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Executive summary and recommendations

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Effective participation by Indigenous people in the Australian economy improves their health and social outcomes and increases the wellbeing of individuals, families and communities.

Land rights, native title and other land-related agreements, together with payments and benefits under these agreements (for convenience called land-related payments), are vital tools for increasing Indigenous economic development. Under the right circumstances, they can also bring a number of important broader social benefits including improved community functioning, education, health and wellbeing. However, there must be effective management and governance structures in place in order to achieve these outcomes. Poor governance and failure to grasp opportunities for intergenerational wealth building will perpetuate welfare dependency of Indigenous people.

The Taxation of Native Title and Traditional Owner Benefits and Governance Working Group (Working Group) was established to examine existing arrangements for holding, managing and distributing land-related payments, and to identify options to strengthen governance and promote sustainability. Its particular focus was on the tax treatment of current arrangements and of proposed options for holding, managing and distributing land-related payments. The Working Group's terms of reference, which include the membership of the Working Group, are at Attachment A.

The Working Group recognises that an income tax exempt, not-for-profit entity with Deductible Gift Recipient (DGR) status which can invest in community development and for the long term has potential to provide significant economic development benefits for Indigenous people. The Working Group supports establishing an entity based on the concept of the Indigenous Community Development Corporation (ICDC) proposed by the National Native Title Council and the Minerals Council of Australia. Recognising the diversity of social and economic circumstances of different Indigenous communities around Australia, such an entity might have the legal form of a not-for-profit corporation or a trust that, when registered by the relevant regulator, would have the tax-exempt status of an ICDC. An ICDC entity would be subject to sound governance standards and would be accountable both to the Indigenous community it serves and to the regulator.

The Working Group supports the ICDC model for two main reasons. First, an ICDC could be used by Indigenous communities to provide financial support for a wider range of community or economic development activities than is possible using other entities such as a charitable trust. It could contribute to developing the local Indigenous community by building local and regional businesses and social ventures that create flow-on economic and social development opportunities, particularly job creation. It could also encourage cooperative approaches in which holders of land-related payments can work as co-investors with governments and the private sector in delivering holistic regional development projects.

A second important feature of a tax exempt entity with DGR status could be to facilitate the accumulation of payments towards a 'future fund' of private monies derived by an Indigenous community from native title agreements or other sources, to be applied for the community's benefit in the long term. This fund could be invested, applying strong prudential standards, to develop sustainable income streams for future generations as well as current community members. The tax exempt status would maximise the funds available for both the economic development and inter-generational investment purposes.

The Working Group also expressed significant concern about the adequacy of current governance arrangements for managing land-related payments. The National Native Title Council has proposed a number of reforms to address governance problems, including changes to the Native Title Act 1993 (Native Title Act) or relevant regulations, to clarify that a fiduciary relationship exists between a native title applicant and the broader group of native title holders; and to provide for the regulation of private agents involved in negotiating native title future act agreements. While the Working Group did not have an opportunity to give them detailed consideration, it strongly supports these reforms and considers they should be progressed urgently. Improved governance is crucial if maximum benefits are to be derived from any new entity which might be used by Indigenous communities for managing land-related payments.

The Working Group's recommendations to Government are:

Recommendation 1: 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 — 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.

Recommendation 2: The Government take urgent steps to regulate private agents (persons or firms other than Native Title Representative Bodies or Native Title Service Providers and/or their legal representatives) involved in negotiating native title future act agreements.

Recommendation 3: The Government refer the following matters for consideration to the current Review of the Roles and Functions of Native Title Organisations:1

  1. the establishment under statute of a trust that would be the holder of native title agreement funds where there was no Prescribed Body Corporate, ICDC entity or other appropriate funds management entity to receive them; and
  2. a process for the registration of section 31 native title future act agreements. (If this matter is outside the scope of the Review's terms of reference and it is not practicable for it to be referred to the Review, the Working Group recommends the Government take other steps to achieve this outcome.)

Recommendation 4: The Government take urgent steps to amend the Native Title Act or relevant regulations to clarify that the native title holding community is the beneficial owner of funds generated by native title agreements, irrespective of the identity of the legal owner or possessor of those proceeds, and that the named applicant is in a fiduciary relationship to their native title holding group.


1 More information about the review, including its terms of reference and discussion paper, is available on the Deloitte Access Economics website: http://www.deloitteaccesseconomics.com.au/our+services/economic+analysis+and+policy/native+title/about+the+review.