Submission to Treasury

Tax Treatment of Native Title Benefits

Author:  Fiona Martin, School of Taxation and Business Law, UNSW.

Date: 24 August 2012

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. 

This approach is a significant move forward and has the advantage of the income tax exemption as I and many others have argued for.  There are however three issues to this approach which must be considered. 

Issue 1
The draft legislation sets out a new s 59-50 of the Income Tax Assessment Act 1997 (Cth) (ITAA97) which excludes from assessable income and exempt income ‘native title benefits’ provided to an ‘Indigenous holding entity’.  A ‘native title benefit’ is defined in s 59-50(5) as:
	A payment or non-cash benefit provided:
		(a) under an agreement made under:
			(i) an Act of the Commonwealth, State or a Territory; or
			(ii) an instrument made under such an Act; 
To the extent that the payment or benefit relates to an act affecting native title; or	
(b)  as compensation determined in accordance with Division 5 of Part 2 of the Native Title Act 1993.
Section 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 s 59-50(5)(a) is broader and may therefore be less straightforward to apply.  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.  Some agreements are not made pursuant to statute but are under common law.

Furthermore, not all situations relating to native title are in respect of an actual agreement.  There are often arrangements or understandings and, as in the common law situation but also in other situations, these are not always in accordance with a statute.  Commercial arrangements are often entered into between Native Title claimant groups and mining companies and these are not in respect of any legislative auspices. 

Furthermore, the phrase ‘to the extent that the payment or benefit relates to an act affecting native title’ (author’s emphasis) is on its face extremely wide and could cover any agreement with a payment that in some way impacts on native title.  It is however limited to agreements that are under legislation, which 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 will 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 a private commercial arrangement within the auspices of government control. 

Proposal 1

That the word agreement in proposed s 59-50(5)(a) be replaced with ‘agreement, arrangement or understanding’ and extended to include agreements, arrangements or understandings relating to indigenous persons that are under common law.  

Issue 2

The proposal is that the exemption applies to payments relating to an act affecting native title.  This will not capture all situations that arise under the Native Title Act 1993 (NTA).  For example, the NTA applies to ‘past’ acts, so the payment in this situation would not relate to native title as native title has been extinguished.  Agreements also arise where native title has not been established but the parties accept that it is prima facie in existence or as a show of respect and good faith enter into an agreement or arrangement under which a payment is made.  Again the exemption will not apply as native title may not exist or ever be proved to exist in these situations.

Proposal 2
Section 59-50(5)(a) is amended to ensure that it applies to all benefits received pursuant to the relevant agreement, arrangement or understanding, whether or not the payment relates to an act affecting native title. 

Issue and Proposal 3
The references in s 59-50 to ‘an act affecting native title’ are not necessarily consistent with those in the NTA.  This lack of consistency may lead to complexity and confusion in applying this provision. If my arguments above at proposal 2 are not accepted then the phrase ‘act affecting native title’ in s 59-50(a) should have the same meaning as in the NTA to ensure consistency.

Additional Proposal – Income Tax Entity ‘The Indigenous Community Development Corporation’

Although not arising directly from the proposed legislation I also submit that Treasury consider the introduction of an Indigenous Community Development Corporation (IEDC).  The IEDC has been the subject of many submissions from the Minerals Council of Australia and the National Native Title Council to Treasury and I endorse their submissions.

In summary I advise that ICDC is a special purpose vehicle for managing native title and other payments negotiated by traditional owners and other Indigenous Groups. The principal aims of the ICDC model are the maximization of economic and social benefits and the promotion of efficiency in fund administration and distribution.   It is income tax exempt in order to maximise the use of payments and other income made to it, as well as income that is then generates.

An ICDC will have the capacity to undertake traditional charitable activities, but will  also be able to engage in activities such as land management, employment services and training, and economic development initiatives all within a new single endorsement category. The ICDC would also allow the long term accumulation of funds for the benefit of future generations.

An ICDC can be entered into on a voluntary basis and can be delivered at a scale ranging from small local funds to large regional funds that could be State based in some cases.  The ICDC will be underpinned by strong governance and management processes through a model Constitution that includes a set of minimum key principles, supported by a mechanism for registration.