of Accountants v Commissioner of Inland Revenue
(‘Society of Accountants Case’)28 the New Zealand Court of Appeal held that two fidelity funds were not charities. The funds were established to compensate people whose money was stolen by either an accountant or solicitor who had undertaken work for them. The Court held that each fund was not charitable on the grounds that the
25 Maori Trust Boards are established under the MTBA to manage assets for the general benefit of their members; see Inland Revenue Department, Policy Advice Division, Taxation of Maori Organisations, A Government Discussion Document Glossary of Terms, August 2001. 26 MTBA s 24B was inserted by s 3(1) of the Maori Trust Boards Amendment Act 1962 (NZ). It states that any Board may declare that it holds property on charitable trust and when it does any income arising shall be deemed to be income of a charitable trust for income tax purposes. 27 Inland Revenue Department, Maori Trust Boards: Declaration of Trust for Charitable Purposes made under Section 24B of the Maori Trust Boards Act 1955-Income Tax Consequences, BR Pub 01/07. 28 [1986] 1 NZLR 148. 387 claimants were beneficiaries because of their contractual relationship with the defaulting accountant or solicitor rather than as a section of the community, thus failing the public benefit requirement.29 In coming to this conclusion however, Richardson J made several comments indicating agreement in principle with Lord Cross in Dingle v Turner.30 In this case Lord Cross had expressed concern about the application of the public benefit test for charities and had criticised the distinction in the cases between personal and impersonal relationships when determining the validity of a charitable trust.31 His
Lordship made obiter comments that the real test should be the purpose of the trust.32
Justice Richardson echoed these sentiments when he stated that in determining public benefit the purpose of the trust must be considered and that some trusts may still be charitable even though the class of beneficiaries is private.33 The other judges agreed that the funds were not charitable however they did not make any comments on the correctness or otherwise of Lord Cross’s comments.
In the later case of Educational Fees Protection Society Inc v Commissioner of Inland
Revenue34 (‘Educational Fees Society Case’) Gallen J also expressed doubts on the strict application of the public benefit requirement. He stated that ‘perhaps the best way of dealing with the matter now is to pose the question following the approach adopted
29 New Zealand Society of Accountants v Commissioner of Inland Revenue [1986] 1 NZLR 148, [18]-[20]. 30 [1972] 1 All ER 878. 31 Dingle v Turner [1972] 1 All ER 878, 889. 32 Ibid. 33 [1986] 1 NZLR 148, [17]-[18]. 34 [1992] 2 NZLR 115. 388 by Lord MacDermott [in Oppenheim’s case], “is the trust substantially altruistic in character?”’35
In a subsequent case the Court of Appeal cast further doubt on the area in the context of a charity for the benefit of Maori.36 The case, Latimer v Commissioner of Inland
Revenue37 (‘Latimer’) involved investment income of the Crown Forestry Rental Trust and whether or not it was exempt from income tax on the basis that the trust was charitable. The background to this case is that in 1989 the New Zealand Government was finding it difficult to dispose of certain forestry assets, including tree crops and fixtures, in view of the fact that a number of Maori had asserted land claims over the area where the assets were located. Agreement was ultimately reached between the
Government and various Maori representative bodies. The agreement provided that the
Crown sell the existing tree crop and other forestry assets together with a licence for the purchaser to use the land for a commercially realistic period in return for rental for the use of the land. The rental income was invested and the interest on this amount made available to assist Maori in preparing, presenting and negotiating claims before the tribunal established to deal with Maori land claims (the Waitangi Tribunal). Provision was also made in the agreement for any remaining rental to be paid to Maori who had made successful land claims and that any final surplus on the winding up of the trust was to be paid to the Crown.
35 Ibid [35]-[36]. 36 Latimer v Commissioner of Inland Revenue [2002] NZCA 121 [38]. This case was ultimately heard by the Privy Council which held that the income from the trust in question was exempt from income tax on the basis that it was income from the Crown. The issue of whether or not the specific trust to assist Maori make land rights claims was charitable was not argued see [2004] UKPC 13, [28]. 37 Latimer v Commissioner of Inland Revenue [2002] NZCA 121. 389 The Court of Appeal held that the Trust’s first purpose, assisting Maori to provide the
Waitangi Tribunal with additional material so that it would be able to make fully informed decisions, leading in turn to the settlement of long standing disputes between
Maori and the Crown, was charitable.38 This was on the basis that such a purpose would promote racial harmony and was therefore of general benefit to the New Zealand community.39 However the second purpose, the surplus income going to the Crown, was held not to be charitable and therefore the Trust was unsuccessful in gaining charitable status.40
Justice Blanchard delivered the judgment of the Court and made the comment that when the English House of Lords laid down a requirement that no class of beneficiaries could be related this was in the context of the English family and not tribal or clan connections established through historical lineage.41 His Honour went on to quote with approval Lord Cross’s comments in Dingle v Turner that the purpose of the trust is really the crucial test.42 He then decided that in the context of this trust the Maori family groupings (iwi and hapu43) were a section of the public.44
The decision was appealed to the Privy Council. At this stage however the
Commissioner for Inland Revenue accepted that the purpose of assisting Maori
38 Ibid [40]. 39 Ibid [40]. 40 Ibid [55]-[56]. 41 Ibid [38]. 42 Ibid [38]. 43 Iwi is a term for the Maori peoples or nations. It is used to refer to the traditional Maori tribal hierarchy and social order made up of hapu (kin groups) and whanau (family groups) having a founding ancestor and territorial or tribal boundaries. Hapu is a sub tribe or kin group linked by a common ancestor. See Inland Revenue Department, Policy Advice Division, Taxation of Maori Organisations, A Government Discussion Document, Glossary of Terms (August 2001). 44 Latimer v Commissioner of Inland Revenue [2002] NZCA 121, [38]. 390 claimants to pursue their claims was charitable and therefore there was no argument on this point and no discussion by the Privy Council.45
7.3.1.2 The ‘Public Benefit’ Test and Maori land
Maori people are New Zealand’s First Nation46 and a significant cultural minority estimated at around 15 per cent of the total population.47 The amendment to the MTBA and judicial comment discussed above highlighted the broader question of the status of other Maori trusts or organisations. It was uncertain whether Maori entities established for charitable purposes for the benefit of Maori families would meet the common law
‘public benefit’ test.48 This issue became particularly important in view of the relatively large amounts of land held by Maori, both under customary law and freehold title49 and the legislative governance over this land.
45 Latimer v Commissioner of Inland Revenue [2004] UKPC 13, [28]. 46 A term commonly used to refer to the indigenous peoples of a country; see Fiona Martin, Brad Morse and Barbara Hocking, ‘The Taxation Exemption of Canadian Indians as Governments and Individuals: How Does this Compare with Australia and New Zealand?’ (2011) 40 Common Law World Review 119, 120. 47 Latimer v Commissioner of Inland Revenue [2002] NZCA 121, [37]. 48 See Fiona Martin and Audrey Sharp, ‘The Family Connection when a Charity is for the Advancement of Indigenous Peoples: Australia and New Zealand Compared’ (2009) Land, Rights, Laws: Issues of Native Title 1; Audrey Sharp and Fiona Martin, ‘Charitable Purpose and the Need for a Public Benefit: A Comparison of the Tax Treatment of Australian and New Zealand Charities for Indigenous Peoples’ (2009) 24 Australian Tax Forum 207. 49 Maori Land is estimated to be 1.5 million hectares or about 6 per cent of the total land area of New Zealand; see Controller and Auditor-General, Part 2: Maori Land – What is it and how is it administered? (2004). In 1996 Maori Land was estimated to be around 5.6 per cent of New Zealand’s total land area of 26.9 million hectares with the largest concentrations in the central and eastern regions of the North Island; see Taniri Kingi, ‘Maori Land Ownership and Land Management in New Zealand’ in Australian Agency for International Development, Making Land Work, Volume 2: Case Studies on Customary Land and Development in the Pacific (2008) 129, 132. 391 The Te Ture Whenua Maori Act 1993/Maori Land Act 1993 (NZ) (the MLA) governs the ownership and management of Maori land.50 It consolidated and reformed Maori land law and replaced the Maori Affairs Act 1953 (NZ) and various amendment acts. Its introductory statement is that it is an act established to reform the laws relating to Maori land in accordance with its Preamble. The Preamble confirms the special significance to
Maori of land and that the MLA is to promote the retention of land by Maori and facilitate its occupation, development and utilisation for their benefit. The MLA governs the ownership and management of Maori land.51 Under the MLA, Maori companies and trusts control around 64 per cent of Maori Land.52 The Act establishes a Maori Land
Court and allows for land to be held on trust for Maori with the income used for their benefit.53
The concept of community benefit is of particular relevance to Maori ownership of traditional land as historically and traditionally land has been held communally rather than individually.54 Furthermore, under s 245 of the MLA the trustees of any trust established under the Act can ‘apply to the Maori Land Court for an order that they hold any part of the trust’s income on trust for such charitable purposes as are specified in the
Court order’. Under Part 12 of the MLA the Maori Land Court has exclusive jurisdiction to constitute five different types of trusts in respect of Maori land and
50 MLA Preamble. Maori land is defined in MLA s 4 as ‘Maori customary land and Maori freehold land’. 51 Taniri Kingi, ‘Maori Land Ownership and Land Management in New Zealand’ in Australian Agency for International Development, Making Land Work, Volume 2: Case Studies on Customary Land and Development in the Pacific (2008) 129, 136. 52 Ibid 138. 53 MLA parts 1 and 12. 54 Taniri Kingi, ‘Maori Land Ownership and Land Management in New Zealand’ in Australian Agency for International Development, Making Land Work, Volume 2: Case Studies on Customary Land and Development in the Pacific (2008) 129, 137. 392 general land owned by Maori. The trusts are focussed on enabling Maori land to be developed and efficiently used by or for the beneficial owners. The general aim is to restrict the further fragmentation of Maori land titles by limiting the rights of succession, inheritance and alienation in certain cases.55 The Maori Trustee (or other trustee as determined under the MLA) holds the legal title in the land and the individual
Maori beneficiaries of the trust retain beneficial ownership of the land in a similar manner to a trust created under the common law.56
With the exception of kai taikia trusts (guardianship situations) the trust income may be applied in accordance with s 218 and in fact the land, money and other assets of putea57 and whenua topu58 trusts must be held in accordance with this provision.59 Section 218 sets out a list of what are considered community purposes towards which the trust income or assets can be used. Many of the purposes fall within the traditional concept of
‘charitable purpose’, for example the promotion of health, education and vocational training.60 Several others are outside this concept such as the establishment of meeting
55 MLA ss 211-217. 56 Maori Trustee Act 1953 (NZ) s 39 together with the Maori Trustee Amendment Act 2009 (NZ) ss 16-17. 57 A putea trust is designed to deal with uneconomical smaller share interests within a block or within various blocks of Maori land; see Te Puni Kokiri, The Ministry for Maori Development, ‘Structures under Te Ture Whenua Maori Land Act 1993’. 58 A trust is designed to manage land belonging to an iwi or hapu; see Te Puni Kokiri, The Ministry for Maori Development, ‘Structures under Te Ture Whenua Maori Land Act 1993’. 59 MLA s 212(6) states that the income of putea trusts shall be held for Maori community purposes, or for such Maori community purposes as the Court may specify either in the constitution of the trust or on application at any time thereafter, and shall be applied by the trustees in accordance with s 218 of the MLA; MLA s 216 (5) provides for whenua topu trusts and is in similar terms except that its income is held for the general benefit of members of the iwi or hapu named in the court order. 60 Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531 (general charitable purposes); Inland Revenue Commissioner v McMullen [1981] AC 1 (education); Re Tyrie (deceased) [1970] VR 264 (vocational training); The Diocesan Trustees of Church of 393 halls or houses, recreational areas and loans for farming.61 The final provision s 218
(2)(d) ‘such other or additional purposes as the trustees with the approval of the Court from time to time determine’ would probably fail the charitable purpose test on the grounds that it is too broad and would also allow for a change in purpose.62
Whenua topu trusts are specifically constituted for the benefit of iwi or hapu. The iwi
(tribes) form the structure of Maori society. Within each iwi are many hapu (clans or descent groups), each of which is made up of one or more whanau (extended families).
The bond that holds them together is one of kinship, both with a founding ancestor and with the many members of their iwi, hapu and whanau.63 These trusts are therefore legislatively enacted for the benefit of Maori tribes and family groups.
Despite the fact that s 245 of the MLA empowered Maori to establish charitable trusts this did not mean that such trusts were income tax exempt. As a consequence of the enactment of the MLA in 1993 the IRD published a Tax Information Bulletin clarifying its position in respect to trusts declared ‘charitable’ by the Maori Land Court. The
Bulletin stated that when determining whether a trust under s 245 of the MLA was charitable for the purposes of the ITANZ the IRD applied the common law.64 The
Bulletin went on to state that charitable trusts established under s 245 of the MLA faced two problems when attempting to gain charitable status under the ITANZ. First, the
England in Western Australia v The Solicitor-General; The Home of Peace for the Dying and Incurable v The Solicitor-General (1909) 9 CLR 757 (health). 61 Inland Revenue Department, Tax Information Bulletin Vol 5, No 7 (Dec 1993) Maori Land Act 1993-Tax Implications 5. 62 Ibid. 63 New Zealand Government, The Encyclopaedia of New Zealand, Tribal Organisation; see Inland Revenue Department, Policy Advice Division, Taxation of Maori Organisations, A Government Discussion Document, Glossary of Terms (August 2001) 64 Inland Revenue Department, Tax Information Bulletin Vol 5, No 7 Maori Land Act 1993-Tax Implications (Dec 1993) 5. 394 purposes listed in s 218 had to be charitable purposes and some were not. The second issue identified that trusts established for whanau (family) would not be accepted by the
IRD (unless they were for the relief of poverty) as they are inherently private and therefore fail the public benefit test.65
7.3.1.3 New Zealand Legislative Change to the ‘Public Benefit’ Test
In 2001 the New Zealand Government decided to review the taxation of Maori authorities (the Maori Tax Review).66 An important discussion point in the Maori Tax
Review was how aspects of the law of charities, such as the ‘public benefit test’, applied to Maori organisations. The main concern for Maori organisations (including marae67) that wished to use the ‘charitable’ income tax exemption was that they usually failed to meet the common law ‘public benefit test’. Despite the fact that Maori organisations provided benefits of a charitable nature to iwi and hapu they often did not qualify as charities because their benefit extended to a group of persons connected by blood ties, rather than the general public.
Part III of the Maori Tax Review dealt with those organisations seeking status as a charitable income tax exempt entity. The Government specifically recognised that there needed to be clarification of the public benefit requirement, particularly for iwi and hapu based structures. The Review also recognised that there were problems for entities
65 Ibid. 66 Inland Revenue Department, Policy Advice Division, Taxation of Maori Organisations, A Government Discussion Document (August 2001). 67 A meeting place for the Maori community. An area of land set aside for the use of hapu or iwi, with communal buildings on it, such as a meeting house and dining hall. Generally defined as a symbolic home for a kin-based group and made up of three elements that function together - land, community and whare tipuna (ancestral houses). Many marae are registered under the MLA as Maori Reservations; see Inland Revenue Department, Marae Taxing Issues, Glossary of Terms, Anne Puttnam, Technical Adviser Whangarei, September 2004, 14. 395 that maintained marae as these entities may have purposes that are not charitable as well as failing the public benefit test through benefiting a family or clan.68
The Maori Tax Review took place at the same time as the Government commenced a general review of the taxation of charities (the Charities Review).69 The initial discussion that took place as part of the Charities Review noted the uncertainty in New
Zealand regarding the application of the public benefit requirement to charities. It pointed out that the judicial comments in both the Society of Accountants and the
Educational Fees Society Cases had cast doubt on how strictly the public benefit test should be applied where there are family or contractual connections between beneficiaries of a charity.70 The Charities Review further accepted that the family limitation for charities was a significant problem for all New Zealand society but of particular impact on iwi and hapu based entities that engaged in otherwise charitable activities.71
As a result of the Maori Tax Review the income tax legislation was amended effective for the 2003-04 and subsequent years of income.72 The amendment introduced a new section into the 1994 income tax legislation that extended the meaning of charitable purpose. The current section (which is in the same form and which was quoted earlier in this Chapter) states that the public benefit requirement for charitable purpose is still
68 Inland Revenue Department, Policy and Advice Division, Taxation of Maori Organisations, A Government Discussion Document (August 2001) [8.21]. 69 New Zealand Government, Tax and Charities, A Government Discussion Document (June 2001). 70 Ibid [5.22]. 71 Ibid [5.22]-[5.23]. 72 Income Tax Act 2004 (NZ), s OB 3B; see also s 66(1) Taxation (Annual Rates, Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Act 2002 (NZ). 396 satisfied even though the beneficiaries are related by blood.73 The same provision is found in the Charities Act.74
These new provisions recognise that all organisations with charitable purposes should be granted the fiscal benefits of charitable status despite the fact that their beneficiaries are part of a family or clan. The amended provisions regarding charitable purpose apply equally to Maori and non-Maori entities but are particularly relevant to iwi-based or hapu-based entities since some of these engage in charitable activity.75 The New
Zealand Government specifically stated in the explanation to the amendment to the tax legislation that it ‘recognises that the public benefit requirement is inappropriate to New
Zealand society because it fails to recognise New Zealand’s unique cultural groupings’.76
The 2001 Maori Tax Review made it very clear however that to obtain charitable status an entity must still meet the other requirements for being a charity.77 In other words its purposes must still fall within the Pemsel charitable heads and it must be for the public or a sufficient section of the public. The discussion document points out that the relevant factors to be taken into account in determining this public benefit include: the nature of the entity, the number of potential beneficiaries and the degree of relationship
73 ITANZ s YA 1. 74 Charities Act s 5. 75 Inland Revenue Department, Policy Advice Division, Taxation of Maori Organisations, A Government Discussion Document (August 2001) [8.15]. 76 Inland Revenue Department, Commentary on the Bill, Taxation (Annual Rates, Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Bill 2002 (NZ) http://taxpolicy.ird.govt.nz/publications/files/html/maybillcom02/index.html at 18 February 2010. 77 New Zealand Inland Revenue Department, Policy Advice Division, Taxation of Maori Organisations, A Government Discussion Document (August 2001) [8.15]. 397 between these beneficiaries.78 It provides as an example whanau trusts79 and states that they may qualify for a charitable tax exemption if ‘their pool of beneficiaries is large enough and inclusive enough to constitute an appreciably significant section of the public, or if the purposes for which they are established confer a wide public benefit’.80
The Maori Tax Review also pointed out that if such a trust is only for the benefit of a few family members it would fail the public benefit requirement as it is in effect a family or private trust.81
As a result of the Maori Tax Review and amendments to the tax legislation the IRD issued a statement establishing the factors that it considers should be taken into account in determining whether or not the public benefit test has been met. These are the nature of the entity; activities it undertakes; the potential beneficiary class; the relationship
(degree of connection) between the beneficiaries; and the number of potential beneficiaries.82 Both the New Zealand Government and the IRD consider that the number involved remains significant.83 Just what this number might be however is unclear at this stage.
78 New Zealand Inland Revenue Department, Policy Advice Division, Taxation of Maori Organisations, A Government Discussion Document (August 2001) [8.16]. 79 Whanua means family. The term extends beyond the concept of immediate family (parents and siblings). Whanua links people of one family to a common tipuna or ancestor; see Inland Revenue Department, Policy Advice Division, Taxation of Maori Organisations, A Government Discussion Document, Glossary of Terms (August 2001) 88. 80 Inland Revenue Department, Policy Advice Division, Taxation of Maori Organisations, A Government Discussion Document (August 2001) [8.17]. 81 Inland Revenue Department, Policy Advice Division, Taxation of Maori Organisations, A Government Discussion Document (August 2001) [8.17]. 82 Inland Revenue Department, Tax Information Bulletin, Vol 15 No 5, May 2003, 59-60. 83 Inland Revenue Department, Policy Advice Division, Taxation of Maori Organisations, A Government Discussion Document, August 2001, [8.17]; Inland Revenue Department, Tax Information Bulletin, Vol 15 No 5, May 2003, 59-60. 398 7.3.1.4 Decisions of the New Zealand Charities Commission relating to the Public
Benefit of Family-Based Maori Charities
Since the amendments to the ITANZ and enactment of the Charities Act, there have been two cases heard by the New Zealand Charities Commission84 relating to charities for Maori and dealing with the public benefit requirement. In 2011 the Commission reviewed the charitable status of the Mokorina Whanau Trust.85 The Trust was established for the benefit of the founding parents and their descendents, a total of 22 people (including spouses). The Commission considered that as the benefits of the Trust were for a small number of closely related people there was no public benefit.86 The same conclusion was reached in the 2010 decision relating to the Korako Karetai
Trust87 (the ‘Korako Karetai Trust Case’) even though this Trust involved a larger number of beneficiaries. In this case the beneficiaries were defined as the descendents of a single person, Korako Karetai88 and numbered 102 adults in addition to children and grandchildren.89 The Commission concluded that the Trust’s activities did not provide a benefit to a sufficiently open section of the public but rather a limited number of persons descended from one named individual. The Commission therefore refused its registration.
84 The Charities Commission was a Crown entity established under s 8 of the Charities Act. Its functions included registering, monitoring and receiving annual returns for charities. All charities had to be registered with the Commission and once registered were accepted as charities for the purposes of the IRD. The Commission ceased operating in August 2011 and its functions were transferred to the Department of Internal Affairs. 85 Deregistration Decision: Mokorina Whanau Trust (CC40304), No D2011-4, 25 May 2011. 86 Ibid [41]. 87 Registration Decision: Korako Karetai Trust, No 2010-18, 23 September 2010. 88 A Maori leader and signatory to the Treaty of Waitangi in 1840. He had eight wives and 10 children; see New Zealand Government, The Encyclopaedia of New Zealand, Biographies. 89 Charities Commission Registration Decision: Korako Karetai Trust, No 2010-18, 23 September 2010 [84]. 399 These decisions are based on their unique facts so it is hard to draw a clear principle from either of them. Furthermore, in both cases the trusts also failed because no charitable purpose was established. However the Commission was very clear in stating that providing benefits to the descendants of one individual was not a sufficiently open section of the public to warrant charitable status. This was even despite the fact that the beneficiaries of the Korako Karetai Trust were over 100 and represented several generations.
The Charities Commission (which has subsequently been deregistered90) has issued an information sheet that explains its interpretation of the public benefit test for charities.91
The document provides examples of groups of people who are considered a section of the public and who will therefore satisfy this test. One example is an iwi.92 As explained earlier in this Chapter, iwi is the word for peoples or nations and is much larger both in size and genealogy than hapu and whanau. The Commission has clearly interpreted the legislative provision regarding the blood connection very narrowly and does not seem to have enlarged significantly on the common law.
7.3.2 Summary of Proposal
The discussion of the public benefit requirement for charities in Chapter 6 and the New
Zealand experience indicate that ‘altruism’ as an important and (some may argue) essential aspect of charity is culturally determined, so that it is possible that altruism
90 The New Zealand Government announced on 11 August 2011 that the Charities Commission would cease operating and its functions transferred to the Department of Internal Affairs. As a result there will not be any further decisions that can be analysed. New Zealand Government, ‘Reduction in State Agencies Confirmed’ http://www.beehive.govt.nz/release/reduction-state- agencies-confirmed 11 August 2011. 91 Charities Commission, ‘Public Benefit Test: Guidance for Charities’ October 2009. 92 Ibid 4. 400 might take different forms in different cultures. The legislative developments in New
Zealand suggest that in the case of tribal communities, altruism cannot be separated from discharging duties associated with blood ties. This might be contrasted with individualistic liberal communities, where altruism is a distinct virtue precisely because it is separated from the discharge of such duties. This latter approach is also in the context of a sophisticated tax system that provides extensive tax concessions to charitable entities and activities. If countries with tribal First Nations do not recognise the different approaches of these peoples in their charity law, they fail to take seriously the social/cultural norms of those First Nations. This is a form of discrimination.
Australia should therefore follow New Zealand’s lead and make it possible for
Indigenous tribal groupings to form charities that benefit only members of the groupings in question. On the other hand perhaps New Zealand has gone too far by enabling, at least on the face of the legislation, non-Maori groupings to form charities that benefit only family members, and it may be better in Australia to create an exception only for Native Title Groups and Traditional Owners. This argument is on the basis that they have First Nation status and that their normative understandings are different from those that underpin mainstream charity law.
Although there has been no case law on the New Zealand amendment there are two decisions of the Charities Commission. Both decisions have interpreted the amendments conservatively and stated that a charity for the benefit of a group defined through descent from one common ancestor is still not sufficiently open to the public to enable the granting of charitable status. The Mokorina Whanau Trust was for the benefit of a single closely related family and it was only these family members who received any distribution from the trust. It is therefore easier to reconcile this decision with the broader intent of the legislation as the beneficial group in this case was a family in the 401 Western sense. The Korako Karetai Trust had over one hundred potential beneficiaries and represented several generations. However the purposes of this Trust were all allied to the aims of the family and only for the benefit of its members who were all descended from one common ancestor. So again the Commission did not consider that there was sufficient public benefit. The Commission has however recognised the larger iwi as being a sufficient section of the public to be eligible for charitable status. But until there is a court case on the issue, the dividing line between a single family whanau and the iwi or tribe is still uncertain.
I argue that Australia should also amend its income tax legislation to allow that a blood relationship does not prevent the public benefit test from being complied with. However
I argue that this exemption should only apply to Native Title Groups and Traditional
Owners. It would require a short legislative instrument to deem the public benefit for all organisations established for the benefit of Native Title Groups and Traditional Owners even though there is a blood connection. It would then be open to the new ACNC93 to publish guidelines regarding how this provision will operate. In this way the blood connection limitation might be removed for Australian First Nations but the revenue protected, as all other requirements for a charity would still need to be fulfilled.
Such an amendment would be simple to enact and already has legislative precedent. In
2004 as a result of the Sheppard Report the Federal Government enacted the Extension of Charitable Purpose Act 2004 (Cth). This legislation deems a public benefit for self- help groups and closed or contemplative religious orders94 provided that these groups
93The ACNC commenced operations on 3 December 2012, ACNC Homepage http://www.acnc.gov.au/. 94 Extension of Charitable Purpose Act 2004 (Cth) s 5. 402 have a charitable purpose.95 Both areas were identified in the Report as being for the public good but not falling within the common law concept of public benefit.
A further argument in favour of this amendment is that if Australia enacts a statutory definition of charity which requires a public benefit for all charitable purposes, including relief of poverty,96 this may mean that many Indigenous charities (if they only benefit one or a few families) are then unable to attain charitable status.
7.4 Proposal Three: Indigenous Community/Economic Development Corporation
As demonstrated in the case studies in Chapter 5 and the discussion of royalty associations in Chapter 3, when Indigenous Australians use charitable structures they often do so in order to engage in community development. This includes running businesses and assisting other Indigenous businesses. The income from these charities is reinvested into the Indigenous community through investment in infrastructure, health and education services, operation of businesses and funding of general community development activities such as cultural festivals, sport and management of the environment.97
Apart from the public benefit limitation which impacts on charities for Indigenous families my discussion in Chapters 5 and 6 has also highlighted that there are other legal issues that are particularly relevant to Indigenous charities that wish to engage in
95 Extension of Charitable Purpose Act 2004 (Cth) s 5 (4). 96 This seems likely given the comments made in Treasury, A Definition of Charity: Consultation Paper, 2010 [66]. 97 See for example: Gundjeihmi Aboriginal Corporation, Financial Report (2011), Gundjeihmi represents the traditional owners of the Kakadu area in the Northern Territory; Groote Eylandt and Bickerton Island Enterprises (GEBIE) which operates the Dugong Beach Resort and several local construction and engineering businesses, GEBIE, Financial Report (2011). 403 community development. First is the potential limitation of their ability to engage in business activities and make loans and grant start up funding to small Indigenous businesses.98 These activities do not always fall within current charitable purposes as it is considered that the private benefits outweigh those to the public.99 Second, is the related issue that charitable purposes do not necessarily extend to community development purposes.100 A third limitation of charities is that the encouragement of sport and recreational activities unless otherwise attached to a recognised charitable object such as education is not a charitable purpose.101
In 2008 the High Court decided in Commissioner of Taxation v Word Investments Ltd102 that a charity could operate a commercial business and not jeopardise its charitable status provided that its purposes were all charitable. However, as a result of this decision the Federal Government announced, as part of its suite of reforms to the sector, that it would enact legislation to overcome this.103 The Government announced that the income tax exemption was targeted only at those activities that directly further a NFP’s altruistic purposes. Under this measure, it said, the NFP income tax concessions will
98 Fiona Martin, ‘The Legal Concept of Charity in the context of Australian Taxation Law: The Public Benefit and Commercial Activities, Important Issues for Indigenous Charities’ (2010) 25 Australian Tax Forum 275; Law Council of Australia, Submission to Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper, 30 November 2010, 4. 99Commissioners of Inland Revenue v Oldham Training and Enterprise Council (1996) 69 TC 231. 100 See discussion in Chapter 6 of charitable purposes, particularly other purposes beneficial to the community; Law Council of Australia, Submission to Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper, 30 November 2010, 4. 101 Strathalbyn Show Jumping Club Inc v Mayes [2001] SASC 73 following Re Nottage; Jones v Palmer [1895] 2 Ch 649; Kearins v Kearins [1957] SR (NSW) 286; AYSA Amateur Youth Soccer Association v Canada (Revenue Agency) [2007] 3 SCR 217. 102 [2008] HCA 55. 103 Australian Government, Budget 2011-2012, Not-for-Profit Sector Reforms
Commercial activities that further a charity’s altruistic purposes, and small-scale and low risk unrelated commercial activities, will not be affected by the reforms. The
Government has also announced that it will extend the start date for these new arrangements from 1 July 2011 to 1 July 2012 and they will initially affect only new unrelated commercial activities that commence after 10 May 2011.104 A consultation paper was released on 27 May 2011105 and legislation was planned for release in the second half of 2012106 however as at 31 December 2012 no draft had been made public.
This situation places charities for Native Title Groups and those that represent
Traditional Owners in a difficult situation. These groups wish to maximise the financial outcomes of mining payments and other income and in order to do this may wish to carry on businesses.107 Furthermore, these businesses can be important aspects of the communities that they operate in. They bring in funds which are then used for charitable purposes, they provide services which are needed in remote communities, eg engineering and construction for roads and housing, they provide training opportunities
104 David Bradbury, Assistant Treasurer and Mark Butler, Minister for Social Inclusion, ‘Extended Start Date for 2011-2012 Budget Measure to Better Target Not-For-Profit Tax Concessions’ (Joint Media Release, 30 March 2012) http://assistant.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2012/009.htm&pageID=0 03&min=djba&Year=&DocType=. 105 Australian Government, Better Targeting of Not-for-Profit Tax Concessions, 27 May 2011. 106 University of Melbourne, Australian Research Council Project ‘Defining, Taxing and Regulating the Not-for-Profit Sector in Australia: Law and Policy for the 21st Century’ http://tax.law.unimelb.edu.au/files/ACLA_seminar_state_of_reform.pdf. 107 Minerals Council of Australian (MCA) and National Native Title Council (NNTC), Joint Submission to Treasury, A Definition of Charity: Consultation Paper, 14 December 2011, 4. 405 for community members and through tourism and cultural activities may enhance and develop cultural strength.
Case Study 3 in Chapter 5 (Gundjeihmi Aboriginal Corporation) is a clear demonstration of a charity investing its income in community infrastructure and carrying on businesses in order to assist community members entering the workforce.
An example of a native title group that is pre-determination but which engages in significant construction work and also related vocational training of Indigenous people is the Myuma Group of corporations. Myuma Pty Ltd is a NFP and runs a construction company which not only engages in construction activity that is of benefit to its remote community in north-west Queensland (near the Northern Territory border) but also trains Indigenous members in the skills necessary for employment in construction and mining.108 Myuma together with the Queensland Government and private sector partners constructed large segments of the Barkly Highway which joins Mt Isa to
Camooweal where the remote community is based.109 As part of this and other construction work it also offers apprenticeships and training programs for Indigenous people.110
108 Paul Memmott, ‘The Myuma Group, Georgina River Basin: Aboriginal Enterprise, Training and Cultural Heritage’ (2007) University of Queensland; Paul Memmott, ‘Demand-Responsive Services and Culturally Sustainable Enterprise in Remote Aboriginal Settings: A Case Study of the Myuma Group’ (Paper presented at Indigenous Participation in Australian Economies Conference, Australian National University, Canberra, 9-10 November 2009). 109 Paul Memmott, ‘The Myuma Group, Georgina River Basin: Aboriginal Enterprise, Training and Cultural Heritage’ (2007) University of Queensland; Paul Memmott, ‘Demand-Responsive Services and Culturally Sustainable Enterprise in Remote Aboriginal Settings: A Case Study of the Myuma Group’ (Paper presented at Indigenous Participation in Australian Economies Conference, Australian National University, Canberra, 9-10 November 2009). 110 Julie Collins, Minister for Indigenous Employment and Economic Development ‘68 Indigenous Jobs in Mining and Construction at Myuma and Dugalunji’ (Media Statement, 3 January 2012) http://ministers.deewr.gov.au/juliecollins/68-indigenous-jobs-mining-and- construction-myuma-and-dugalunji. 406 Another example, although not of a mining agreement, is the Lhere Artepe Aboriginal
Corporation (Lhere Artepe). Lhere Artepe is a PBC and charity and represents the
Native Title Group in respect of a determination of native title in and around Alice
Springs.111 Lhere Artepe owns, through a subsidiary corporation, 40 per cent of the largest shopping centre in Alice Springs and several other commercial outlets.112
Apart from undertaking commercial activities, many Indigenous communities wish to engage in a range of economic and community development activities. This includes use of funds to encourage Indigenous businesses, being able to lend money and grant initial funding to small Indigenous businesses and to encourage sport and cultural activities. These activities do not fall within current charitable purposes.113
7.4.1 Indigenous Community/Economic Development Corporation
In 2010 Treasury issued a Consultation Paper, Native Title, Indigenous Economic
Development and Tax which invited submissions on a number of issues including the establishment of a new tax exempt vehicle termed an Indigenous Community Fund into which native title payments and benefits could be paid.114 As part of this and subsequent discussions the Minerals Council of Australia (MCA) and National Native Title Council
(NNTC) proposed that the Government establish a new form of income tax exempt
111 Lhere Artepe Aboriginal Corporation, Financial Report (2011). 112 Australian Government, Department of Finance and Deregulation, Office of Evaluation and Audit (Indigenous Programs), Performance Audit of Centrecorp Aboriginal Investment Corporation Pty Ltd, November 2008, 18; Lhere Artepe Aboriginal Corporation, Financial Report (2011) 18, 25. 113 See Chapter 6; Law Council of Australia, Submission to Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper, 30 November 2010, 4. 114 Australian Government, Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper, October 2010, 8-13. 407 entity (the IED Corporation) as an alternative to charities.115 This entity is intended to overcome the problems identified in my discussion in this Chapter and in earlier
Chapters with charities. It is also specifically targeted at Indigenous groups and their economic development.116
7.4.1.1 IED Corporation and Benefitting Indigenous Family Groups
The first advantage of the IED Corporation is that it would be able to represent Native
Title Groups and Traditional Owners defined through their family connection.
Traditional land holding is often established through the proof of descent from a particular ancestor who practised traditional laws and customs on the land. For example, s 3 of ALRA defines a traditional Aboriginal owner as a member of a local ‘descent group’. The proposed IED Corporation would have the advantage over charities of being able to benefit a group of Indigenous land holders who are defined through descent from a common ancestor or by some other family connection.
7.4.1.2 IED Corporation: Purposes
The purposes of the IED Corporation would include all those that are currently charitable but also include a range of other purposes that are of specific importance to
Indigenous Australians. First is the carrying on and encouragement of Indigenous businesses. This includes initial funding to small Indigenous businesses and sponsoring of apprenticeships and training of Indigenous people.
115 As the author has discussed in Fiona Martin, ‘An Indigenous Economic Development Corporation: How Does this Compare to a Charity?’ (2012) 7(30) Indigenous Law Bulletin 12. 116 MCA and NNTC, Joint Submission to Treasury, A Definition of Charity: Consultation Paper, 14 December 2011, 5-6. The author is a member of the MCA and NNTC working party on the Indigenous Economic and Community Development Corporation. 408 Engagement in sport is not a charitable purpose however it is an important and positive aspect of many Indigenous communities.117 It is arguably an area wherein Indigenous peoples and western society can interact in a positive way.118 Engagement in sport can also be a significant contributor to community development and health119 and sport can be used to advance the education and health of Indigenous children.120 The English
Parliament has now recognised through a general statutory acknowledgment, the charitable status of amateur sport.121 The rationale for this inclusion was the recognition that sports clubs ‘play an important role in society’ and ‘provide health benefits to participants, giving them a better quality of life, and they can be effective in encouraging participation and forging stronger communities’.122 The IED Corporation would be able to fund community sporting clubs and competitions and encourage sport in other practical ways.
117 Helen Alexiou, ‘Alternative Models for Engaging and Developing Skills, Experience and Knowledge in Indigenous Youth: Pre-fieldwork Presentation for a PhD Thesis’ (Paper presented at the Centre for Aboriginal and Economic Policy Research Seminar, Canberra, October 2010); Amos Aikman, The Australian, ‘For Tiwi’s, Life’s Goals Come from Sherrin’, 19 March 2012 comments on the annual AFL grand final on the Tiwi Islands which is a major annual event; AFL and the Indigenous Community states AFL players make up 11 per cent of the list players and there are 90,000 Indigenous Australians in AFL programs
Indigenous festivals are important to communities as they contribute to wellbeing, resilience and capacity. They also increase individual and community self-esteem and leadership capabilities.124 Indigenous funerals are often much more complex and time consuming than Western funerals and are another significant aspect of community life.125 The importance and the expense of funerals were demonstrated in Case Study 2 in Chapter 5. The media surrounding the Tjurabalan Mining Agreement specifically referred to the payment for funerals as one of the immediate uses to which mining payments would be put. The IED Corporation would be able to engage in running
Indigenous cultural practices such as funerals and also be able to fund them.
7.4.1.3 Accumulation of Funds
The importance of the ability to accumulate funds so that intergenerational benefits can be provided is essential for communities that hold traditional lands. These lands are held for the benefit of current and future generations and it is considered that the income generated from these lands should also flow across generations.126 Many Indigenous entities also need to accumulate funds to increase working capital. As stated in Chapter
123 Peter Phipps and Lisa Slater, ‘Indigenous Cultural Festivals: Evaluating Impact on Community Health and Wellbeing’ (Report to the Telstra Foundation on Research on Indigenous Festivals 2007-2010, 2010) 9. 124 Ibid 86. 125 Katie Glaskin et al (eds), Mortality, Mourning and Mortuary Practices in Indigenous Australia (Ashgate Publishing, 2008). 126 Minerals Council of Australia and National Native Title Council, Joint Submission to Treasury, A Definition of Charity: Consultation Paper, 14 December 2011. 410 6 the ATO requires that charities distribute all funds within reasonable time frames and can only accumulate investment income for a few years. This restriction on accumulation is a deterrent to community development and is unrealistic when the time frame for mining activities, as demonstrated in Chapter 2, is frequently in excess of 20 years. The IED Corporation would be able to accumulate its income until its Board of
Directors considered it appropriate to use the funds for community purposes. In order to ensure that funds were not accumulated indefinitely there could be some time period after which the Corporation would have to apply to the ACNC for permission to continue to accumulate.
7.4.1.4 Provision for Future Generations
Charities can be created so that they last indefinitely.127 This is a significant advantage over non-charitable trusts which are subject to the rule against perpetuities and therefore must have a vesting date. In most Australian states and territories this date is 80 years from settlement.128 Lands that are subject to traditional claims and benefits flowing from this land, belong not only to the current generation but to future generations.129
The ability to provide for several generations of members is therefore essential and an
127 Pemsel [1891] AC 531, 581; Gino Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) [6.9]. 128 Gino Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) [6.7]; in the Australian Capital Territory and New South Wales, the perpetuity period is 80 years from the date of settlement: Perpetuities and Accumulations Act 1985 (ACT) s 8; Perpetuities Act 1984 (NSW) s 7; in Queensland, Tasmania, Victoria and Western Australia a settlor may adopt a period not exceeding 80 years instead of the common law rule: Property Law Act 1974 (Qld) s 209; Perpetuities and Accumulations Act 1992 (Tas) s 6; Perpetuities and Accumulation Act 1968 (Vic) s 5: Property Law Act 1969 (WA) s 101; in the Northern Territory the settlor may select an 80 year perpetuity period instead of the general law: Law of Property Act 2000 (NT); in South Australia the rule against perpetuities has been effectively abolished: Law of Property Act 1936 (SA) s 61. 129 See NTA Preamble. 411 important advantage of the use of a charitable entity. It is proposed that the IED
Corporations have this same feature as charities.
7.4.1.5 Indigenous Economic and Community Development as opposed to the
Term ‘Charity’
A further positive aspect of an IED Corporation is that its establishment would recognise the important place of Indigenous economic development in the modern
Australian social system. It would take encouragement of Indigenous development out of the charitable sphere with its stigma of ‘welfare’ and recognise it as a significant part of the Australian economy. In New Zealand, Maori have a growing reluctance to be considered reliant on ‘charity’ or to be ‘beneficiaries’ in view of the social stigma associated with these terms.130
7.4.2 Proposal Summary
Entities that represent groups of Indigenous Australians defined through their family relationship are currently unable to gain charitable status unless they are solely for the relief of poverty. There are also difficulties where Indigenous charities wish to maximise financial gain and contribute to community development, employment and training in a commercial manner. The IED Corporation is an alternative income tax exempt organisation that has the potential to overcome these difficulties.
130 John Walters, ‘Maori Trusts and Maori Charitable Bodies’ [2002] New Zealand Law Journal 65, 65. 412 7.5 Proposal Four: Community Service Providers: An Alternative Income Tax
Exempt Entity
Apart from charities the ITAA97 also grants exemption from income tax for the income of a society, association or club established for community service purposes, other than political or lobbying purposes.131 This entity is commonly referred to as a Community
Service Provider. A Community Service Provider has been used effectively to facilitate banking in a country town that did not have any face to face banking opportunities for its community. The use of the entity to enable face to face banking not only provided a valuable service to the area but resulted in the exemption from income tax of the income stream generated by the entity. I argue that community service providers may be useful entities for Indigenous communities to establish to use mining income and deliver services that benefit the entire community and (if they generate income) also have the advantage that they are exempt from income tax.
7.5.1 Definition of Community Service Provider
Community Service Providers must be established for community service purposes and must be NFP.132 In 1993 the ATO issued a determination setting out its view on what types of entities this exemption applies to.133 It states that the rationale for this category of organisation was to grant income tax exemption to community bodies whose activities are not accepted as being charitable but which still conduct activities of
131 ITAA97 s 50-10. 132 ITAA97 s 50-70. 133 Australian Taxation Office, Income Tax: what is the Scope of the Exemption from Income Tax provided by Subparagraph 23(g)(v) of the Income Tax Assessment Act 1936? TD 93/190, 30 September 1993. Section 23(g)(v) is the predecessor to ITAA97 s 50-10. 413 benefit to the community.134 The ATO also advises that it is essential that the
‘community service purposes’ are altruistic.135 In other words, that the aims are motivated by an unselfish concern for the benefit of others.136
The ATO also states that traditional service clubs such as Apex, Rotary, Lions, Zonta,
Quota and community service organisations such as the Country Women’s Associations are exempt under this provision. Other examples of organisations that the ATO considers are Community Service Providers include non-profit child care centres,137 age pensioner or senior citizens associations, play group associations and associations of
Justices of the Peace. However, the ATO does not consider clubs that promote public speaking or debating, that provide a social forum for retired and semi-retired people or that offer a social forum for expatriates of a particular country as satisfying this category. The ATO also rejects bodies established to promote tourism, military service unit organisations and social clubs for newcomers to a particular residential area.
7.5.1.1 A Community Service Provider as a Facilitator of Banking in a Remote
Community
There have been very few cases dealing with the provisions relating to Community
Service Providers. The most recent is the 2011 Full Federal Court decision of
Commissioner of Taxation v Wentworth District Capital Ltd (‘Wentworth Case’).138 In this case Wentworth District Capital Ltd (WDCL) was a NFP incorporated by members
134 Ibid [2]. 135 Ibid [4]. 136 Oxford Dictionary (Oxford University Press, 2011). 137 NFP child care centres were subsequently deemed to have a charitable purpose under the Extension of Charitable Purpose Act 2004 (Cth) s 4. 138 [2011] FCAFC 42. 414 of the Wentworth community and located in the town of Wentworth. Wentworth is a small town of approximately 1,400 people on the northern side of the border between
New South Wales and Victoria. The only bank in the town closed in 1996 resulting in the closest bank branches being in Mildura about 30 kilometres away. The population of
Wentworth was also ageing and there was evidence that many were not able to manage their banking using internet services or the local post office. WDCL entered into franchise arrangements with Bendigo Bank Ltd. Under these arrangements WDCL enabled Bendigo Bank to provide banking services in Wentworth through the Bank using WDCL’s premises, staff and equipment. The net revenue from the operation was split between the Bank’s subsidiary and WDCL, the latter using its portion to pay its staff, the rent and its other expenses. The premises were fitted out in Bendigo Bank’s colour scheme and the staff wore the uniforms of the Bendigo Bank. By May 1999, a few months after opening, the branch had 476 customers, $7 million in business and
WDCL had a monthly gross income (through the revenue split with the Bank’s subsidiary) of $5,912. By September 1999 WDCL experienced its first break-even month, with 809 customers, $22 million in business and $17,367 in gross income. The annual report for 30 June 2009 showed that after 10 years the branch had nearly $100 million in business with an annual income before tax of about $200,000.139
The case turned on the questions of: what is meant by the phrase ‘established for community service purposes’; and whether or not this applied to WDCL. There are two important aspects to the legislative provision that the case highlighted. First, the entity must be established for the relevant purpose and second the purpose must serve the community. The Full Federal Court confirmed the decision of Perram J at first instance
139 [2010] FCA 862 [14]. 415 and held that the facilitation of face-to-face banking in a rural community that had no such banking facilities was the provision of a community service and that WDCL was established for this purpose. It stated:
In our view, WDCL was within the exemption – the main or dominant purpose for
which it was established was a community service. Here, the community service
purpose was the facilitation of face-to-face banking services which provided a
substantial benefit to the community of Wentworth that was both real and tangible.
Contrary to the Commissioner’s submissions, there was no blurring of purpose and
benefit and it was a “service”. As the Commissioner submitted, “service” imports
delivery of some practical help, benefit or advantage: Victorian Women Lawyers’
Association at [163]. In the present case, WDCL provided practical help, benefit or
advantage...140
The Court approved the reasoning of Perram J that the concept of services included
‘activities, facilities or projects’ of the relevant organisation, those activities had to benefit members of the community who needed them and that these needs could arise from social or economic circumstances such as living in a remote area.141
The Court concluded that the community service referred to in s 50-10 is a practical or tangible help, benefit or advantage conferred on the community or an identifiable section of it. The criterion of ‘establishment for community service purposes’ requires an analysis of what the entity is doing in the relevant income year both by reference to
140 [2011] FCAFC 42 [43]. 141 Ibid [43]. 416 its constitution and also its activities142 and the purpose must be the entity’s main or dominant purpose.143
Furthermore it agreed that where a charge for the service is made it should be subsidised and that the expression ‘community service purposes’ is broad and may extend to encompass any activity whose purpose has a reasonable connection to the delivery of a community service. Facilitation and promotion, therefore, are purposes that are squarely within s 50-10.144
7.5.1.2 Earlier Decisions on the Meaning of ‘Community Service Purposes’
In the earlier case of Victorian Women Lawyers’ Association Inc v Federal
Commissioner of Taxation145 French J stated that the concept of community service seemed to require delivery of some practical ‘help, benefit or advantage’.146 That criterion, his Honour concluded, was not necessarily met by the Victorian Women
Lawyers Association, an organisation whose purpose was to change practices and attitudes in such a way as to facilitate the entry and advancement of women within the legal profession generally.147 However as French J held that the Association was a charity and exempt from income tax on this basis he did not need to reach a conclusion on the alternative argument.
142 Ibid [30]-[31]. 143 Ibid [31], [45]. 144 Ibid [33]. 145 [2008] FCA 983. 146 Ibid [163]-[164]. 147 Ibid. 417 In 1998 the Administrative Appeal Tribunal (AAT) held that the National Council of
Women of Tasmania was also exempt under this provision.148 The organisation had the predominant purpose of co-ordinating community service work and providing information on women’s issues. In coming to its conclusion in favour of the Council the
AAT held that the words ‘community service purposes’ included the providing or carrying out of activities, facilities or projects for the benefit or welfare of the community, and also the promoting of such projects. The Council was very much the promoter of its member organisations’ activities, facilities or projects, more than it was a provider. The projects were however, very clearly for the benefit or welfare of the community. This case indicates, along with the obiter comments in the Victorian
Women Lawyers Case that promotion of community service projects (in a practical way which includes delivery) also falls within the exemption provision.
7.5.2 Proposal Summary
I argue that Indigenous communities should consider establishing Community Service
Providers to aid their communities.149 Moneys payable by mining companies to Native
Title Groups and Traditional Owners could be used to establish and fund such an entity.
A Community Service Provider could then provide services such as operating a canteen for healthy food, a community swimming pool or sporting facilities, funding of funerals and organising festivals. These purposes are not necessarily charitable but are still of direct benefit to a remote community. Prices and fees at subsidised rates could be
148 National Council of Women of Tasmania v Federal Commissioner of Taxation 98 ATC 2124. Although this is an AAT case (and therefore of only persuasive merit in subsequent federal court cases) it is significant as there are so few decisions on s 50-10 and this appears to be the earliest case on the provision. The AAT is used extensively in taxation disputes. 149 As the author has argued in Fiona Martin, ‘Community Service Providers and Indigenous Development’ (2011) Indigenous Law Bulletin 20. 418 charged, with any surpluses going back into the entity and being used for the furtherance of its activities. As a Community Service Provider all its income would be exempt from income tax. Further funding, through sponsorships for example, could also occur and these funds would also be exempt from income tax. As a NFP any surplus of income over expenditure would be reinvested into the running of the Community
Service Provider or paid out in the form of grants to eligible community organisations.
This is what happened in the Wentworth Case.
Community banking is another service which is lacking in many remote Indigenous communities and which has been demonstrated in the Wentworth Case as providing an eligible community service. Lack of banking services is seen as a serious hurdle to
Indigenous business development in regional Australia150 as well as providing access to credit for day to day expenses.151 Provided the entity does not actually engage in banking (in other words it does not hold the banking licence152) but is facilitating this service in an area that does not have banking facilities, such a service provider would be income tax exempt on any service fees it received. Services fees might be payable from the bank that is undertaking the banking services to the Indigenous Community Service
Provider as occurred in the Wentworth Case, and these fees together with any customer fees would be exempt from income tax. Surpluses could then be used for community development activities such as grants to local sporting clubs, as occurred in the
Wentworth Case. Other examples that might be relevant to remote communities include the establishment of organisations to provide low cost housing, play groups, senior
150 Jon Altman, ‘Generating Finance for Indigenous Development: Economic Realities and Innovative Options’ (Working Paper No 15, CAEPR, 2002). 151 Centre for Social Impact Research Report for National Australia Bank, ‘Measuring Financial Exclusion in Australia’ May 2012, 26-29. 152 In the Wentworth Case this was held by Bendigo Bank and its subsidiary. 419 citizen associations and organisations to assist women who are the subject of domestic violence.153
I argue that the Community Service Provider vehicle could be used as an additional entity, together with a charity or IED Corporation, in many remote communities to provide tangible services and benefits to the community in a tax effective manner. In this way surpluses would be maximised and reinvested into the community.
7.6 Proposal Five: That a MWT be introduced in respect of mining payments arising under the NTA along the lines of the current MWT that applies in respect of ALRA mining payments.
A withholding tax regime similar to the MWT regime under Part II Division 11C of the
ITAA36, was proposed by the Federal Coalition Government in 1998154 but never enacted. Subsequently the Federal Labor Government announced that it was reviewing the taxation of native title payments with a view to introducing a similar scheme to the withholding tax regime.155
In May 2010 Treasury released a Consultation Paper Native Title, Indigenous Economic
Development and Tax156 which considers three approaches to the potential income tax
153 This type of group was promoted by the Council in the National Council of Women of Tasmania Case. 154 Peter Costello, Treasurer and Daryl Williams, Attorney-General ‘Taxation Implications of the Native Title Act and Legal Aid for Native Title Matters’ (Joint Media Release, 13 February 1998). 155 Wayne Swan, Treasurer and Chris Bowen, Assistant Treasurer, ‘The Way Forward on Tax Measures Announced but not Enacted, by the Previous Government’ (Joint Press release, 13 May 2008) http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2008/053.htm&pageID=&mi n=wms&Year=2008&DocType=0 . 156 Australian Government, Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper May 2010. 420 implications of native title claims. One of these approaches is a native title withholding tax. As at 30 June 2012 there had not been any government announcement of the introduction of this tax and in view of the introduction into the House of
Representatives of a bill to take outside the income tax system certain native title payments this is now unlikely under the current government. However for the sake of completeness it is necessary to discuss this proposal.
7.6.1 The Arguments For and Against a Withholding Tax
This section of the thesis considers the arguments for and against the use of a withholding tax and suggests that it is an attractive but ultimately unsuitable alternative to the uncertainty associated with the imposition of income tax.
7.6.1.1 The Advantage of Tax Simplicity
As discussed in Chapter 4 a withholding tax has a number of advantages from the tax compliance and administration perspective.157 In summary the issue of collection and recovery of the MWT is handled through the imposition of the tax as a withholding tax which means that the responsibility for payment is on the paying entity. Identification of this entity by the ATO is relatively easy as it will be either the government or a mining company. Further benefits of a single rate withholding tax are its simplicity and certainty.158 It is simple because the suggested withholding tax is a flat rate tax which makes it easy to calculate. Unlike an income tax, it is not dependent on any other factors such as progressive tax rates, amount of deductions and tax offsets. These advantages
157 See Harvey Dale, ‘Withholding Tax on Payments to Foreign Persons’ (1980-1981) 36 Tax Law Review 49. 158 House of Representatives, Second Reading Speech, Income Tax Assessment Amendment Bill (No 2) 1979 (John Howard, Treasurer). 421 assist towards certainty and compliance by the taxpaying entity as it does not place a high administrative burden on this entity and ensures that from a tax policy perspective it is a relatively simple tax to administer.159
From the Indigenous taxpayer perspective the mining payment is not included in their assessable income for tax purposes.160 The result is that they do not have to be concerned about the amount to include in any tax return or delay lodging a return due to the late notification by the payer. It also means that it does not lead to an Indigenous person being required to lodge a tax return when they would not otherwise have this responsibility.
7.6.1.2 Definitional Difficulty
A major difficulty that arises with a withholding tax in the context of payments under the NTA is definitional. The MWT clearly defines the mining payments that it applies to. The royalty equivalents that are paid into the Aboriginal Benefits Association (ABA) are calculated in accordance with the mining legislation applying in the Northern
Territory or, in the case of uranium, the relevant Commonwealth legislation. The calculation of these royalties is set out in the legislation and the Commonwealth then pays the equivalent into the ABA in accordance with the ALRA. The ALRA then sets out the criteria for the distributions as discussed in Chapter 3. The MWT is calculated in respect of a fund of money that is very simple to identify. This is essential for the
159 John A Greig, ‘Aspects of Interest Withholding Tax’ (1993) Revenue Law Journal 27, 29. For a general discussion regarding tax policy and the relevance and importance of simplicity (expressed as certainty and convenience) refer Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (1776) Book Five, Chapter II. 160 Mining payments made to either a distributing body or Aboriginal person and which have attracted mining withholding tax are non-assessable non-exempt income under ITAA 97 s 59- 15. The result is that the mining payment is subject to a current tax rate of 4 per cent and is otherwise excluded from ordinary income tax. 422 smooth operation of this type of tax as the definition of the fund out of which the tax is payable is key to a withholding tax regime. Other examples of withholding taxes apply to dividends, interest and royalties paid to non-residents.161 In each of these legislative provisions the scope of the relevant fund is clearly defined in the legislation and by case law.162
It was demonstrated in Chapter 2 that there are many different variations of agreements and mining payments that may arise from mining on native title land.163 Although many
Indigenous Land Use Agreements under the NTA are confidential, the model agreements discussed in Chapter 2 demonstrate the variety of agreements and that they range from one-off payments, to annual payments and to payments that are in the form of royalties linked to mineral extraction and mining profits.164 The first two case studies in Chapter 5 are also examples of very different types of agreements that may be negotiated under the NTA. The variation in the terms of agreements and the types of payments negotiated make it a very difficult and complex task for the legislature to draft a definition of native title payment that would capture the majority of payments.
Furthermore, the complexity of this definition could lead to interpretation issues which would reduce the simplicity of the regime and significantly add to the compliance costs
161 For example, dividends paid by a resident Australian company to a non-resident taxpayer are subject to withholding tax under ITAA36 s 128B. The withholding tax is imposed regardless of whether or not the dividends are otherwise assessable as ordinary income and is imposed on the gross amount of the dividend, so no deductions are made from the dividend. 162 For dividends: ITAA36 s 128B(1); interest: ITAA36 s 128B(2); royalties: ITAA36 s 128B(2B). In each of these situations a body of case law has been developed over many years that assists in the determination of these concepts. 163 Lisa Strelein, ‘Taxation of Native Title Agreements’ (Research Monograph No 1, AIATSIS, 2008); Lisa Strelein and Tran Tran, ‘Taxation, Trusts and the Distribution of Benefits under Native Title Agreements’ (Native Title Research Report No 1, AIATSIS, 2007). 164 Ciaran O’Faircheallaigh, ‘Native Title and Agreement Making in the Mining Industry: Focusing on Outcomes for Indigenous Peoples’ (2004) 2 (25) Land, Rights, Laws: Issues of Native Title 1. 423 of any paying entity. Although the Australian Government has drafted legislation that defines a ‘native title benefit’, as discussed earlier in this Chapter this is a broad definition and it may require some further discussion and even case law before its boundaries are clear.
7.6.1.3 Equity
As demonstrated in Chapter 4 of this thesis, imposing a tax regime that is different to ordinary income tax principles can lead to inequity from a tax policy perspective. As discussed previously, many native title payments are not liable to income tax.
Furthermore, as was clearly demonstrated in Chapter 4, distributions to individual members of Native Title Groups or individual Traditional Owners are unlikely to result in an income tax liability. Indigenous Australians in remote communities often have a low or nil income tax liability and this will still be the case even if individual payments
(at the level discussed in Chapter 4) are made to them. A native title withholding tax would therefore lead to the same inequities as the current MWT.
In addition, as demonstrated in Chapters 4 and 5 many Native Title Groups have established charitable entities to receive mining payments. The imposition of a regime similar to the MWT would lead to inequitable tax treatment of these charities. This problem could be overcome by the proviso that if the recipient of the native title payment is an income tax exempt entity then the tax does not apply, however once exceptions are added to the system it begins to lose the advantage of legislative simplicity.
Finally, a withholding tax is aimed at granting a credit against tax that would otherwise be payable but which it is difficult administratively to collect and/or calculate. For
424 example, withholding tax is payable by non-resident taxpayers on interest, dividends and royalties to ensure that some tax is collected as otherwise these entities may not lodge tax returns and pay tax. In the case of native title mining payments, as demonstrated in Chapter 2, there are many situations where no tax is payable so the introduction of a MWT poses serious equity issues.
7.6.2 Public Submissions to the Consultation Paper Native Title, Indigenous
Economic Development and Tax
There were 32 public submissions made to Treasury in response to Native Title,
Indigenous Economic Development and T ax.165 Submissions were made by representatives of Indigenous Australians including the Central Land Council, Cape
York Land Council Aboriginal Corporation and NTSCORP Limited. BHP Billiton made a submission as did the MCA. The Australian Human Rights Commission also made a submission and so did the Western Australian Government. These submissions were from organisations with widely differing missions and perspectives and are a reasonable cross section of stakeholders in the area of mining and native title. Twenty six submissions argued against the imposition of a native title withholding tax for the reasons I have identified. Five did not address the introduction of this type of tax. Only one submission, from the Law Council of Australia, considered that a native title withholding tax might be simpler and more cost effective than an income tax exempt fund. This submission did however point out that this form of tax should only proceed on the basis that the payments were otherwise ordinary income and that compliance costs would outweigh the risks to the revenue. The submission also commented that
165 Submissions to Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper, 8 December 2010
The view of the majority of stakeholders in the native title area who were motivated to make submissions to the Consultation Paper is that a native title withholding tax is not appropriate given the proven inequities of the MWT and the problems with defining native title payments.
7.6.3 Further Disadvantages
A native title withholding tax would only apply to mining payments. It does not apply to accumulation and investment of these payments to provide intergenerational benefits.
Where the MWT applies, the charitable structure is commonly used to enable income tax exemption for other income and to allow for a formal structure that facilitates charitable purposes and activities. A native title withholding tax would therefore not necessarily reduce the need of communities to establish charities.
7.6.4 Summary
In my view the simplicity advantages of a MWT would not be able to be replicated in a withholding tax for native title payments. This is due to the difficulty of capturing all types of payments and compensation in respect of mining under the NTA in a definition that is easy to draft, understand and administer. Furthermore, the equity issues that arise in respect of the MWT also apply to a native title withholding tax and make such a tax inequitable in terms of tax policy. Finally, this tax would not alleviate the need for
Indigenous communities to establish charities as it would not apply to income generated
166 Law Council of Australia, Submission to Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper, 30 November 2010, 8. 426 by accumulation and investment of the mining payments. Indigenous Australians would therefore still be faced with the legal barriers imposed by the establishment of charities under current charity law if they wish to maximise the investment income from mining payments in an income tax exempt manner. For these reasons I do not support the introduction of a native title withholding tax.
7.7 Conclusion
In view of the inherent complexity, from a legal perspective, of understanding and applying taxation law to the already legally complex area of native title law it is essential that the Federal Government clarifies the tax position. This is important so that
Native Title Groups either as individuals or, more commonly, through corporate representatives can then concentrate on the essential business of managing native title. I therefore argue that Australia should immediately exempt payments, in respect of native title and mining payments as defined in Division 11C of the ITAA36, from income tax.
In respect of mining payments as defined in Division 11C this would be straightforward as these payments are clearly defined in the legislation and the lack of litigation or ATO rulings on this area indicate that there are no issues regarding the interpretation of the definition. With regard to native title payments the Federal Government has released draft legislation which, if enacted, will exempt certain payments in respect of native title from assessable income. There may be some analysis issues that arise, as discussed earlier in this Chapter, however this is an important first step in recognising that the majority of native title payments, as discussed in Chapter 2, are not subject to income tax under income tax law principles.
In addition, I argue that Australia should follow the example of New Zealand and amend its income tax legislation to provide that a blood relationship does not prevent 427 compliance with the public benefit test of an otherwise charitable entity for the advancement of Native Title Groups and Traditional Owners. Such an amendment would be simple to enact and already has legislative precedent. It would mean that even if mining payments to Native Title Groups and Traditional Owners are exempt from income tax that NFPs could be established for the benefit of small Indigenous groups and still gain all the benefits of charitable status including income tax exemption for income generated by the investment of these mining payments. It is also important that
Native Title Groups and Traditional Owners are able to establish charities as this status is often an essential prerequisite to the gaining of community grants.167
In addition to the reforms discussed above, I argue that the Federal Government should enact legislation to introduce the IED Corporation. The IED Corporation is an alternative income tax exempt organisation that has the potential to overcome the difficulties faced by Indigenous Australians’ use of charities. Furthermore the identification of a specific income tax exempt entity for Indigenous economic and community development would remove Indigenous development from the stigma of receiving welfare and charity and recognise it as a significant part of the Australian mainstream economy.
As demonstrated in my discussion in this Chapter, the Community Service Provider is an income tax exempt entity that can provide practical or tangible help, benefit or
167 David Brown, ‘The Charities Act 2005 and the Definition of Charitable Purposes’ (2005) 21(4) New Zealand Universities Law Review 598, 620 states that in New Zealand marae were not able to access grants from community trusts because before the 2003 reforms they could not gain charitable status. Also see Craig Fisher, ‘Is the Definition of Charitable Purpose Relevant to New Zealand Society in 2012?’ (Paper presented at New Zealand Charities Commission Charitable Purpose Forum, Wellington, New Zealand, 17-18 April 2012) 1, states that ‘Many funding providers use registered charitable status as a means to cull or limit applications to them’. This is often the situation in Australia eg the Sidney Myer Foundation. 428 advantage to a remote community.168 This entity already exists and Native Title Groups and Traditional Owners should be encouraged to establish a Community Service
Provider to provide services to the community that they are not able to do through the current charity structure.169 This may not however be necessary if the IED Corporation is legislated as its purposes and functions would also include community development.
Finally, I argue against the proposal for a native title withholding tax. A withholding tax is considered, from a tax policy perspective, to be certain and simple. This is the significant advantage of a withholding tax as opposed to an income tax which is complex from a collection perspective due to progressive tax rates for individuals and which is complex and uncertain due to determinations of income, tax deductions and tax rebates or off-sets that are specific to each individual recipient. However many native title payments are not taxable under ordinary income tax principles. This raises significant equity issues for the introduction of a native title withholding tax.
Furthermore, although it has now been attempted, there are still potential difficulties with implementing a definition of native title payments. A native title withholding tax is therefore unlikely to be as simple to administer as the MWT. In any event, as the
Federal Government has proposed to exempt from income tax native title payments it seems that the motivation for a native title withholding tax no longer exists.
168 Wentworth Case [2011] FCAFC 42 [31], [45]. 169 Fiona Martin, ‘An Indigenous Economic Development Corporation: How Does this Compare to a Charity?’ (2012) 7(30) Indigenous Law Bulletin 12. 429 Chapter 8: Conclusion
8.1 Introduction
This thesis is an evaluation of existing income tax regimes for mining payments made pursuant to the Native Title Act 1993 (Cth) (NTA) and the Aboriginal Land Rights
(Northern Territory) Act 1976 (Cth) (ALRA) and of five proposals for legal reform.
In this thesis I have demonstrated that the application of income tax principles to payments made under model resource agreements to Indigenous Australians1 is unclear and complex. I have also demonstrated that one of the results of this complexity and lack of certainty is the extensive use of charities by Native Title Groups2 that receive mining payments pursuant to the NTA. I have demonstrated that the mining withholding tax (MWT) imposed on ‘mining payments’ paid to Traditional Owners3 under ALRA is inconsistent with income tax law principles and tax policy. Furthermore, I have confirmed that Traditional Owner groups also use charities to receive mining payments.
The articulation of the application of income tax law principles to native title payments and mining payments is a significant and original contribution to the literature in taxation law. It is the first time that there has been a comprehensive analysis of the application of income tax principles and CGT provisions to payments made in accordance with the NTA and the ALRA. The significance is supported by the fact that
1 This is the term used in this Chapter to refer to Native Title Groups and Traditional Owners and other Indigenous Australians generally. 2 This is the term used in this Chapter to refer to Indigenous Australians with a Federal Court determination of their native title interests and those who assert native title rights, whether as formal claimants under the NTA or otherwise. 3 This is the term used in this Chapter to refer to Traditional Aboriginal Owners defined in ALRA s 3. 430 on 6 June 2012 the Attorney-General announced that the Government will amend the
Income Tax Assessment Act 1997 (Cth) (ITAA97) to make it clear that specific native title payments and non-cash benefits are not subject to income tax.4 This proposal is discussed in Chapters 2 and 7.
In respect of the use of a charity structure by Native Title Groups and Traditional
Owners my research has identified that there are certain legal limitations and barriers to the use of this entity as a vehicle for Native Title Groups and Traditional Owners. I argue that these limitations and barriers impose significant impediments to the efficient operation of the affairs of Native Title Groups and Traditional Owners. As a consequence I have identified and evaluated five proposals for reform of this area both in respect of taxation law and charity law.
8.2 Summary of Research Findings Chapters 2-7
In Chapter 2 I have explained the application of income tax law principles to payments made pursuant to the NTA in the context of exemplar resource agreements. I have argued that in certain situations such as the extinguishment of native title, payments are not income under ordinary income tax principles as they are for damage to a capital asset and therefore capital in nature. I have also argued that these payments are not subject to capital gains tax (CGT) under the ITAA97 because native title interests were acquired by Native Title Groups prior to the introduction of CGT in 1985. Furthermore,
I argue that payments in respect of intangible assets that might arise after the introduction of CGT under the NTA are in reality for damage to the underlying pre-
4 Attorney-General’s Department, ‘Native Title Reform, Amendments to Tax Legislation’ http://www.ag.gov.au/Indigenouslawandnativetitle/NativeTitle/Pages/Nativetitlereform.aspx#act ; see Tax Laws Amendment (2012 Measures No 6) Bill 2012 which was introduced into the House of Representatives on 29 November 2012. 431 CGT asset. If these arguments are accepted then there is no CGT liability. I have reached these conclusions using income tax law principles as there is limited case law and no Australian Taxation Office (ATO) public ruling supporting this result.
In this Chapter I further demonstrate that the application of income tax principles to some payments made under certain resource agreements is not clear. I point out in
Chapter 2 and in Case Studies 1 and 2 in Chapter 5 that the provisions of the NTA are used by Native Title Groups and mining companies to enter into mutually beneficial agreements that will allow mining on native title land. These agreements will vary between areas depending on a number of factors including the status of the native title claim, the type of mining that is taking place, its potential size and profitability and the negotiating strength of the respective parties. The complexity of these arrangements and their commercial and mining law terminology leads to lack of clarity in the application of income tax law to the resulting financial payments. I argue that some payments although termed royalties for the purpose of the relevant agreement are in reality in respect of damage to the underlying native title and should therefore be considered capital. The result is that they are arguably not ordinary income. However this conclusion is not as clear as where the payment is a one-off or a limited series of payments. Flowing from this is my discussion of CGT principles in these situations. I argue that in many cases CGT does not apply as the payments are in respect of the underlying asset, the native title, which was acquired by the Native Title Group prior to
September 1985.
My analysis in Chapter 2 recognises that there are certain situations where payments made pursuant to resource agreements may be income. This is where the payments exhibit income- like characteristics and the commercial arrangement supports this
432 conclusion. For example, where the payment is akin to a rental payment for access to the land it is likely to be income. My discussion concludes with a consideration of the application of CGT events D1 and H2. These events apply if no other CGT provision does. I demonstrate the particular circumstances where it is possible that these events will apply.
In Chapters 3 and 4 of this thesis I describe and analyse the interaction between Part II,
Division 11C of the Income Tax Assessment Act 1936 (Cth) (ITAA36) and the complex legislative scheme that is established under ALRA for the distribution of mining royalty equivalents in respect of ‘Aboriginal land’.5 I demonstrate how these provisions impose a MWT on mining payments and also exclude the application of general income tax law principles. I then apply income tax law principles to these mining payments. My analysis leads to several important conclusions. First, I argue that payments that fall within the definition of ‘mining payments’ in Division 11C and which are paid to corporations that represent Traditional Owners and other Indigenous Australians living in mining affected areas are not income and therefore should not be subject to tax. The income producing activity is the mining. The mining company pays royalties to the
Northern Territory Government under Territory legislation in order to be allowed to mine. In the case of uranium mining, royalties are paid to the Commonwealth
Government. In accordance with the ALRA, the Commonwealth Government (not the
Northern Territory) pays equivalent amounts of these royalties into an account called the Aboriginals Benefit Account (ABA). These payments are commonly referred to as mining royalty equivalents (MREs). The Commonwealth Government then distributes out of the ABA 30 per cent of the MREs to the Land Councils where mining is taking place. The Land Council then makes payments to corporations that represent the
5 Defined in ITAA36 s 128U. 433 Traditional Owners and other Indigenous residents in the mining area. The application of income tax principles to these payments demonstrates that they are not ordinary income as they are not royalties under either the common law or the ITAA97. Nor are they statutory income under the CGT provisions.
Alternatively, my application of income tax law principles to mining payments highlights the argument that such payments may not be ordinary income or statutory income under the CGT provisions. The reason that they may not be income is that they are for damage to a capital asset. The reason that they are then not subject to CGT is that the relevant asset was acquired by the Traditional Owners prior to 20 September
1985. I base my conclusions on similar reasoning to that discussed in Chapter 2 in respect of payments for mining pursuant to the NTA.
My research in Chapter 3 analyses the other two streams of payments that are made from the ABA in accordance with the ALRA. I argue that the payments made to the
Northern Territory Land Councils established under ALRA to cover their expenditure is not income as it is in effect reimbursement of the expenses incurred to carry out their statutory functions. I also demonstrate that the specific distributions from the ABA that are referred to as beneficial payments are in reality government grants and not income according to income tax principles or statutory income under the CGT provisions. These grants are made at the discretion of the Minister for certain purposes established in guidelines accepted by the Department of Families, Community Housing and
Indigenous Affairs. These payments do not display any characteristics of ordinary income and are not statutory income under CGT. Government grants do not ordinarily attract income tax liability.
434 My research in Chapters 3 and 4 demonstrates that the majority of distributions from the
ABA are paid to income tax exempt charities established by or on behalf of Traditional
Owners. These charities are therefore paying a type of income tax in the form of a
MWT, where otherwise they would not be liable to income tax. I argue that this is a breach of the taxation law principle of horizontal equity, as charities receiving mining payments arising under legislation other than the ALRA are exempt from all income tax on these payments.
In Chapter 4 I examine data obtained from the ATO relating to the taxable incomes of individual taxpayers in remote areas of Australia where Indigenous Australians are the majority of residents. I demonstrate through the application of this data that a large proportion of taxpayers in these areas are on incomes that are below the taxable level. I use a hypothetical example to then demonstrate that even if some payments of MREs were made to individual Traditional Owners their income tax liability would still be nil.
I compare this example to a hypothetical taxpayer on a higher taxable income who is not in receipt of MREs. This taxpayer also has a nil tax liability even though they are in receipt of approximately $5,000 additional income. I argue that there is a breach of the principle of horizontal equity as the Traditional Owner bears the economic burden of the MWT when other taxpayers on the same or slightly higher incomes are not liable for any tax.
My discussion of the application of income tax law principles to payments to Native
Title Groups and Traditional Owners in respect of mining, together with my identification of the use by these groups of charities leads to an analysis of the ways in which Indigenous charities participate in mining agreements. In Chapter 5 I use three
Case Studies to examine the rationale for the use of the charitable entity as part of a
435 resource agreement. I demonstrate that the major advantage of this structure is the exemption from income tax of not only the mining payments but any income generated by these payments such as investment income and income produced by the charity carrying on a business. My analysis demonstrates that the structure does not however prevent the imposition of the MWT on mining payments pursuant to ALRA. I also demonstrate that the establishment of a charity solely to gain income tax exemption for the mining payments may have been unnecessary.
The discussion in Chapter 5 leads into the analysis in Chapter 6 of the legal requirements for the establishment of a charity. My discussion reveals that there are specific legal barriers to attaining charitable status by Indigenous groups together with certain legal limitations that they face when using this structure for community development purposes that fall outside charitable purposes. The most significant limitation identified is that not-for-profits (NFPs) established for the benefit of
Indigenous Australians who are defined through a family connection are not eligible for charitable status (except where established solely for the relief of poverty). This limitation is a development of the English common law and has been applied in
Australia in case law relating to Indigenous charities. This limitation poses a barrier to the establishment of charities by Native Title and Traditional Owner groups defined through descent from a common ancestor or through a family relationship. A further significant issue that my research identifies is the uncertainty over whether or not holding and managing native title interests by Native Title Groups or ‘Aboriginal land’ by Traditional Owners is a separate charitable purpose.
Furthermore, I demonstrate that use of charities as a vehicle for community development purposes is restricted and that this poses difficulties for Native Title
436 Groups and Traditional Owners. The legal concept of charity provides that a charity must be established solely for a charitable purpose(s). The categories of charitable purpose have been developed by the common law and although some are relevant to
Indigenous community development there are aspects of community development which fall outside these purposes. The objectives of promoting Indigenous businesses through loans and start up funds, assisting Indigenous sporting associations and undertaking and supporting Indigenous festivals are not separate charitable purposes.
Native Title Groups and Traditional Owners are therefore prevented from establishing charities that have one or all of these objectives as separate purposes not otherwise ancillary to a charitable purpose. My research also indicates that many Indigenous communities use a charitable structure to carry on businesses that assist the community and bring in income. The common law of Australia currently recognises that a charity can carry on a business6 however the Commonwealth Government has announced that it will amend the law to limit this. The result will be that NFPs will be required to pay income tax on profits from commercial activities that are not related to their charitable purpose and that are not directed back to this purpose.7 A further limitation which is of particular relevance to Indigenous communities is the requirement that charities distribute their income after certain time periods established by the ATO. Mines commonly continue in existence for over 10 years and Native Title Groups and
Traditional Owners often wish to invest and accumulate certain portions of the income from the mine over its lifetime in order to establish a significant fund for intergenerational benefits.
6 Commissioner of Taxation v Word Investments Limited [2008] HCA 55. 7 Australian Government, ‘Budget 2011-2012, Not-for-Profit Sector Reforms’
In Chapter 7 I evaluate five proposals for reform of either income tax law or charity law that flow from my discussions in Chapters 2-6. In my analysis of each proposal I have considered the following criteria as a framework against which to evaluate them. These criteria have been identified from my discussions in Chapters 5 and 6 as being important to Native Title Groups and Traditional Owners that receive mining payments.
Not every criterion is however necessarily relevant to each response.
1. Income tax exemption of all mining payments and also of the investment income generated;
2. The need for certainty in the taxation of mining payments, from the taxpayer, mining company and revenue perspective;
3. The balance between the competing ideals of public benefit and customary law support for family and kinship;
4. Whether the entity can have commercial and community development objectives and activities;
5. The ability of an entity to accumulate income so that a capital fund can be established for the benefit of future generations; and
6. The ability of the entity to have perpetual succession.
The first proposal is that the ITAA97 is amended to ensure that mining payments arising under the provisions of the NTA are exempt from income tax and that mining payments as defined in Division 11C are exempted from all forms of income tax. The result would be that the MWT is abolished. These reforms partly satisfy criterion 1.
438 They would however satisfy criterion 2 in that there would be certainty in respect of the income tax consequences of payments under resource agreements which does not currently exist for payments under the NTA.
The second proposal is that a new income tax exempt entity is established which is referred to as an Indigenous Economic and Community Development Corporation (IED
Corporation). This entity would have all the benefits of a charity together with additional advantages specifically relevant to Indigenous communities. The main additional benefit is that it could be established by Native Title Groups and Traditional
Owners that are defined through their family relationships. Further advantages of the
IED Corporation are that it has the ability to operate Indigenous businesses, fund and make loans to Indigenous businesses and engage in community development purposes and activities. It would also have flexibility in accumulation and distribution of its income. Accumulation and distribution plans would be set in accordance with the needs and timelines of the relevant community rather than any arbitrary benchmark period set by a regulator. The IED Corporation would satisfy the entire list of criteria set out above.
The third proposal is that Australia acknowledges the unique value of the extended family to Native Title Groups and Traditional Owners in a similar way to New Zealand.
The New Zealand Government has recognised the place of Maori in New Zealand culture and society and amended its income tax legislation to state that an otherwise charitable entity does not fail the public benefit test where its beneficiaries are connected by blood. There is no case law on this provision, however two New Zealand
Charities Commission decisions have interpreted it narrowly so that the public benefit test is still failed where the beneficial group are descended from a common ancestor.
439 The Commission has however publicly stated that an iwi8 is a sufficient section of the public under the expanded definition of charity. A similar amendment in Australia stating that a charity for the benefit of a Native Title Group or group of Traditional
Owners would not fail the public benefit requirement because of the family relationship would at the least recognise that these groups as First Nations are a sufficient section of the public for Australian charity law purposes. In order to maintain the integrity of the law relating to charities and protect the revenue base such an entity would still have to satisfy all other requirements to be a charity. This proposal would satisfy criterion 3.
The fourth proposal is that Indigenous Australians consider using the existing income tax exempt entity, the ‘Community Service Provider’ to supply community services such as facilitating banking in remote areas. In Chapter 7 I discuss the limited case law on s 50-10 of the ITAA97 which establishes this entity and highlight the potential benefits to Indigenous communities of its use. The Community Service Provider was created to provide income tax exemption to entities that do not fall within the concept of charity but which are NFP and which undertake services that benefit a community. My research particularly focuses on the only Full Federal Court decision that considers this entity and which held that an NFP that facilitated banking in a remote community where there was no face-to face banking was a Community Service Provider. I argue that
Community Service Providers could be used by remote Indigenous communities for a number of purposes that are not available to them through the use of a charity. These purposes include the facilitation of face to face banking which is lacking in many remote communities, community stores and other organisations that provide a tangible
8 Iwi is a term for the Maori peoples or nations. It is used to refer to the traditional Maori tribal hierarchy and social order made up of hapu (kin groups) and whanau (family groups) having a founding ancestor and territorial or tribal boundaries; see Inland Revenue Department, Policy Advice Division, Taxation of Maori Organisations, A Government Discussion Document, Glossary of Terms (August 2001). 440 service to the community. This entity would partly satisfy criterion 4 and wholly satisfy criterion 6.
The final proposal is an evaluation of the native title mining withholding tax which was proposed by Treasury in 2010.9 I conclude in Chapter 7 that there are significant drawbacks to the introduction of this tax that far outweigh its advantages. In particular I identify the same tax equity issues that I have raised in respect of the MWT. For the same reasons that I provide for the abolition of the MWT I argue that a native title withholding tax should not be introduced.
8.4 Conclusion
In conclusion, the complexity of income tax law and charity law as applied to mining payments to Native Title Groups and Traditional Owners, requires a multi-pronged approach to reform. My thesis has demonstrated that the application of income tax law principles to mining payments is so complex and confusing that reform is essential.
When this position is also added to a situation of inequitable taxation treatment, the arguments in favour of reform become even stronger. The legal barriers and limitations that charity law poses for Native Title Groups and Traditional Owners which I have analysed also strongly support my arguments for reform of the charity law area. As well as amending income tax law to exempt mining payments from all forms of income tax including the MWT the introduction of the IED Corporation would grant recognition of the importance of economic and community development to Indigenous Australians and support their endeavours through the tax concession of income tax exemption. The amendment of charity law to recognise Native Title Groups and Traditional Owner
9 Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper (2010). 441 groups as a section of the public would provide validation for them as an important part of Australia’s community and culture.
442 Bibliography
Books
Australian Master Tax Guide (CCH, 49th ed, 2011).
Frederick Maxwell Bradshaw, The Law of Charitable Trusts in Australia (Butterworths, 1983).
P Butt, Land Law (LBC Information Services, Sydney, 3rd ed, 1996).
Michael Chesterman, Charities, Trusts and Social Welfare (Weidenfeld & Nicholson, 1979).
James S Coleman, Foundations of Social Theory (First Harvard University Press, 1990).
Gordon Cooper and Chris Evans, Cooper & Evans on CGT (Thomson Reuters Australia, 2009).
J Corbin and A Strauss, Basics of Qualitative Research (Sage Publications, 3rd ed, 2008).
Gino Dal Pont, Law of Charity (LexisNexis Butterworths, 2010).
G E Dal Pont, Equity and Trusts in Australia (5th ed, Thomson Reuters, 2011).
Katie Glaskin et al (eds), Mortality, Mourning and Mortuary Practices in Indigenous Australia (Ashgate Publishing, 2008).
Mervyn Horsley, The Law and Administration of Associations in Australia (Butterworths, 1976).
Gareth Jones, History of the Law of Charity 1532–1827 (Cambridge University Press, 1969).
W K Jordan, Philanthropy in England 1480–1660: A Study of the Changing Pattern of English Social Aspirations (Allen & Unwin, 1959).
S Kenny, Developing Communities for the Future (Thompson, 3rd ed, 2006).
Macquarie Dictionary On-Line http://www.library.unsw.edu.au/.
Heather McRae et al, Indigenous Legal Issues: Commentary and Materials (Thomson Reuters, 4th ed, 2009).
Christos Mantziaris and David Martin, Native Title Corporations: A Legal and Anthropological Analysis (Federation Press, 2000).
443 Kerry O'Halloran, Charity Law and Social Inclusion: An International Study (Routledge, 2007).
Kerry O’Halloran, The Politics of Charity (Routledge, 2011).
Denis S K Ong, Trusts Law in Australia (Federation Press, 2007).
Oxford Dictionary (Oxford University Press, 2011).
Ross Parsons, Income Taxation in Australia (Law Book Company Limited, 1985).
Hubert Picarda, The Law and Practice Relating to Charities (Butterworths, 3rd ed, 1999).
Robert Putnam, Making Democracy Work: Civic Traditions in Modern Italy (Princeton University Press, 1993).
David Ritter, Contesting Native Title (Allen & Unwin, 2009).
C Sandford, M R Godwin and P J W Hardwick, Administrative and Compliance Costs of Taxation (Fiscal Publications, 1989).
Henry Simons, Personal Income Taxation: The Definition of Income as a Problem of Fiscal Policy (University of Chicago Press, 1938).
Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (first published 1776) Book Five, Chapter II.
W E H Stanner, White Man Got No Dreaming, Essays 1938–1973 (Australian National University Press, Canberra, 1979).
Peter Sutton, Native Title in Australia: An Ethnographic Perspective (Cambridge University Press, 2003).
Robin Woellner et al, Australian Taxation Law (CCH, 22nd ed, 2012).
Book Chapters
John Bale and Mike Cronin, ‘Sport and Post Colonialism’ in John Bale and Mike Cronin (eds), Sport and Post Colonialism (Berg, 2003) 8.
R M Berndt, ‘Traditional Concepts of Aboriginal Land’ in R M Berndt (ed), Aboriginal Sites, Rights and Resource Development (University of Western Australia Press, Perth, 1982) 2.
Neil Brooks, ‘Taxing the Wealthy’ in Chris Evans, Richard Krever and Peter Mellor (eds), Australia’s Future Tax System: The Prospects After Henry (Thomson Reuters, 2010) 179.
444 Peter Crooke, Bruce Harvey and Marcia Langton, ‘Implementing and Monitoring Indigenous Land Use Agreements in the Minerals Industry: The Western Cape Communities Co-existence Agreement’ in Marcia Langton et al (eds), Settling with Indigenous People (Federation Press, 2006) 95.
Kim Doohan, Marcia Langton and Odette Mazel, ‘From Paternalism to Partnership: The Good Neighbour Agreement and the Argyle Diamond Mine Indigenous Land Use Agreement in Western Australia’ in Marcia Langton and Judy Longbottom (eds), Community Futures, Legal Architecture: Foundations for Indigenous Peoples in the Global Mining Boom (Routledge, 2012) 243.
Chris Evans and Binh Tran-Nam, ‘Controlling Tax Complexity: Rhetoric or Reality?’ in Chris Evans, Richard Krever and Peter Mellor (eds), Australia’s Future Tax System: The Prospects After Henry (Thomson Reuters, 2010) 439.
Robert Haig, ‘The Concept of Income-Economic and Legal Aspects’ in Robert Murray Haig (ed), The Federal Income Tax (Columbia University Press, 1921) 1.
Bruce Harvey, ‘Rio Tinto’s Agreement Making in Australia in a Context of Globalisation’ in Marcia Langton et al (eds), Honour Among Nations (Melbourne University Press, 2004) 237.
J King, ‘The Concept of Income’ in Parthasrathi Shome (ed), Tax Policy Handbook (International Monetary Fund, Washington, 1995) 117.
Marcia Langton and Angus Frith, ‘Legal Personality and Native Title Corporations: The Problem of Perpetual Succession’ in Lisa Strelein (ed), Dialogue About Land Justice: Papers from the National Native Title Conference (Aboriginal Studies Press, 2010) 170.
K D MacDonald, ‘Commercial Implications of Native Title for Mining and Resources’ in Bryan Horrigan and Simon Young (eds), Commercial Implications of Native Title (Federation Press, 1997) 114.
Greg McIntyre, ‘Native Title is Property’ in Lisa Strelein (ed), Dialogue About Land Justice: Papers from the National Native Title Conference (Aboriginal Studies Press, 2010) 52.
Fiona Martin, ‘The Income Tax Exempt Charitable Structure as a vehicle for holding Australian Native Title Interests: Some lessons from New Zealand’ in Marcia Langton and Judy Longbottom (eds), Community Futures, Legal Architecture: Foundations for Indigenous Peoples in the Global Mining Boom (Routledge, 2012) 195.
Debra Morris, ‘The Long and Winding Road to Reforming the Public Benefit Test for Charity: A Worthwhile Trip or “Is Your Journey Really Necessary?”’ in Kerry O’Halloran and Myles McGregor-Lowndes (eds), Modernising Charity Law: Recent Developments and Future Directions (Edward Elgar Publishing, 2010) 103.
445 Lisa Palmer and Maureen Tehan, ‘From Remnant Lands to Sustainable Communities: Negotiating Spaces for Indigenous Land and Jurisdiction in Darwin and Vancouver’ in Marcia Langton et al (eds), Settling with Indigenous People (Federation Press, 2006) 231.
Susan D Phillips and Steven Rathgeb Smith ‘Between Governance and Regulation: Evolving Government-Third Sector Relationships’ in Susan D Phillips and Steven Rathgeb Smith (eds), Governance and Regulation in the Third Sector (Routledge, 2011) 1.
Hal Wootten, ‘Mediating Between Aboriginal Communities and Industry’ in Gary Myers (ed), Implementing the Native Title Act: The Next Step: Facilitating Negotiated Agreements (National Native Title Tribunal, Perth, 1996) 179.
George Yapao, Lee Godden and Steven Pettigrove, ‘Papua New Guinea: Conflicts, Customary Landholding and Resource Exploitation’ in Marcia Langton and Judy Longbottom (eds), Community Futures, Legal Architecture: Foundations for Indigenous Peoples in the Global Mining Boom (Routledge, 2012) 77.
Journal Articles
J C Altman, ‘The Payment of Mining Royalties to Aborigines: Compensation or Revenue?’ (1984) 5(3) Anthropological Forum 474.
Jon Altman, ‘Land Rights and Aboriginal Economic Development: Lessons from the Northern Territory’ (1995) 2(3) Agenda 291.
P S Atiyah, ‘Public Benefit in Charities’ (1958) 21 Modern Law Review 138.
Warren Black, ‘Tax Implications to Native Title Holders of Compensation Payments’ (1999) Journal of Australian Taxation 344.
Warren Black, ‘Transferring Native Title to a Body Corporate under the Native Title Act 1993 (Cth) – Can CGT Arise? (2000) Journal of Australian Taxation 155.
Kim Brooks, ‘Tax Treaty Treatment of Royalty Payments from Low-Income Countries: A Comparison of Canada and Australia’s Policies’ (2007) 5(2) eJournal of Tax Research 169.
D Brown, ‘The Charities Act 2005 and the Definition of Charitable Purposes’ (2005) 21(4) New Zealand Universities Law Review 598.
David Brown, ‘Charities and Public Benefit’ (2001) New Zealand Law Journal 69.
Emma E Campbell and Christopher C Sonn, ‘Transitioning into the AFL: Indigenous Football Players’ Perspectives’ (2009) 11(3) Athletic Insight: The Online Journal of Sport Psychology.
446 Julie Cassidy, ‘Black Fella Land-White Fella Tax: Changing the CGT Implications of Aboriginal/Native Title’ (2010) 25 Australian Tax Forum 397.
Graeme Cooper, ‘Themes and Issues in Tax Simplification’ (1993) 10 Australian Tax Forum 417.
A J Culyer, J Wiseman and J W Posnett, 'Charity and Public Policy in the UK- The Law and the Economics' (1976) 10 Social and Economic Administration 32.
Harvey Dale, ‘Withholding Tax on Payments to Foreign Persons’ (1980-1981) 36 Tax Law Review 49.
Chris Evans and Binh Tran-Nam, ‘The Impact of Cedric Sandford on the Discipline of Tax Compliance Costs’ (2002) 17 Australian Tax Forum 389.
Chris Evans and Binh Tran-Nam, ‘Managing Tax System Complexity: Building Bridges through Pre-filled Tax Returns’ (2010) 25 Australian Tax Forum 251.
Jocelyn Grace, ‘Claimant Group Descriptions: Beyond the Strictures of the Registration Test’ (1999) 2(2) Land, Rights, Laws: Issues of Native Title 1.
John A Greig, ‘Aspects of Interest Withholding Tax’ (1993) 3(1) Revenue Law Journal 27.
R Grose, ‘A Reconciliation Odyssey: Negotiation Towards 2001’ (2000) Queensland University of Technology Law Journal 81.
Matthew Harding, ‘Distinguishing Government from Charity in Australian Law’ (2009) 31 Sydney Law Review 559.
Chris Humphrey, ‘Compensation for Native Title: The Theory and the Reality’ (1998) 5(1) Murdoch University Electronic Journal of Law.
Ben Jacobsen and Roy Wybrow, 'Property Rights, Individual Incentives and Remote Area Aboriginal Economic Development' 13 (2007) Third Sector Review 21.
Richard Krever, ‘Taming Complexity in Australian Income Tax’ (2003) 25(4) Sydney Law Review 467.
Marcia Langton and Odette Mazel, ‘Poverty in the Midst of Plenty: Aboriginal People, the “Resource Curse” and Australia’s Mining Boom’ (2008) 26(1) Journal of Energy and Natural Resources Law 31.
John Litchfield, ‘Compensation for Loss or Impairment of Native Title Rights and Interests: An Analysis of Suggested Approaches (Part II)’ (2000) 19 Australian Mining and Petroleum Law Journal 44.
447 B G Lottermoser and P M Ashley, ‘Physical Dispersion of Radioactive Mine Waste at the Rehabilitated Radium Hill Uranium Mine Site, South Australia’ (2006) Australian Journal of Earth Sciences 485
M Mansell, ‘The Court Gives an Inch but Takes Another Mile’ (1992) 2 (57) Aboriginal Law Bulletin 4.
Kathy Marks ‘Tears of the Sun’ (2010) 28 Griffith Review 6 http://www.griffithreview.com/edition-28-still-the lucky-country/.
Fiona Martin, ‘Prescribed Bodies Corporate Under the Native Title Act 1993 (Cth): Can they be Exempt from Income Tax as Charitable Trusts?’ (2007) 30(3) University of New South Wales Law Journal 713.
Fiona Martin, ‘Is it Time for an Independent Regulator of the Non Profit Sector in Australia? (2009) 12 Tax Specialist 148.
Fiona Martin, ‘Native Title Payments and their Tax Consequences: Is the Federal Government’s Recommendation of a Withholding Tax the Best Approach?’ (2010) 33(3) University of New South Wales Law Journal 685.
Fiona Martin. ‘Local Government Rates Exemptions for Indigenous Organisations: The Complexities of a State by State System’ (2010) 14(1) Australian Indigenous Law Review 35.
Fiona Martin ‘The Legal Concept of Charity in the context of Australian Taxation Law: The Public Benefit and Commercial Activities, Important Issues for Indigenous Charities’ (2010) 25 Australian Tax Forum 275.
Fiona Martin, Brad Morse and Barbara Hocking, ‘The Taxation Exemption of Canadian Indians as Governments and Individuals: How Does this Compare with Australia and New Zealand?’ (2011) 40 Common Law World Review 119.
Fiona Martin ‘Community Service Providers and Indigenous Development’ (2011) Indigenous Law Bulletin 20.
Fiona Martin and Binh Tran-Nam, ‘The Mining Withholding Tax under Division 11C of the Income Tax Assessment Act 1936: It May Be Simple but is it Equitable? (2012) 27 Australian Tax Forum 149.
Fiona Martin, ‘An Indigenous Economic Development Corporation: How Does this Compare to a Charity?’ (2012) 7(30) Indigenous Law Bulletin 12.
Tom Middleton, ‘Native Title and Taxation Issues’ (2000) 28 Australian Business Law Review 86.
448 Jan H Mol and Paul E Ouboter, ‘Downstream Effects of Erosion from Small-Scale Gold Mining on the Instream Habitat and Fish Community of a Small Neotropical Rainforest Stream’ (2004) 18 Conservation Biology 201.
Jan H Mol et al, ‘Fishes of Lely and Nassau Mountains, Suriname’ (2007) RAP Bulletin of Biological Assessment 107.
D Moliere, KG Evans and K Turner, ‘Effect of an Extreme Storm Event on Catchment Hydrology and Sediment Transport in the Magela Creek Catchment, Northern Territory’ (2008) Water Down Under 1595.
Gavin M Mudd, ‘Radon Release from Australian Uranium Mining and Milling Projects: Assessing the UNSCEAR Approach’ (2008) 99 Journal of Environmental Radioactivity 288.
Owen G Nichols and Flora M Nichols ‘Long Term Trends in Faunal Recolonization After Bauxite Mining in the Jarrah Forest of Southwestern Australia’ (2003) 11 Restoration Ecology 261.
Ann O'Connell, 'The Tax Position of Charities in Australia - Why Does It Have To Be So Complicated?' (2008) 37 Australian Tax Review 17.
Rob O’Connor and J J Hockley, ‘Native Title Payments: Tax Implications Part 2 - Assessability’ (1997) 24 (11) Brief 14.
Ciaran O’Faircheallaigh, ‘Native Title and Agreement Making in the Mining Industry: Focusing on Outcomes for Indigenous Peoples’ (2004) 2 (25) Land, Rights, Laws: Issues of Native Title 1.
A Rahmatian, ‘The Continued Relevance of the “Poor Relations” and the “Poor Employees” Cases Under the Charities Act 2006’ (2009) Conveyancer and Property Lawyer 12.
Wendy Scaife, 'Challenges in Indigenous Philanthropy: Reporting Australian Grantmakers' Perspectives' (2006) 41 Australian Journal of Social Issues 437.
Ira Silver, 'Buying an Activist Identity: Reproducing Class through Social Movement Philanthropy ' (1998) 41 Sociological Perspectives 303.
Anthony Smith, ‘Indigenous Development -Without Community, Without Commerce’ Australian Review of Public Affairs, 4 September 2006
Maheswaran Sridiran ‘Taxation of Capital Gains and Horizontal Equity: A Review of the Australian Perception’ (2005) 20(1) Australian Tax Forum 41.
Stanley S Surrey and Gerrard N Brannon, ‘Simplification and Equity as Goals of Tax Policy’ (1968) 9 William & Mary Law Review 915.
449 Peter Sutton, ‘Aboriginal Country Groups and the Community of Native Title Holders’ (2001) National Native Title Tribunal Occasional Paper Series No 1.
Paul Tanti, ‘Capital Gains Tax: The Obscure Provisions’ (2011) Vol 45 (11) Taxation in Australia 668.
Binh Tran-Nam, ‘Tax Reform, Tax Simplification: Some Conceptual Issues and a Preliminary Assessment’ (1999) 21(3) Sydney Law Review 500.
John Tretola, ‘The Interpretation of Taxation Legislation by the Courts – A Reflection on the Views of Justice Graham Hill’ (2006) 16(1) Revenue Law Journal 73.
Matthew Turnour and Myles McGregor-Lowndes, ‘Taxing Charities: Reform Without Reason?’ (2012) Taxation in Australia 74.
John Walters, ‘Maori Trusts and Maori Charitable Bodies’ [2002] New Zealand Law Journal 65.
Jessica Weir, ‘Native Title and Governance: The Emerging Corporate Sector Prescribed for Native Title Holders’ (2007) 3(9) Land, Rights, Laws: Issues of Native Title 1.
Conference Papers
Nicholas Acheson, 'Local Community Governance: Government Funding, and Social Movements in Northern Ireland: The Disability Movement and the Third Party State' (Paper presented at the Association for Research and Nonprofit Organizations and Voluntary Action Conference, Montreal, Canada, 2002).
Helen Alexiou, ‘Alternative Models for Engaging and Developing Skills, Experience and Knowledge in Indigenous Youth: Pre-fieldwork Presentation for a PhD Thesis’ (Paper presented at the Centre for Aboriginal and Economic Policy Research Seminar, Canberra, October 2010).
Jon Altman, ‘Economic Development and Land Rights in the Northern Territory: Past Performance, Current Issues and Strategic Options’ (Paper presented at Land Rights- Past, Present and Future International Conference, Canberra, 16-17 August 1996).
Jon Altman, ‘Economic Development Barriers, Opportunities and Pathways’ (Paper presented at the Indigenous Economic Forum, Alice Springs, 6-7 March 2003).
Gary Banks, Chairman Productivity Commission, ‘Are We Overcoming Indigenous Disadvantage?’ (Paper presented at the third lecture in Reconciliation Australia’s ‘Closing the Gap’ Conversations’ Series, National Library, Canberra, 7 July 2009).
Wayne Bergmann, Kimberley Land Council, ‘Native Title in the Kimberley’ (Paper presented at AIATSIS National Native Title Conference, Darwin, 24-25 May 2006).
450 Wayne Bergmann, Kimberley Land Council, ‘Successful Negotiation: A Kimberley Story’ (Paper presented at the AIATSIS National Native Title Conference, Perth, 4-5 June 2008).
Julie Cassidy, ‘Changing Times-Changing the Tax Implications of Native Title’ (Paper presented at the Australasian Tax Teachers Association Conference, Sydney, 20-22 January 2010).
Ernest Change, ‘Capital Management Post-McNeil’ (Paper presented at the Annual Corporate Tax Intensive, Taxation Institute of Australia, NSW Division, 1-2 November 2007).
Suzanne Feeney, 'Leadership and Cultural Influences on Capacity Building: A Case Study of a Hispanic Nonprofit Organisation ' (Paper presented at the Association for Research on Nonprofit Organizations and Voluntary Action, Denver, Colorado, 20-22 November 2003).
Craig Fisher, ‘Is the Definition of Charitable Purpose Relevant to New Zealand Society in 2012?’ (Paper presented at New Zealand Charities Commission Charitable Purpose Forum, Wellington, New Zealand, 17-18 April 2012,).
Ken Henry, Secretary to the Treasury, ‘Addressing Extreme Disadvantage Through Investment in Capability Development’ (Paper presented at the Institute of Health and Welfare Conference, Australia’s Welfare 2007, Canberra, 6 December 2007).
Ken Henry, Secretary to the Treasury, ‘How much Inequity should We Allow?’ (Speech to the Australian Council of Social Service National Conference, 2009).
Marcus Holmes, ‘Native Title Agreement Making’ (Paper presented at the Native Title Forum, Brisbane, 29 August 2011).
Ben Jacobsen, Craig Jones and Roy Wybrow, ‘Indigenous Economic Development Policy: A Discussion of Theoretical Foundations’ (Paper presented to the Social Change in the 21st Century Conference, Queensland University of Technology, Brisbane, 28 October 2005).
Patricia Lane, ‘Land Law and Communal Title in Australia’ (Paper presented at Parties and Observers Sudan Peace Conference, Machakos, Kenya, 12 May 2003).
Adam Levin, ‘Improvements to the Tax and Legal Environment for Aboriginal Community Organisations and Trusts’ (Paper presented at the Agreements, Treaties and Negotiated Settlements Workshop, 28 August 2007, AIATSIS and at the Indigenous Communities, Economic Development and Tax Policy Symposium, University of Melbourne, 26–27 February 2008).
Robert McClelland, Attorney-General (Speech given at the Negotiating Native Title Forum, 29 February 2008)
451
Jenny Macklin, Minister for Families, Housing, Community Services and Indigenous Affairs, ‘Beyond Mabo: Native Title and Closing the Gap’ (Paper presented at the 2008 Mabo Lecture, James Cook University, 21 May 2008)
Fiona Martin, ‘What’s Public Benefit got to do with it? How the Law in Australia relating to the Public Benefit Requirement of “Charitable” applies to Charities for the Benefit of Aboriginal People’ (Paper presented at the AIATSIS National Native Title Conference, Darwin, 24-25 May 2006).
Julie Martin, ‘Not for Profit and Charitable Organisations -Practical Issues: Practical Aspects of ATO Endorsement’ (Paper presented at Charity Law Seminar, Sydney, 15 November 2006).
Paul Memmott, ‘Demand-Responsive Services and Culturally Sustainable Enterprise in Remote Aboriginal Settings: A Case Study of the Myuma Group’ (Paper presented at the Indigenous Participation in Australian Economies Conference, Australian National University, Canberra, 9-10 November 2009).
Graeme Neate President, National Native Title Tribunal, ‘Negotiating Comprehensive Settlements of Native Title Claims’ (Paper presented at the LexisNexis Native Title Law Summit, Brisbane, 15 July 2009).
Research Papers/Reports
AIATSIS, Agreements, Treaties and Negotiated Settlements Project, ‘Renewal Mining Agreement between Groote Eylandt Mining Company and Anindilyakwa Land Council’.
AIATSIS, Native Title Research Unit, RNTBC Summary Alliance for Nonprofit Management, 'Cultural Competency: Concepts and Definitions' (2003) J C Altman, Aborigines and Mining Royalties in the Northern Territory (AIATSIS, 1983). Jon Altman, The Economic Impact of Australian Aboriginal Land Rights (CAEPR, 1990). Jon Altman, ‘Reforming Financial Aspects of the Native Title Act 1993: An Economics Perspective’ (Discussion Paper No 105, CAEPR, 1996). 452 Jon Altman, ‘Aboriginal Economic Development and Land Rights in the Northern Territory: Past Performance, Current Issues and Strategic Options’ (Discussion Paper No 126, CAEPR, 1996). Jon Altman, ‘Generating Finance for Indigenous Development: Economic Realities and Innovative Options’ (Working Paper No 15, CAEPR, 2002). J C Altman and D P Pollack, ‘Financial Aspects of Aboriginal Land Rights in the Northern Territory’ (Discussion Paper No 168, CAEPR, 1998). Jon Altman and D P Pollack, ‘Reforming the NT Land Rights Act’s Financial Framework Into a More Logical and More Workable Model’ (Working Paper No 5, CAEPR, 1999). ANTaR, ‘A Better Way: Success Stories in Aboriginal Community Control in the Northern Territory’ Toni Bauman and Tran Tran, ‘First National Prescribed Bodies Corporate Meeting: Issues and Outcomes’ (Native Title Research Report No 3, AIATSIS, 2007). Danielle Campbell and Janet Hunt, ‘Community Development in Central Australia: Broadening the Benefits from Land Use Agreements’ (Topical Issue No 7, CAEPR, 2010). Centre for Social Impact Research Report for National Australia Bank, ‘Measuring Financial Exclusion in Australia’ May 2012. Philip Crouch, Richard S O’Brien and Geoffrey A Williams, ‘Rehabilitation of Uranium Mine Waste Sites in Australia’ Report to Australian Radiation Protection and Nuclear Safety Agency, Victoria (2006). Mick Dodson, David Allen and Tim Goodwin, ‘The Role of the Central Land Council in Aboriginal Land Dealings’ in Australian Agency for International Development, Making Land Work: Case Studies On Customary Land and Development in the Pacific (2008) 107. Rupert Gerritsen, ‘Community Capacity Building’ (Discussion Paper, ATSIC, 2001). Harry Giese, ‘Planning a Program for Aborigines in the 1950s’ (Occasional Papers No 16, Northern Territory Library Service, Darwin, 1990). J Hunt, Jon Altman and K May, ‘Social Benefits of Aboriginal Engagement in Natural Resource Management’ (Working Paper No 60, CAEPR, 2009). Taniri Kingi, ‘Maori Land Ownership and Land Management in New Zealand’ in Australian Agency for International Development, Making Land Work, Volume 2: Case Studies on Customary Land and Development in the Pacific (2008) 129. 453 Veronica Klimenko and Robin Evans, ‘Bauxite Mining Operations at Weipa, Cape York: A Case Study’ Northern Australia Land and Water Science Review Final Report (2009). Mark Lyons, Third Sector: The Contribution of Nonprofit and Cooperative Enterprises in Australia (2001). Mark Lyons and Susan Hocking, 'Dimensions of Australia's Third Sector' (Centre for Australian Community Organisations and Management, University of Technology, Sydney, 2000). David Martin, ‘Rethinking the Design of Indigenous Organisations: The Need for Strategic Engagement’ (Discussion Paper No 248, CAEPR, 2003). Paul Memmott, ‘The Myuma Group, Georgina River Basin: Aboriginal Enterprise, Training and Cultural Heritage’ University of Queensland (2007). Gavin M Mudd, ‘Uranium Mining: Australia and Globally’ Energy Science, Fact Sheet No 6 (2006) Ciaran O’Faircheallaigh, ‘Financial Models for Agreements Between Indigenous Peoples and Mining Companies’ (Aboriginal Politics and Public Sector Management Research Paper No 12, January 2003). Peter Phipps and Lisa Slater, Indigenous Cultural Festivals: Evaluating Impact on Community Health and Wellbeing, Report to the Telstra Foundation 2007. Lester M Salamon, S Wojciech Sokolowski and Regina List, 'Global Civil Society: An Overview' (Centre for Civil Society Studies, The Johns Hopkins University, 2003). Lisa Strelein, ‘Taxation of Native Title Agreements’ (Research Monograph No 1, AIATSIS, 2008). Lisa Strelein and Tran Tran, ‘Taxation, Trusts and the Distribution of Benefits under Native Title Agreements’ (Native Title Research Report No 1, AIATSIS, 2007). Lisa Strelein and Tran Tran, ‘Native Title Representative Bodies and Prescribed Bodies Corporate: Native Title in a Post Determination Environment’ (Native Title Research Report No 2, AIATSIS, 2007). J Taylor and N Westbury, Aboriginal Nutrition and the Nyirranggulung Health Strategy in Jawoyn Country’ (Research Monograph No 19, CAEPR, 2000) 1. United Nations, System of National Accounts (1993) 454 Australian Government Reports/Consultation Papers Australia, Attorney-General’s Department, Optimising Benefits from Native Title Agreements: Discussion Paper (2008). Australian Bureau of Statistics, ‘National Aboriginal and Torres Strait Islander Social Survey, 2008’ (Report No 4714.0, 2009). Australian Government, ‘Impact of Uranium Mining on Aboriginal Communities in the Northern Territory’ Irene Wilson (1997). Australian Government, Department of Prime Minister and Cabinet, ‘Uranium Mining, Processing and Nuclear Energy Review, Uranium Mining, Processing and Nuclear Energy – Opportunities for Australia’ (2006). Australian Government, Productivity Commission Research Report, ‘Contribution of the Not-for-Profit Sector’ (January 2010). Australian Government, Department of Education, Employment and Workplace Relations, ‘Aboriginal and Torres Strait Islander Education Action Plan 2010-2014, School-based Sports Academies’ (9 June 2011). Australian Government, Australian Institute of Health and Welfare, ‘Indigenous Life Expectancy’ (2011). Australian Government, Australian Charities and Not-for-Profits Commission: Implementation Design: Discussion Paper, (9 December 2011). Australian Senate, Finance and Public Administration References Committee ‘Relationship between the Central Land Council and Centrecorp Aboriginal Investments Corporation Pty Ltd’ November 2009. Commonwealth of Australia, ‘Aboriginal Land Rights Commission: First Report July 1973’ (Parliamentary Paper No 138, 1973). Commonwealth of Australia, ‘Aboriginal Land Rights Commission, Second Report April 1974’. Commonwealth of Australia, ‘Seven Years On: Report by Mr Justice Toohey to the Minister for Aboriginal Affairs on the Aboriginal Land Rights (Northern Territory) Act 1976 and Related Matters’ (1984). Commonwealth of Australia, ‘Report on the Review of the Aboriginals Benefit Trust Account (and Related Financial Matters) in the NT Land Rights Legislation’ (Jon Altman, 1985). Commonwealth of Australia, ‘Building on Land Rights for the Next Generation: The Review of the Aboriginal Land Rights (Northern Territory) Act 1976’ (John Reeves, 1998). 455 Commonwealth of Australia, House of Representatives, Standing Committee on Aboriginal and Torres Strait Islander Affairs, Unlocking the Future: The Report of the Inquiry into the Reeves Review of the Aboriginal Land Rights (Northern Territory) Act 1976 (1999). Commonwealth of Australia, Office of Evaluation and Audit (Indigenous Programs) ‘Performance Audit of the Aboriginals Benefit Account’ (November 2008). Commonwealth Taxation Review Committee, Full Report, J Asprey and R Parsons (1975). Council of Australian Governments, ‘National Integrated Strategy for Closing the Gap in Indigenous Disadvantage’, 2008. Department of Environment and Heritage, Supervising Scientist, ‘Investigation of Tailings Water Leak at the Ranger Uranium Mine’ (2000). Department of Resources Energy and Tourism and Australian Centre for Sustainable Mining Practices, ‘A Guide to Leading Practice Sustainable Development in Mining’ (2011). House of Representatives, Standing Committee on Aboriginal and Torres Strait Islander Affairs, ‘Many Ways Forward’ (2004). House of Representatives, Standing Committee on Industry and Resources, ‘Australia’s Uranium-Greenhouse Friendly Fuel for an Energy Hungry World’ (2006). Industry Commission, ‘Mining and Minerals Processing in Australia’ (Report No 7, 25 February 1991). Industry Commission, ‘Charitable Organisations in Australia’ (1995). Northern Territory Department of Primary Industry, Fisheries and Mines, ‘Exploring Country: A Guide to Making an Exploration and Mining Agreement’ (2006). Ralph Review of Business Taxation, ‘A Strong Foundation: Establishing Objectives, Principles and Processes, Discussion Paper’ (1998). Senate Committee for Uranium Mining and Milling, Report on Uranium Mining and Milling, Northern Territory (1997). Steering Committee for the Review of Government Service Provision, 'Overcoming Indigenous Disadvantage: Key Indicators 2007' (Productivity Commission, 2007). Steering Committee for the Review of Government Service Provision, 'Report on Government Services 2008-Indigenous Compendium' (Productivity Commission, 2008). 456 Steering Committee for the Review of Government Service Provision, 'Report on Government Services 2012-Indigenous Compendium' (Productivity Commission, 2012). Treasury, ‘Report of the Inquiry into the Definition of Charity and Related Organisations’ Ian Sheppard, Robert Fitzgerald and David Gonski, June 2001. Treasury, Australia's Future Tax System: Report to the Treasurer (2009). Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper (May 2010). Treasury, A Definition of Charity: Consultation Paper (October 2011). Submissions to Government Agreements, Treaties and Negotiated Settlements Project, Melbourne University and AIATSIS, Joint Submission to Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper, 2010. Agreements, Treaties and Negotiated Settlements Project, Submission to Treasury, Native Title, Indigenous Economic Development and Tax: Discussion Paper, November 2010. Australian Council of Social Service, Submission to Treasury, A Definition of Charity: Consultation Paper, December 2011. Australian Council of Social Service, Submission to Treasury, A Definition of Charity: Consultation Paper, December 2011. Australian Institute of Aboriginal and Torres Strait Islander Studies, Submission to Treasury, National Inquiry into the Definition of Charities and Related Organisations, 2001. Central Land Council, Submission to Australian Government, National Inquiry into the Definition of Charities and Related Organisations, 25 January 2001. Freehills, solicitors, Submission to Treasury, Proposed Indigenous Community Fund- Comparison of the Features and other issues, 2010. Law Council of Australia, Submission to Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper, 30 November 2010. Lumbu Indigenous Community Foundation, Submission to Australian Government, National Inquiry into the Definition of Charities and Related Organisations, January 2001. 457 Minerals Council of Australia, ‘2007-2008 Pre-budget Submission to Australian Government’ (2006). Minerals Council of Australia, Submission to Attorney-General’s Department, Proposed Minor Amendments to the Native Title Act, November 2009. Minerals Council of Australia and National Native Title Council, Joint Submission to Treasury, A Definition of Charity: Consultation Paper, 14 December 2011. Native Title Services Victoria Ltd, Submission to Attorney-General Department, Leading Practice Agreements: Maximising Outcomes from Native Title Benefits, 30 November 2010. Native Title Services Victoria Ltd, Submission to Treasury, Native Title, Economic Development and Tax: Consultation Paper, 30 November 2010. Northern Land Council, Submission to Australian Government, National Inquiry into the Definition of Charities and Related Organisations, January 2001. Pilchconnect, Submission to Treasury, A Definition of Charity: Consultation Paper, 9 December 2011. University of Melbourne Law School, Not-for-Profit Project, Submission to Treasury, A Definition of Charity: Consultation Paper, 7 December 2011. Yamatji Marlpa Aboriginal Corporation, Submission to Treasury, Native Title, Indigenous Economic Development and Tax: Consultation Paper, November 2010. Second Reading Speech House of Representatives, Second Reading Speech, Income Tax Assessment Amendment Bill (No. 2) 1979 (John Howard, Treasurer) http://law.ato.gov.au/atolaw/view.htm?dbwidetocone=05%3AEXT%3AExplanatory%2 0Memorandum%20and%20SRS%3A1979%3AIncome%20Tax%20Assessment%20A mendment%20Act%20(No.%202)%201979%3ASecond%20Reading%20Speech%20- %20REPS%3B. Government Media Releases Attorney-General’s Department, ‘Native Title Reform, Amendments to Tax Legislation’ www.ag.gov.au/Indigenouslawandnativetitle/NativeTitle. Australian Government, ‘Budget 2011-2012, Not-for-Profit Sector Reforms’ 458 David Bradbury, Assistant Treasurer and Mark Butler, Minister for Social Inclusion, ‘Extended Start Date for 2011-12 Budget Measure to Better Target Not-For-Profit Tax Concessions’ (Joint Media Release) Peter Costello, Treasurer, and Daryl Williams, Attorney-General ‘Taxation Implications of the Native Title Act and Legal Aid for Native Title Matters’ (Joint Media Release, 13 February 1998). Bill Shorten, Assistant Treasurer and Tanya Plibersek, Minister for Human Services and Social Inclusion, ‘The Definition of Charity Finally Enters the 21st Century’ (Joint Media Release, 28 October 2011. Wayne Swan, Treasurer, and Chris Bowen, Assistant Treasurer ‘The Way Forward on Tax Measures Announced but not Enacted, by the Previous Government’ (Joint Press Release, 13 May 2008) Julie Collins, Minister for Indigenous Employment and Economic Development ‘68 Indigenous Jobs in Mining and Construction at Myuma and Dugalunji’ (Media Statement, 3 January 2012) National Native Title Tribunal, ‘Tjurabalan Achieve Native Title Recognition-The 3rd Consent Determination in WA’ (Media Release, 20 August 2001. Other Australian Government Publications Agreements, Treaties and Negotiated Settlements Project, ‘Eastern Gas Pipeline Agreement’ (2002). Agreements, Treaties and Negotiated Settlements Project, Comalco ILUA http://www.atns.net.au/agreement.asp?EntityID=478. Australian Government, Department of Families, Housing, Community Services and Indigenous Affairs ‘Native Title Program, Guidelines for Support of Prescribed Bodies Corporate (PBCs)’ (2009). Australian Government, Better Targeting of Not-for-Profit Tax Concessions, 27 May 2011. Australian Government, Not for Profit Taskforce http://acnctaskforce.treasury.gov.au/content/Content.aspx?doc=about.htm.(2011) 459 Australian Government, Australian Charities and Not-for-Profits Commission: Implementation Design: Discussion Paper, 9 December 2011. Australian Government, Office for the Not-for-Profit Sector, Events: Anticipated Government Consultations, 2012. Department of Treasury, Fact Sheet, ‘A New Resource Taxation Regime: Improved Resource Tax Arrangements’ 2011. Department of Treasury, Exposure Draft, Tax Laws Amendment Bill 2012: Tax Treatment of Native Title Benefits. National Native Title Tribunal, Registered ILUA Summary, Comalco ILUA http://www.nntt.gov.au/Indigenous-Land-Use-Agreements/Search- RegisteredILUAs/Pages/Comalco_ILUA_QIA2001002.aspx. Annual Reports, Financial and Other Reports Anindilyakwa Land Council, Annual Report (2007-08). Central Land Council, Annual Report (2008-2009). Central Land Council, Annual Report (2009-2010). Central Land Council, Annual Report (2010-2011). ERA, Annual Report (2010). FaHCSIA, Annual Report (2008-2009), Appendix 12 Aboriginals Benefit Account Annual Report 2008-09. FaHCSIA, Annual Report (2009-10), Appendix K Aboriginals Benefit Account Annual Report 2009-10. FaHCSIA, ‘Government Grant Announcements’ 2010. Groote Eylandt and Bickerton Island Enterprises Aboriginal Corporation Rule Book, 2011. Gundjeihmi Aboriginal Corporation, The Mirarr: Yesterday, Today and Tomorrow A Socioeconomic Update (2010). Kalgoorlie Consolidated Gold Mines Pty Ltd http://www.superpit.com.au/default.aspx. Northern Land Council, Annual Report (2008-2009). Northern Land Council, Annual Report (2009-2010). Northern Land Council, Annual Report (2010-2011). 460 ORIC, Gundjeihmi Aboriginal Corporation Rule Book. ORIC, ‘Financial Statements GMAAAC’ (2007-2010). ORIC, Kimberley Land Council, General Report (2011). ORIC, Tjurabalan Native Title Land Aboriginal Corporation, Financial Report (2009). ORIC, Tjurabalan Native Title Land Aboriginal Corporation, Financial Report (2010). ORIC, Tjurabalan Native Title Land Aboriginal Corporation, General Report (2010). ORIC, Tjurabalan Native Title Land Aboriginal Corporation, General Report (2011). Tanami Gold NL, Annual Report (2008). Tanami Gold NL, Annual Report (2009). Tanami Gold NL, Annual Report (2010). Tanami Gold NL, Annual Report (2011). Tiwi Land Council, Annual Report (2008-09). Australian Legislation Commonwealth Aboriginal Councils and Associations Act 1976 (Cth). Aboriginal Land Rights (Northern Territory) Act 1976 (Cth). Aboriginal and Torres Strait Islander Act 2005 (Cth). A New Tax System (Goods and Services Tax) Act 1999 (Cth). Atomic Energy Act 1953 (Cth). Extension of Charitable Purpose Act 2004 (Cth). Financial Management Legislation Amendment Act 1999 (Cth). Fringe Benefits Tax Act 1986 (Cth). Income Tax Assessment Act 1936 (Cth). Income Tax Assessment Act 1997 (Cth). Income Tax (Mining Withholding Tax) Act 1979 (Cth). Income Tax (Mining Withholding Tax) Amendment Act 1982 No 103 (Cth). 461 Income Tax (Rates) Amendment Act 1979 No 150 (Cth). Income Tax Rates Act 1986 (Cth). Medicare Levy Act 1986 (Cth). Minerals Resource Rent Tax Act 2012 (Cth). Native Title Act 1993 (Cth). Native Title Prescribed Body Corporate Regulations 1999 (Cth). Taxation Administration Act 1953 (Cth). Tax Law Improvement Act (No 1) 1998 (Cth). Uranium Royalty (Northern Territory) Act 2009 (Cth). States and Territories Aboriginal Land Act 1991 (Qld). Aboriginal Land Rights Act 1983 (NSW). Law of Property Act 1936 (SA). Law of Property Act 2000 (NT). Local Government Act 1993 (NSW). Maralinga Tjarutja Land Rights Act 1984 (SA). Minerals Acquisition Act 1953 (NT). Mineral Resources Act 1989 (Qld). Mineral Royalty Act 1982 (NT). Mineral Titles Act 2010 (NT). Mining Act 1904 (WA). Mining Act 1978 (WA). Mining Management Act 2002 (NT). Payroll Tax Act 2007 (NSW). Perpetuities and Accumulations Act 1968 (Vic). Perpetuities and Accumulations Act 1985 (ACT). 462 Perpetuities and Accumulations Act 1992 (Tas). Perpetuities Act 1984 (NSW). Petroleum Act 1936 (WA). Petroleum Act 1967 (WA). Pitjantjatjara Land Rights Act 1981 (SA). Property Law Act 1969 (WA). Property Law Act 1974 (Qld). Australian Tax Office Rulings, Determinations and Other Publications Australian Taxation Office, Goods and Services Tax: Supplies, GSTR 2006/9, 25 October 2006. Australian Taxation Office, Income Tax: Capital Gains Tax: Land Vested in a Statutory Trustee for Sale – CGT Event A1, ID 2009/129, 26 October 2009. Australian Taxation Office, Income Tax: Capital Gains: Does CGT Event D1 in Section 104-35 of the Income Tax Assessment Act 1997 Happen if you Receive Money or Property for Withdrawing an Objection against a Proposed Land Development?, TD 1999/80, 15 December 1999. Australian Taxation Office, Income Tax: Capital Gains: Grants of Easements, Profits a Prendre and Licences, IT 2561, 21 September 1989. Australian Taxation Office, Income Tax: Capital Gains: How are Grants of Easements Treated for the Purposes of the Capital Gains Tax (CGT) Provisions of the Income Tax Assessment Act 1936?, TD 93/235, 16 December 1993. Australian Taxation Office, Income Tax and Fringe Benefits Tax: Public Benevolent Institutions, TR 2003/5, 4 June 2003. Australian Taxation Office, Income Tax and Fringe Benefits Tax: Charities, TR 2011/4, 12 October 2011. Australian Taxation Office, Income Tax: Treatment of Receipts for Dealing with or Disclosing Mining, Quarrying or Prospecting Information, TR 98/3, 20 January 1999. Australian Taxation Office, Income Tax: Mining Information and Taxable Australian Real Property, ID 2012/13, 27 February 2012. Australian Taxation Office, Private Binding Ruling 1011355966185, 1 January 2001. Australian Taxation Office, Private Binding Ruling 1011356170176, 1 January 2001. 463 ATO Taxation Statistics 2003-04 ATO Taxation Statistics 2008-09 ATO, Taxation Statistics 2009-10 New Zealand Government Publications Charities Commission, ‘Public Benefit Test: Guidance for Charities’ October 2009. Charities Commission Deregistration Decision: Mokorina Whanau Trust, CC 40304, No D2011-4, 25 May 2011. Charities Commission Registration Decision: Korako Karetai Trust, No 2010-18, 23 September 2010. M Cullen, P Swain and J Wright, New Zealand Policy Advice Division, Inland Revenue Department, Wellington, Tax and Charities: A Government Discussion Document on Taxation Issues Relating to Charities and Non-Profit Bodies (2001). New Zealand Government, ‘Reduction in State Agencies Confirmed’ http://www.beehive.govt.nz/release/reduction-state-agencies-confirmed 11 August 2011. New Zealand Government, Tax and Charities, A Government Discussion Document (June 2001). New Zealand Inland Revenue Department, Maori Trust Boards: Declaration of Trust for Charitable Purposes made under Section 24B of the Maori Trust Boards Act 1955, BR Pub 97/8 (rewritten as BR Pub 01/07 and 08/02), 10-11. New Zealand Inland Revenue Department, Maori Trust Boards: Declaration of Trust for Charitable Purposes made under Section 24B of the Maori Trust Boards Act 1955- Income Tax Consequences, BR Pub 01/07. New Zealand Inland Revenue Department, Policy Advice Division, Taxation of Maori Organisations, A Government Discussion Document (August 2001). New Zealand Inland Revenue Department, Policy Advice Division, Taxation of Maori Organisations, A Government Discussion Document, Glossary of Terms (August 2001). New Zealand Inland Revenue Department, Tax Information Bulletin Vol 15, No 5 (May 2003) 59-60. New Zealand Inland Revenue Department, Tax Information Bulletin Vol 5, No 7 Maori Land Act 1993-Tax Implications (Dec 1993) 5. Te Puni Kokiri, The Ministry for Maori Development, Structures under Te Ture Whenua Māori Land Act 1993. 464 New Zealand Legislation Charities Act 2005 (NZ). Income Tax Act 2007 (NZ). Maori Trust Boards Act 1955 (NZ). Maori Trustee Act 1953 (NZ). Maori Trustee Amendment Act 2009 (NZ). Te Ture Whenua/Māori Land Act 1993 (NZ). United Kingdom Government Publications Charity Commission for England and Wales, Analysis of the Law Underpinning Charities and Public Benefit, December 2008. Charity Commission for England and Wales, Charities and Public Benefit. The Charity Commission’s General Guidance on Public Benefit, 2008. United Kingdom, Cabinet Office, Private Action, Public Benefit, A Review of Charities and the Wider Not-for-Profit Sector, September 2002, Strategy Unit Report. United Kingdom Legislation Charities Act 2006 c 50 (UK). Charities Act 2011 (UK). Income Tax Act 2007 c 3 (UK). Statute of Charitable Uses 43 Eliz.1, c 4. Canadian Legislation Income Tax Act RSC 1985 c1 (5th supp). Cases Aboriginal Hostels Ltd v Darwin City Council (1985) 75 FLR 197. Aid/Watch Inc v Federal Commissioner of Taxation [2010] HCA 42. Alice Springs Town Council v Mpweteyerre Aboriginal Corporation (1997) 139 FLR 236. Allsop v Federal Commissioner of Taxation (1965) 113 CLR 341. 465 Arawa Maori Trust Board v Commissioner of Inland Revenue (1961) 10 MCD 391. Ashfield Municipal Council v Joyce (1976) 10 ALR 193. Attorney-General (NSW) v Sawtell [1978] 2 NSWLR 200. Auckland Medical Aid Trust v Commissioner of Inland Revenue [1979] 1 NZLR 382. AYSA Amateur Youth Soccer Association v Canada (Revenue Agency) [2007] 3 SCR 217. Ballarat Trustees Executors and Agency Co v Federal Commissioner of Taxation (1950) 80 CLR 350. Barrett v Federal Commissioner of Taxation (1968) 118 CLR 666. Bourne v Keane [1919] AC 815. Brent v Federal Commissioner of Taxation (1971) 125 CLR 418. Briggs, on Behalf of the Gumbangirri People v Minister for Land for NSW (2004) 141 FCR 17. Brown, on behalf of the Ngarla People v State of Western Australia (No 2) (2010) 268 ALR 149. Buck v New South Wales [1997] FCA 1624. Californian Copper Syndicate v Harris (1904) 5 TC 159. Cape Flattery Silica Mines Pty Ltd v Federal Commissioner of Taxation 97 ATC 4552. Carberry v Commissioner of Taxation [2011] AATA 303. Central Bayside General Practice Association Limited v Commissioner of State Revenue (2006) 228 CLR 168. Chesterman v Federal Commissioner of Taxation (1925) 37 CLR 317. Chesterman v Mitchell (1924) 24 SR (NSW) 108. CLR 188. Commissioner of Inland Revenue v Medical Council of New Zealand [1997] 2 NZLR 297. Commissioner of Taxation (NSW) v Meeks (1915) 19 CLR 568. Commissioner of Taxation v Bargwanna [2012] HCA 11. Commissioner of Taxation v McNeil [2005] FCAFC 147 (Federal Court). Commissioner of Taxation v McNeil [2007] HCA 5. 466 Commissioner of Taxation v Orica 194 CLR 500. Commissioner of Taxation v The Triton Foundation (2005) 226 ALR 293. Commissioner of Taxation v Word Investments Limited [2008] HCA 55. Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531. Commissioners of Inland Revenue v Oldham Training and Enterprise Council (1996) 69 TC 231. Conservative and Unionist Central Office v Burrell [1982] 2 All ER 1. Constantinesco v R (1927) 11 TC 730. Crowther v Brophy [1992] 2 VR 97. Crystal Palace Trustees v Minister of Town and Country Planning [1928] 1 KB 611. De Rose v South Australia (No 2) (2005) 145 FCR 290. Dingle v Turner [1972] AC 601. Educational Fees Protection Society Inc v Commissioner of Inland Revenue [1992] 2 NZLR 115. Eisner v Macomber (1920) 252 US 189. Federal Coke Co Pty Ltd v Federal Commissioner of Taxation 77 ATC 4255. Federal Commissioner of Taxation v Citibank 93 ATC 4691. Federal Commissioner of Taxation v Cooling 90 ATC 4472. Federal Commissioner of Taxation v CSR Ltd 2000 ATC 4710. Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540. Federal Commissioner of Taxation v Harris 80 ATC 4238. Federal Commissioner of Taxation v Kowal 84 ATC 4001. Federal Commissioner of Taxation v Montgomery (1999) 198 CLR 639. Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199. Federal Commissioner of Taxation v Sherritt Gordon Mines Ltd (1977) 137 CLR 612. Federal Commissioner of Taxation v Whitfords Beach (1982) 150 CLR 355. Federal Commissioner of Taxation v Whiting (1943) 68 CLR 199. Federal Commissioner of Taxation v Word Investments Limited [2008] HCA 55. 467 Federal Wharf Co Ltd v Deputy Commissioner of Taxation (1930) 44 CLR 24. First Provincial Building Society Ltd v Federal Commissioner of Taxation (1995) 56 FCR 320. Flynn v Mamarika [1996] NTSC 16. Gerard Cassegrain & Co Pty Ltd v Commissioner of Taxation (2007) 66 ATR 198. Gibson v South American Stores [1950] Ch 177. Glenboig Union Fireclay Co Ltd v Inland Revenue Commissioner (1922) 12 TC 427. Goodman v Saltash (1881–1882) LR 7. GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation (1990) 170 CLR 124. Gumbangerrii Aboriginal Corporation v Nambucca Council (1996) 131 FLR 115. Hall v The Urban Sanitary Authority of the Borough of Derby (1885) 16 QBD 163. Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47. Hayes v Northern Territory of Australia [2000] FCA 671. Hazeldene Pastoral Company (1958) 100 CLR 644. Hepples v Federal Commissioner of Taxation (1991–1992) 173 CLR 492. Hilder v Church of England Deaconess’ Institution Sydney Ltd [1973] 1 NSWLR 506, 511. Hochstrasser v Mayes [1960] AC 376. Independent Schools Council v Charity Commission for England and Wales [2011] UKUT 421. Inland Revenue Commissioners v Longmans Green & Co Ltd (1932) 17 TC 272. International Harvester Company of Australia Proprietary Limited v Carrigan’s Ip Cheung-Kwok v Sin Hua Bank Trustee Ltd [1990] 2 HKLR 499. Jax Coal Pty Ltd v Grace Smallwood on behalf of the Birri People and the State of Queensland [2011] NNTTA 46. Jones v Williams (1767) 2 Amb 651. Joseph Rowntree Memorial Trust Housing Association Ltd v Attorney-General [1983] 1 All ER 288. 468 Joyce v Ashfield Municipal Council [1975] 1 NSWLR 744. Just v Federal Commissioner of Taxation (1949) 8 ATD 419. Kafataris v Deputy Commissioner of Taxation (2008) ATC 20-048. Kearins v Kearins [1957] SR (NSW) 286. Kibby v Registrar of Titles [1991] 1 VR 861. Laidler v Perry 42 TC 351. Latimer v Commissioner of Inland Revenue [2002] NZCA 121. Latimer v Commissioner of Inland Revenue [2004] UKPC 13. Lees & Leech Pty Ltd v Federal Commissioner of Taxation (1997) 73 FCR 136. Mabo v Queensland (No 2) (1992) 175 CLR 1. Maclean Shire Council v Nungera Co-operative Society Ltd (1994) 84 LGERA 139. McCauley v Federal Commissioner of Taxation (1944) 69 CLR 235. McLaurin v Federal Commissioner of Taxation (1961) 104 CLR 381. Mills v Jones (1929) 14 TC 769. Mines Rescue Board (NSW) v Commissioner of Taxation (2000) 101 FCR 91. Minister of State for the Army v Dalziel (1944) 68 CLR 261. Molloy v Commissioner of Inland Revenue [1981] 1 NZLR 688. Monds v Stackhouse (1948) 77 CLR 232. Morice v Bishop of Durham (1805) 10 Ves 522. National Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31. National Council of Women of Tasmania v Federal Commissioner of Taxation 98 ATC 2124. Naval, Military and Airforce Club of South Australia v Federal Commissioner of Taxation (1994) 122 ALR 201. New Zealand Society of Accountants v Commissioner of Inland Revenue [1986] 1 NZLR 148 Ngalpil v State of Western Australia [2001] FCA 1140. Northern Land Council v Commissioner of State Taxes [2002] NTCA 11. 469 Northern Territory v Alyawarr, Kaytetye, Warumungu, Wakaya Native Title Claim Group (2005) 145 FCR 442. Northumberland Development Co Pty Ltd v Commissioner of Taxation [1994] FCA 1425. Nullaga Pastoral Co Pty Ltd v Commissioner of Taxation 78 ATC 4329. Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297. Perpetual Trustee Co (Ltd) v Ferguson (1951) 51 SR (NSW) 256. Perpetual Trustee Co (Ltd) v Robins (1967) 85 WN (Pt. 1) (NSW) 403. Perpetual Trustee Company Ltd v Federal Commissioner of Taxation (1931) 45 CLR 224. Re Clarke (deceased); Bracey v Royal National Lifeboat Institution [1923] All ER Rep 607. Re Compton; Powell v Compton [1945] Ch 123. Re Coulthurst [1951] Ch 661. Re Driffill [1950] Ch 92. Re Foveaux [1895] 2 Ch 501. Re Gillespie (deceased) [1965] VR 402. Re Gwilym (deceased) [1952] VLR 282. Re Hilditch deceased (1986) 39 SASR 469. Re Hobourn Aero Components Limited’s Air Raid Distress Fund [1946] Ch 194. Re Income Tax Acts (No 1) [1930] VLR 211. Re Inman (deceased) [1965] VR 238. Re MacDuff; MacDuff v MacDuff [1895–1899] All ER Rep 154. Re Mathew [1951] VLR 226. Re Niyazi’s Will Trusts [1978] 3 All ER 785. Re North Devon and West Somerset Relief Fund Trusts; Hylton (Baron) v Wright [1953] 2 All ER 1032. Re Nottage; Jones v Palmer [1895] 2 Ch 649. 470 Re Pieper (deceased); The Trustees Executors & Agency Co. Ltd v Attorney-General [1951] VLR 42. Re Pinion (deceased); Westminster Bank Ltd v Pinion and another [1964] 1 All ER 890. Re Scarisbrick [1951] 1 Ch 622 Re Smith’s Wills Trusts; Barclays’ Bank Ltd v Mercantile Bank Ltd [1962] 2 All ER 563. Re Tyrie (deceased) [1970] VR 264. Re Wedgewood [1915] 1 Ch 113. Re White’s Will Trusts [1951] 1 All ER 528. Re Wokingham Fire Brigade Trusts [1951] Ch 373. Royal National Agricultural and Industrial Association v Chester [1974] 3 ALR 486. Saloman v Saloman [1897] AC 22. Salvation Army (Victoria) Property Trust v Shire of Fern Tree Gully (1952) 85 CLR 159. Scott v Federal Commissioner of Taxation (1935) 35 SR (NSW) 212. Scott v Federal Commissioner of Taxation (1966) 117 CLR 514. Scottish Australian Mining Company Ltd v Federal Commissioner of Taxation (1950) 81CLR 188. Scottish Burial Reform and Cremation Society Ltd v Glasgow City Corporation [1968] AC 138. Shire of Derby–West Kimberley v Yungngora Association Inc [2007] WASCA 233. Shire of Nunawading v The Adult Deaf and Dumb Society of Victoria (1921) 29 CLR 98. Stanton v Federal Commissioner of Taxation (1955) 92 CLR 630. Strathalbyn Show Jumping Club Inc v Mayes [2001] SASC 73. Stratton v Simpson (1970) 125 CLR 138. Tangentyere Council Incorporated v Commissioner of Taxes (1990) 21 ATR 239. Taylor v Federal Commissioner of Taxation (1970) 119 CLR 444. The Attorney-General for New South Wales v The Perpetual Trustee Company Limited (1940) 63 CLR 209. 471 The Diocesan Trustees of Church of England in Western Australia v The Solicitor- General; The Home of Peace for the Dying and Incurable v The Solicitor-General (1909) 9 CLR 757. The Incorporated Council of Law Reporting of the State of Queensland v The Commissioner of Taxation (1971) 125 CLR 659. Thompson v Federal Commissioner of Taxation (1959) 102 CLR 315. Thrupp v Collett (No 1) (1858) 53 ER 844. Toomelah Co-operative Limited v Moree Plains Shire Council (1996) 90 LGERA 48. Townson Holdings Pty Ltd v Joseph Frank et al on behalf of the Wongatha People and Western Australia [2003] NNTTA 82. Trustees of Mary Clark Home v Anderson [1904] 2 KB 645. Trustees of the Indigenous Barristers’ Trust v Federal Commissioner of Taxation 51 ATR 495. Tuite v Exelby 93 ATC 4293. Vancouver Regional FreeNet Association v Minister of National Revenue [1996] 3 FC 880. Verge v Somerville [1924] AC 496. Victorian Women Lawyers’ Association v Commissioner of Taxation [2008] FCA 983. Western Australia v Ward (2002) 213 CLR 1. White Mining (NSW) Pty Ltd v Scott Frank (Plains Clans of the Wonnarua People) and New South Wales (2011) 257 FLR 75. Williams’ Trustees v Inland Revenue Commissioners [1947] AC 447. Yeap Cheah Neo v Ong Cheng Neo [1875] LR PC 381. Yorta Yorta Aboriginal Community v Victoria (2002) 214 CLR 422. News Reports ABC News On-Line, ‘New Gold Mine Set for Official Opening’, 24 May 2006 ABC Radio AM, ‘Indigenous Football Team to Play at the MCG’, AM Program, 2009 (Tony Eastley) 472 ABC, ‘Tanami Gold Seals Deal with Kimberley’s Tjurabalan People’, Stateline Western Australia, 26 May 2006 (Donovan Jenkins). Amos Aikman, ‘For Tiwi’s, Life’s Goals Come from Sherrin’, The Australian (Australia), 19 March 2012. Tony Bartlett, ‘Kakadu Elders Reveal Ranger Mine Fears’, Sydney Morning Herald (Sydney), 25 February 2011. Paul Cleary, ‘Jenny Macklin taps $400m Aboriginal Fund for running costs’, The Australia (Australia), 10 January 2012. Miscellaneous Agreement between Mary-Lou Buck on behalf of the Dunghutti People and the Minister for Lands, New South Wales reported in National Native Title Tribunal ‘Dunghutti People Celebrate Native Title Milestone’ News and Publications, 19 February 2010. Australian Indigenous Education Foundation http://www.aief.com.au/. ‘Indigenous All Stars’ Koori Heritage Trust Inc http://www.koorieheritagetrust.com/projects/woor_dungin_share Minerals Council of Australia, ‘Indigenous Relations Strategic Framework’ (2004). Oxfam Australia, ‘Rugby League Helps Close the Gap’, https://www.oxfam.org.au/explore/indigenous-australia/close-the-gap/rugby-league helps-close-the-gap/. Tanami Gold NL, ‘Decommissioning and Closure Plan, Coyote Gold Project’ (2010). Yamatji Marlpa Aboriginal Corporation, ‘Pilbara Native Title Groups Reach Agreement with Rio Tinto’ Newsletter, 3 June 2011. 473