This chapter outlines governance issues; the types of payments received or generated by Indigenous communities; the entities used by Indigenous communities for managing payments; the taxation of current arrangements; the limitations of charitable trusts and DGR status; and the not-for-profit reforms.
The Working Group has significant concerns about existing governance arrangements for managing land-related payments, in particular the scope of these arrangements to ensure that the potential benefits to Indigenous communities, both now and in the future, are maximised.
Other factors also relevant to economic development include:
- the nature, size and timing of land-related payments received by Indigenous groups;
- the entities used for managing these payments;
- the tax treatment of these arrangements;
- the not-for-profit sector reforms; and
- the limitations of charitable trusts and DGR status.
3.1 Governance concerns
Land-related payments to some Indigenous groups are growing. This is the case particularly as the size of the Indigenous estate grows, as resource development projects move into the production phase, and as Indigenous participation in the real economy continues to grow.
Specific arrangements governing native title payments are limited. Whereas the Native Title Act regulates the entry into Indigenous Land Use Agreements (ILUAs) by providing for their authorisation by the relevant native title group or groups, it does not regulate the entry into other native title future act agreements. In addition, the Native Title Act does not expressly regulate the management and use of native title-related payments.
In practice, the management and use of native title payments is determined by the parties to the agreement, or, more likely, the entity receiving the payments. There are no specific requirements regarding advisers to the parties to agreements or to entities that receive native title payments.
In situations where the governance arrangements for native title payments have not been given adequate or timely attention, the arrangements may be open to exploitation by unscrupulous individuals from either within or outside the native title group (for example, private agents). Even where there is no deliberate exploitation, poor governance is likely to undermine the contribution that native title payments could otherwise make to the long term development of the relevant native title group. Poor governance can also result in social disruption and costly litigation and remediation.
In his recent decisions in Weribone on behalf of the Mandandanji People v Queensland (Mandandanji), Justice Rares of the Federal Court found that, when negotiating an ILUA, an applicant (or registered native title claimant) may owe a fiduciary duty to the native title claim group and to all persons who are ultimately determined to hold native title.7
In his judgment, Justice Rares articulated a concern that those people who might ultimately be found to hold native title may not be receiving benefits to which they may be entitled under an ILUA if they are not included within the claim group prior to a determination.8
The Working Group is aware that the Mandandanji decision is the subject of proceedings currently on appeal before the Full Court of the Federal Court. However, the case raises complex legal and practical issues relating to the existence of a fiduciary duty under the current operation of the Native Title Act and, if such a duty is found, how this would interact with the future acts regime. This is of particular importance, given the future acts regime is designed to enable claimants and proponents to negotiate about their interests prior to any determination of native title which recognises the ultimate native title holders.
The Working Group is also aware that the draft terms of reference for an Australian Law Reform Commission (ALRC) inquiry into native title, which have been released for public consultation, cover the authorisation and joinder provisions of the Native Title Act. Broader related issues that flow from the joinder and authorisation provisions that could be considered by the ALRC include whether the applicant or registered native title claimants should be under a fiduciary duty to the finally determined native title holders, the circumstances in which such a duty would arise and the scope and nature of that duty.
A further example relates to Dunghutti Elders Council Aboriginal Corporation RNTBC. In recent litigation, evidence was given that 13 per cent of the funds held in trust for the native title group were spent on legal fees and legal fees amounted to approximately 50 per cent of the expenditure of the corporation over a two year period.9
In contrast, there is greater (but not complete) transparency and accountability of payments made to traditional owners under the Aboriginal Land Rights (Northern Territory) Act 1976. As a minimum, mining-related payments are generally required to be publicly reported by land councils, and statutory royalty equivalents must be paid to corporations incorporated under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act) (and accordingly subject to the regulatory oversight of the Registrar of Indigenous Corporations).
3.2 Native title payments and other payments received by Indigenous communities
Income received by Indigenous organisations comprises mainly land-related payments. There are some other categories of payments made to Indigenous communities, for example, rental income from leases and some business or investment income, but these payments could be expected to comprise less than 10 per cent of total payments received by Indigenous organisations. It is difficult to find data on these private payments.
Native title payments
The main source of native title payments are native title agreements. In addition to direct financial benefits, native title agreements can provide a range of non-monetary benefits such as employment and community development, education and training, housing, cooperative land management and environmental and heritage initiatives.
There are many kinds of agreements that may be classed as 'native title agreements'. The most common include ILUAs and section 31 agreements made in accordance with the Native Title Act.
Agreements with native title groups may also be made under State and Territory regimes. The Native Title Act allows for States and Territories to make their own legislation about certain future acts instead of using the Commonwealth scheme, provided that they comply with prescribed standards. South Australia and New South Wales have some aspects of the 'right to negotiate' regimes in operation. In addition, Victoria's Traditional Owner Settlement Act 2010 provides an alternate, 'out-of-court' system for recognising the rights of Aboriginal traditional owners and resolving native title and land claims in that state.
Privately negotiated agreements between a native title group and other persons, which provide for benefits to the native title group, could also be native title agreements. Many such agreements are ancillary agreements to section 31 agreements or ILUAs. Privately negotiated agreements, including conservation agreements, joint parks management agreements, agreements to construct and access for beekeeping, are negotiated with native title groups.
Another possible source of native title payments is compensation paid under Division 5 of Part 2 of the Native Title Act, which provides for compensation for holders of native title in certain circumstances involving the extinguishment or impairment of native title. To date, there has been no judicial determination of native title compensation and it re
mains unclear what approach the courts will take in determining compensation for extinguishment or impairment.
Indigenous communities can and do also pursue their own community-based initiatives that do not involve native title agreements with third parties. Other types of benefits that may be received or generated by an Indigenous community include: land rights payments; payments under land access agreements (other than under or ancillary to a native title agreement); natural resource management; cultural heritage or 'caring for country' payments (that may or may not be under a native title agreement); cultural mapping enterprises; government grants; gifts or donations; and investment, business and social enterprise income.
Value of payments
The Minerals Council of Australia advised that in terms of native title monies from the mining industry in 2011-12, based on audited accounts for the financial year, the total payments for this period is around $3 billion. This amount includes native title-related land access payments; Aboriginal Land Rights (Northern Territory) Act 1976 royalty equivalents; Indigenous and non-Indigenous heritage management; other Indigenous land rights regimes; and impact/benefit agreements. It is based on negotiated agreements and company turnover. This amount is not limited to cash payments. Some payments may extend over several years. These payments are for:
- local business development and Indigenous contracting;
- land-related access agreements;
- recreation and culture;
- education (scholarships and bursaries);
- environmental management (non-mining related);
- health and wellbeing;
- town maintenance and facilities;
- accommodation (non-camp); and
- other community investment.
3.3 Entities used by Indigenous communities
Various legal entities are currently used for receiving, generating, holding and distributing land-related payments and other income including:
- charitable trusts (a substantial proportion of agreement funds is allocated to charitable trusts);
- discretionary trusts for the direct benefit of particular Indigenous clans or kin groups;
- corporations incorporated under the CATSI Act (CATSI corporations);
- companies limited by shares incorporated under the Corporations Act 2001 (Corporations Act);
- companies limited by guarantee incorporated under the Corporations Act, where the 'not-for-profit' purpose or the object of the company is to benefit Indigenous persons; and
- associations incorporated under State or Territory based legislation.
Indigenous communities may use a combination of these legal entities (for example, both charitable and discretionary trusts), resulting in some cases in complex legal and governance arrangements. These arrangements often involve significant establishment and administration costs that are not affordable for organisations that receive small annual payments. Complex arrangements involving independent trustees can cost up to $1 million per annum.
3.4 Taxation of current arrangements
Amendments recently passed by Parliament clarify that native title benefits are not subject to income tax where they are received by an Indigenous person or an Indigenous holding entity.10 There has been considerable uncertainty about the correct taxation treatment of native title payments in the hands of recipients. For example, in some circumstances the Commissioner of Taxation has ruled that native title payments of a compensatory nature are non-taxable.
The mining withholding tax applies at a rate of four per cent to mining payments made to Indigenous people and distributing bodies for the use of land for mining and exploration. Amounts from which the mining withholding tax has been withheld are not subject to income tax as they are treated as non-assessable non-exempt income. (The terms of reference for this Working Group ruled out any consideration of the mining withholding tax.)
Where land-related payments received by Indigenous people (or by a holding entity) are invested, any income earned from such investments would be subject to the normal tax rules unless a specific concession applies.
Other payments made to Indigenous people (or to a holding entity) would be subject to the normal tax rules unless a specific concession applies.
Where an Indigenous community adopts the structure of a charity (such as a charitable trust), the charity will be eligible for income tax exemption provided it is administered in accordance with its purposes, registered as a charity and other conditions for endorsement are satisfied. This means that payments made to the charity and investment income earned by the charity will be exempt from income tax.
3.5 Limitations of charitable trusts and deductible gift recipient status
Charitable trusts are not a neat fit for managing land-related payments and other income because:
- the use of the term 'charity' conveys a welfare rather than a development approach;
- accumulating funds in a charitable trust can be complicated especially where a view may be taken that significant delays in distributing funds may amount to a failure to apply the funds of the trust for the charitable purposes; and
- there are limitations around the purpose of charitable trusts in particular as regards economic development or business investment purposes.11
In addition, concerns have been expressed that the current provisions for DGR status are unduly limited, potentially requiring a focus on a single eligible purpose.
Under the current system the primary difficulty faced by many Indigenous organisations seeking DGR endorsement is the stringent manner in which the Income Tax Assessment Act 1997 requires entities seeking it to primarily fit within the scope of one of the prescribed DGR categories. On many occasions, these entities fit into more than one DGR category and they are, therefore, prevented from successfully pursuing an application for DGR in any one category. This is despite the objectives of the entities often falling within the scope of multiple categories including, for example, organisations on the Register of Cultural Organisations, organisations on the Register of Environmental Organisations, Harm Prevention Charities and/or Public Benevolent Institutions (PBIs).
3.6 Not-for-profit sector reforms
In the 2011-12 Budget, the Government embarked on a reform program to protect the integrity of the not-for-profit sector as well as reducing red tape and improving governance, accountability and transparency arrangements.
The Government has established a new regulator, the Australian Charities and Not-for-profits Commission (ACNC), which currently is authorised to regulate charities. The Working Group noted that a report by another Treasury working group on not-for-profit tax concessions, established in 2012, is in the process of being finalised.
The Working Group noted the statutory definition of 'charity' provided by the recently enacted Charities Act 2013 specifically ensures that an Indigenous entity that receives native title benefits relating to native title will not fail the public benefit test only because the beneficiaries are related.
7Weribone on behalf of the Mandandanji People v State of Queensland  FCA 255 at , -; Weribone on behalf of the Mandandanji People v State of Queensland (No 2)  FCA 485 at -.
8Weribone on behalf of the Mandandanji People v State of Queensland (No 2)  FCA 485 at  and .
Dunghutti Elders Council AC RNTBC v the Registrar of Aboriginal and Torres Strait Islander Corporations ( FCAFC 88; (2011) 195 FCR 318, (2011) 279 ALR 468 (21 July 2011).
10Tax Laws Amendment (2012 Measures No. 6) Act 2013 (No. 84 of 2013), Schedule 1.
11 Minerals Council of Australia and National Native Title Council's Indigenous Community Development Corporation (ICDC) Concept (March 2013), p 4.