6. ICDC entity proposal


This chapter describes the proposed ICDC entity; considers governance and regulatory requirements; and outlines proposed taxation arrangements that would apply in respect of an ICDC entity.

6.1 Description of ICDC entity

Under the Minerals Council of Australia and National Native Title Council proposal, an ICDC would be a not-for-profit, income tax exempt entity with DGR status established by an Indigenous community with the purpose of promoting sustainable community and socio-economic development.15 Any Indigenous community could use an ICDC to manage any land-related payments and other income as an ICDC.

The purposes of an ICDC would be wider than the current concept of 'charity', so that an ICDC would be able to undertake a range of economic development activities and distributions beyond what a charitable body is currently permitted to do. An ICDC, in promoting sustainable community and socio-economic development, could provide funds and support to a wide variety of Indigenous businesses carried on for private profit (see Activities and payments below). The wider purposes of an ICDC would shift language away from concepts of charity and welfare to broader concepts of community and socio economic development and participation in the real economy.

Governance arrangements and appropriate regulation would ensure decisions about the use, investment and distribution of ICDC funds would be made by or with the concurrence of the relevant Indigenous community or regional communities and the use of funds would be consistent with the ICDC's purposes. Thus, ICDCs would have safeguards to ensure Indigenous community funds are not misused. Governance arrangements proposed for ICDCs are discussed in more detail at Section 6.2 below.

Under the ICDC model, an ICDC would be obliged to accumulate a corpus of funds towards a 'future fund' to support ICDC's activity for future generations. This could involve:

  • accumulation guidelines with a mandatory minimum and maximum level of accumulation;
  • the fund being held by a qualified professional institution on behalf of the ICDC, for asset protection purposes; and
  • an approved accumulation plan designed to take account of the circumstances of the relevant Indigenous community or group, including predicted income flows.

An ICDC would be an optional entity that Indigenous communities could use either alone or alongside other entities. While the current law can provide many of the benefits that an ICDC would offer, the flexibility and tax exempt status of an ICDC would encourage their use by Indigenous communities.

An objective of the ICDC approach to the management of land-related payments and other income for Indigenous communities is to minimise duplication and administrative inefficiency by facilitating the establishment of a single fund that receives payments from a number of sources and then applies them in accordance with its objects to a potentially wide range of purposes. The primary function of an ICDC would be to receive, generate, manage and apply payments rather than conduct activities directly, although it could do that as well in particular circumstances.

The Minerals Council of Australia and the National Native Title Council consider that an ICDC-type entity is required to:

  • provide a vehicle to generate sustainable and long-term social and economic benefits for Indigenous communities;
  • provide more flexibility so that agreement funds can be used for a broad range of community development initiatives to achieve Closing the Gap and regional development outcomes;
  • allow the accumulation of funds to deliver genuine, long-term wealth creation opportunities for Indigenous people; and
  • provide sufficient incentives for strong governance to maximise effective use and administration of agreement funds.

Activities and payments

An ICDC could make a broader set of payments than charities because its purposes would extend beyond the concept of a charity to promoting sustainable community and socio-economic development. The payments ICDCs could make are outlined below and summarised in a diagram at Attachment C. The activities of an ICDC (Entity A in the diagram) and payments to the following entities need to be considered: a not-for-profit entity connected to the ICDC (Entity B); businesses carried on for individual profit (Entities C and D); and individual community members.

ICDC entity (Entity A)

An ICDC would be an entity established to receive an Indigenous community's land-related payments and other income, and accumulate funds including towards a future fund. It would be a not-for-profit entity which could not make distributions to individuals on the basis of their membership interests in the ICDC. An ICDC might carry on some small-scale commercial activity itself but profits would be applied for the purposes of the ICDC and not distributed to individuals.

Not-for-profit community or charitable entity (Entity B)

ICDCs would be able to provide funds and support to certain not-for-profit entities undertaking activities, including commercial activities, for community benefit. Profits would be applied for the purposes of the not-for-profit entity and not distributed to individuals. Activities conducted by the not-for-profit entity could include: community store, health service, school, cultural tourism, natural resource management, meeting rooms and community housing.

Businesses for individual profit (Entities C and D)

An ICDC could provide loans and limited start-up and other support services to businesses conducted by community members for individual profit. ICDCs could also invest in these entities and receive distributions but could not make payments or grants to a business other than for goods or services.


ICDCs could make payments and superannuation contributions to non-employee members in limited circumstances, but could not make distributions to individuals on the basis of their membership interests in the ICDC.

6.2 Governance rules for ICDC entities

The Working Group proposes there should be minimum governance standards for ICDC entities, which ensure that the fiduciary obligation of responsible persons of the ICDC and appropriate standards of accountability, financial management and investment planning are met and that this is able to be supervised by the ICDC regulator.

The ICDC governance standards would apply to all entities that seek registration for the status of an ICDC. These may include a variety of legal entities, for example, CATSI corporations, companies limited by guarantee (under the Corporations Act) or trusts. As a result of this, and given the range of size and circumstances of an ICDC, the ICDC governance standards will have built in flexibility but will identify the key elements to be satisfied.

Each different type of legal entity that is eligible to apply to be registered as an ICDC would already be subject to specific governance standards or rules, for example CATSI corporations are subject to the CATSI Act and the Office of the Registrar of Indigenous Corporations (ORIC) requirements. Meeting those CATSI Act requirements might be sufficient to demonstrate to the ICDC regulator that some of the ICDC governance standards are met.

An ICDC entity could take a variety of legal forms including a trust or company; could receive, control and invest a wide range of assets and revenue streams; and could operate in widely varying geographic and social circumstances and with a range of capabilities. Accordingly, a majority of the Working Group considered that a principle-based model of governance is likely to achieve the best outcomes for the IC
DC, the Indigenous people for whom it invests and controls funds, and other stakeholders.

In this regard, the principle-based approach to governance of charities to be used by the ACNC was thought to be appropriate. The principles-based governance standards proposed for ICDCs by the Working Group are set out at Attachment D.

However, several members of the Working Group expressed reservations about a purely principles-based approach and suggested that a tighter regulatory regime might be required to reduce scope for abuse, even for smaller entities. They have seen examples of attempted and successful abuses which would not be caught by a principles-based approach.

6.3 Regulation of ICDC entities

Sound regulation is important to build and maintain trust in the operation of ICDCs, promote high standards of governance and transparency and ensure that the burden of regulatory compliance is appropriate for a range of different circumstances.

An ICDC would be a not-for-profit entity but not a charity. Within these bounds, the ICDC could be an existing entity (such as a trust, or a corporation incorporated under the Corporations Act or the CATSI Act). Alternatively, a new type of legal entity could be created for the ICDC.

Regulatory functions in relation to ICDC entities

The Working Group considered the regulatory functions that would need to be addressed by a regulator of the ICDC entity. A range of regulatory functions may need to be performed in relation to the ICDC depending on the legal form that an ICDC takes. These functions could include:

  • incorporation, where necessary — for example, under the Corporations Act;
  • registration — for example, registration of an entity as an ICDC, having regard to listed criteria the entity needs to meet;
  • regulation — for example regulatory actions to protect land-related payments similar to those currently taken by ORIC;
  • reporting — including assessing financial/other reports provided by ICDCs, and monitoring breaches of reporting requirements;
  • public education and information — for example advice hotlines, public information sessions, website guidance material and FAQs, and other resource materials;
  • mediation of complaints — for example dispute resolution services similar to those offered by ORIC to CATSI corporations, members and directors;
  • provision of assistance and support — for example, limited support at the registration stage such as issuing non-binding views on an entity's entitlement to registration before a formal application is received, and training in the operation of an ICDC; and
  • liquidation and/or wind-up — for example when a corporate ICDC becomes insolvent.

Key regulation considerations

In setting up a system for the regulation of ICDCs, the following key considerations should be taken into account:

  • avoiding duplicative and potentially inconsistent regulatory and reporting requirements. This could arise, for example, if an ICDC were a corporation subject to the Australian Securities and Investments Commission's regulatory regime as well as an ICDC-specific framework.

One option to address this would be to provide for a single regulator for ICDCs, either by modifying the functions of an existing regulatory body or establishing a new regulator (noting that this would have complexities and costs);

  • ensuring proportionality in the regulation of ICDCs, for example through a tiered system, to ensure small, medium and large ICDCs are subject to appropriate regulatory and reporting requirements;
  • establishing appropriate appeals or objections processes for decisions of an ICDC regulator; and
  • interaction of any new/stand-alone ICDC regulator with other regulators (for example the Australian Tax Office).

Options for regulator

Consideration of a suitable ICDC regulator, or mix of regulators, will depend on the final legal form and functions of the ICDC model. This is the case regardless of whether existing entities could register as ICDCs or an entirely new entity is created. Consideration of appropriate regulator(s) and their role will depend on:

  • the legislative framework that sets up and broadly governs the ICDC model;
  • more detailed (and possibly tiered) governance arrangements applying to ICDCs; and
  • implementation issues — for example:
    • how existing entities would need to modify their set-up and operations to qualify as an ICDC; and
    • transitional arrangements, including for existing charitable entities managing land-related payments and other income that wish to move to the ICDC model.

The Working Group noted that within the current regulatory framework the ACNC, ORIC and Australian Securities and Investments Commission could be possible regulators.

6.4 Taxation of ICDC entities

It is proposed that the ICDC would be exempt from income tax and have DGR status. The tax treatment proposed by the ICDC model is summarised in the diagram at Attachment C, and is outlined in more detail below. The taxation of the following entities needs to be considered under the ICDC proposal: the ICDC entity (Entity A in the diagram); a not-for-profit entity connected to the ICDC (Entity B); businesses carried on for individual profit (Entities C and D); and individual community members.

Treasury advises that, although the proposed taxation arrangements for an ICDC entity as proposed would have an unquantifiable cost to revenue (due to the lack of comprehensive data), they are likely to have order of magnitude at the lower end of a $0-$10 million range.

Proposed tax treatment of ICDC (Entity A)

An ICDC would be a not-for-profit entity. The income of an ICDC, including investment income, would be exempt from income tax. An ICDC would be entitled to a refund of imputation credits for franked distributions it receives. An ICDC would have DGR status, and would be included on a newly created DGR register of ICDCs.

It is assumed that an ICDC would have the same FBT and GST treatment as most other not-for-profit bodies. Most other not-for-profit entities are entitled to the FBT rebate or exemptions, which compensates not-for-profit employers for their inability to claim an income tax deduction for the payment of FBT.16 Also, as an ICDC would be a DGR entity, its non-commercial supplies would be GST-free.17

Not-for-profit entities (Entity B)

An ICDC would be able to provide funds to certain not-for-profit entities undertaking activities, including commercial activities, for community benefit. The not-for-profit entity may also attract tax-exempt tax treatment (like an ICDC), for example if it is a registered charity or community service organisation.

Businesses for private profit (Entities C and D)

Businesses carried on for private profit with which an ICDC engages would receive normal income tax treatment under the company or individual income tax.

Payments for individuals

An ICDC could make superannuation contributions on behalf of individuals in the community in limited circumstances. The ICDC concept proposes these contributions would be taxed in the same way employer contributions are taxed (15 per cent).18 Treasury suggests a simpler arrangement that delivers an equivalent or better outcome would be for contributions to be made as non-concessional (that is, post-tax) contributions.

he taxation of non-business payments to individuals would depend on whether they were characterised as income. For example, a payment would not be taxable if it was a gift.

6.5 Assessment of ICDC model

The Working Group supports the ICDC model. The ICDC should be a not-for-profit entity (but not a charity) that would be exempt from income tax. Within these bounds, the ICDC could be an existing entity, such as a trust or a corporation, or a new type of entity.

This approach would promote economic development in Indigenous communities by extending tax free status to additional activities beyond those permitted by the current definition of charity (including the statutory definition contained in the Charities Act 2013).

Even though its use would not be mandatory, the ICDC model would provide a very strong incentive for good governance because groups wanting to use the ICDC (with its attractive tax status) for economic development would need to comply with the ICDC's governance requirements.

The Working Group recognises there will be a trade-off between choice and complexity with any new optional entity for holding and managing funds. Compliance costs in the tax system generally increase with the number of options available to taxpayers because taxpayers will, justifiably, seek to obtain the most favourable tax outcome by combining the entities available to them. The utilisation of a registered tax-exempt status such as ICDC could be a better option for many Indigenous communities than arrangements currently available, which often involve significant establishment and administration costs that are not affordable for organisations that receive small annual payments. It would enable Indigenous communities to utilise a legal form with which they are familiar (such as a CATSI corporation, company limited by guarantee or a trust), but on satisfying the conditions, to register for ICDC status.

The Working Group considers that the potential benefits of this ICDC tax-exempt registered entity that enables a focus on economic development for the long term outweigh the complexity and compliance costs for Indigenous communities that would arise from the availability of a new kind of tax-exempt entity. However, significant education and out-reach will be required to ensure the ICDC reaches its full potential.

An ICDC could be particularly useful for organisations with medium to low incomes. The flexibility in terms of activities that could be undertaken by an ICDC would be very attractive to many organisations. Given the costs of governance under existing arrangements involving independent trustees (up to $1 million per annum), organisations with a turnover of up to $10 million, and in particular organisations with an income below $200,000, could benefit from the establishment of an ICDC.

The Working Group has evaluated the ICDC model at a high level and recognises further development would be required before it could be implemented, including in relation to:

  • the legislative framework that would set up and broadly governs the ICDC model;
  • governance arrangements that would apply to ICDCs;
  • the regulation of ICDCs (including the mix of regulatory bodies working with ICDCs); and
  • how the model would be implemented, including:
    • procedural matters, such as registration requirements;
    • how existing entities would need to modify their set-up and operations to qualify as an ICDC; and
    • transitional arrangements, including for existing charitable entities managing land-related payments and other income that wish to move to the ICDC model.

Consultation would be needed with Indigenous communities as well as relevant government departments and other stakeholders to develop the detailed framework and to ensure uptake and successful implementation of the ICDC model by Indigenous communities.


The Government introduce legislation into Parliament to make an ICDC type of entity — a registered not-for-profit entity as described in this report that is exempt from income tax and has DGR status within a newly created DGR category — available to Indigenous communities as soon as possible. The Working Group suggests the Department of Families, Housing, Community Services and Indigenous Affairs, as the department of the minister responsible for Indigenous affairs, coordinate implementation of the proposal, with ongoing support from the Attorney-General's Department in relation to native title issues and Treasury in relation to taxation issues.

15 Minerals Council of Australia and National Native Title Council's Indigenous Community Development Corporation (ICDC) Concept (March 2013), p 7.

16Fringe Benefits Tax Assessment Act 1986, Section 65J.

17A New Tax System (Goods and Services Tax) Act 1999, Subdivision 38-G.

18 Minerals Council of Australia and National Native Title Council's Indigenous Community Development Corporation (ICDC) Concept (March 2013), p 7.