Native Title and Tax: Understanding the Issues
Chief Investigator(s)Miranda Stewart, Lisa Strelein
OverviewCurrent tax and legal regimes tend to embed poverty and limit entrepreneurship and investment by indigenous communities and individuals. The ATNS Project engages with these issues in the following ways:
Identifying Appropriate Legal, Commercial and Financial Models for Managing Native Title Payments
Indigenous resource-related agreements involving the establishment of charitable trusts to manage negotiated financial benefits have proven inappropriate for the long-term sustainability of fund management (Strelein & Tran 2007). The ATNS project will develop a detailed analysis of the full range of for-profit and non-profit legal, commercial and financial models that are available and appropriate for indigenous organisations and businesses. The project will educate and empower stakeholders to establish models best suited to their circumstances.
Income Tax Exemption of Native Title Payments
The income tax treatment of payments under native title agreements has been a matter of concern to stakeholders. Members of the the ATNS project has been at the forefront of tackling this important topic for several years, authoring articles, holding seminars and making submissions to government on the issues.
A concern of the Project has been the use of 'non profit corporations' or 'charitable trusts' by indigenous entities to derive and hold income so as to exempt those entitiesfrom income tax. Such models may limit the ability of indigenous organisations to carry on businesses for commercial purposes. Members of the Project have explored various tax reforms to address this, drawing on comparative legal and policy analysis of regimes of tax exemption of indigenous peoples in Canada, the United States and New Zealand, as well as other tax and subsidy regimes for regional communities, such as the US New Markets Tax Credit. Potential reforms considered include:
- exempting compensation payments for impairment of native title rights from Income Tax and GST regimes
- identifying a particular class of native title agreements as tax exempt
- amending the Income Tax Assessment Act 1936 to recognise indigenous corporations as deductible gift recipients and income tax exempt entities
- making distributions by indigenous prescribed bodies corporate tax exempt by classifying them pursuant to the Social Security Means Test Treatment of Private Trusts - Excluded Trusts Declaration 2005
- creating a tax exempt indigenous foundation to receive, accumulate and invest income and assets derived from native title agreements
The Tax Laws Amendment (2012 Measures No. 6) Bill 2012 was passed on the 18th March 2013. The Bill makes some small, but important clarifications to the tax law with respect to native title payments. It confirms that payments that are essentially compensatory, under agreements concerning acts affecting native title, will be non-assessable to either Indigenous entities or individuals who receive them. It also confirms that a transfer of native title from the claim group to a corporate entity that holds it (as agent or trustee for native title holders) does not generate any tax consequences.
The primary benefit of the amendment is certainty for the native title claim groups and other stakeholders engaged in negotiating native title agreements. The uncertainty has existed since native title agreements started to be made on a widespread basis more than a decade ago under the Native Title Act.The amendments rightly address all forms of native title agreement including State settlements.
The Bill only exempts payments under native title agreements that are essentially compensatory in respect of acts affecting native title. If these payments are invested and generate income, then that income is subject to tax in the normal way, under general tax rules for all Australians.
While the Bill does produce non-assessability of these payments in the hands of eligible indigenous individuals, it is expected that these payments will not happen frequently, and this is the right result because native title, and the loss or acts affecting it, is unique. It is analogous to compensatory payments for other kinds of loss or damage. Under current tax law, Australians in general do not pay tax on compensation for personal loss or injury or damage.
This amending Bill is only one piece of the puzzle. As has been proposed by the Minerals Council of Australia, the ATNS Project also strongly supports establishing a working group to debate and develop the concept of an ICDC that would support long term Indigenous economic development arising out of native title agreements in Australia. The purpose of such a proposal is to put indigenous Australians on the same footing as all other Australians on a sustainable basis for the future.
The explanatory memorandum and the Bill can be accessed here.
Broader Tax Issues:
Members of the Project have also explored other tax reforms, including:
- tax incentives to encourage investment in indigenous communities
- tax incentives for indigenous businesses, including the lowering of the corporate tax rate and 'tax holidays' for start-up indigenous companies
Miranda Stewart's contribution to the Project includes:
- revising a 2009 paper on tax law and policy for indigenous economic development, and publishing it as a Working Paper and as a chapter in the forthcoming book: The global mining boom and indigenous people: the legal and economic dimensions (working title);
- presenting workshops for Native Title Representative Bodies on tax and native title;
- leading the project submission to FaHCSIA on tax reform, and making a presentation to FaHCSIA about tax aspects of the project going forward;
- participating in meetings with the National Native Title Council and the Minerals Council of Australia on tax reform;
- organising a Treasury, tax and native title law experts' one-day workshop; and
- making detailed submissions to government inquiries on tax matters
- providing ongoing advice to Treasury, including engaging in consultations on the proposed resource rent tax and any potential native title taxation issues.
- making submissions to government inquiries and consultations on issues such as taxation, leading-practice agreement-making and native title law reform.
- membership of both the Attorney General's Native Title Consultative Forum and the FaHCSIA National Income Management Think Tank.
- convening the National Native Title Conference, which had a strong taxation and economic development focus
- presenting to the National Native Title Council, the NTRB CEO and Senior Professional Officer Forums and the North Queensland Land Council Governance workshop on taxation and prescribed bodies corporate.
Research OutcomesWorkshops/Seminars Held
- Taxation of Native Title Payments: Talking Heads Presentation to the Attorney General's Department (April 2011)
- Taxation of Native Title Payments: Legal Workshop (July 2010)
- Indigenous Communities, Economic Development and Tax Policy Symposium (February 2008)
- Indigenous Community and Economic Development and Tax Policy Workshop (August and September 2007)
In May 2010, the federal Treasury Department released a Consultation Paper on Native Title, Indigenous Economic
Development and Tax which canvassed three main options for reform:
- An income tax exemption for payments under native
- title agreements;
- A new, tax-exempt Indigenous Community Fund and/or
- A native title withholding tax.Stewart, M, 'Tax and Corporate Design', Native Title Conference, Perth, 4-6 June, 2008.
In November 2010, the ATNS Project made a submission to Government on these issues:
Submission to the Treasury's Consultation on Native Title, Indigenous Economic Development and Tax.
The ATNS has also made submissions on three other tax related issues:
The Submission to the Transition Policy Group on the Minerals Resource Rent Tax (MRRT) concerns the deductibility of expenditure on native title payments to mining companies under the MRRT.
The Submission to the National Not-For-Profit (NFP) Regulator Scoping Study concerns the impact of a proposed National NFP Regulator on indigenous organisations, who have to date been regulated by the Office of the Registrar of Indigenous Corporations.
The Submission to the Department of Families, Housing, Community Service and Indigenous Affairs concerns the options for optimising benefits achieved from native title agreements.
Stewart, M, (2008) 'Structures and Incentives for Commercial Activities' Indigenous Communities, Economic Development and Tax Policy Symposium, Melbourne, 26-27 February 2008.
Stewart, M, (2008) 'Tax and Corporate Design', Native Title Conference, Perth, 4-6 June, 2008.
Stewart, M. (2010) Native Title and Tax: Understanding the Issues.
In this paper, Professor Stewart discusses the tax treatment of payments under native title and discusses in particular various options for reform which were raised in the Treasury's recent Consultation Paper on Native Title, Indigenous Economic Development and Tax.
Stewart, M (ed) (2010) Housing and Tax Policy (Australian Tax Research Foundation: refereed Conference Series).
Strelein, L. (2007) Maximising Benefits - Taxation and the Structuring of Native Title Agreements, Mining, Petroleum, Oil and Gas Symposium: Indigenous Participation in the Resources and Extraction Industry, 9-10, 2007 July, Broome.
Strelein, L. (2007) Making the Most of Native Title in Australia: Achieving Outcomes and Managing benefits, Te Puni Kokiri (Maori Affairs), CIGAD, College of Business, 1 February 2007 (Focus on outcomes and Prescribed Body Corporates).
Strelein, L. (2007) Prescribed Bodies Corporate, Attorney- General's Consultative Forum, 16 March 2007.
Strelein, L. (2006) Native Title Payments, Taxation and the Distribution of Benefits, Presentation delivered to the Taxation, Trusts and Distribution of Benefits Under Native Title Agreements Workshop for NTRB Senior Professional Officers, 19 September 2006, University of New South Wales, Sydney.
Strelein, L, (2008) Taxation of Native Title Agreements, Research Monograph 1/2008, Native Title Research Unit, Australian Institute of Aboriginal and Torres Strait Islander Studies, Canberra.
Strelein, L. and Tran, T. (2007) Taxation and Trusts and the Distribution of Benefits under Native Title Agreements, Native Title Research Report No. 1/2007, Native Title Research Unit, AIATSIS, Canberra.
Strelein, L. Native Title payments, taxation and the distribution of benefits, Native Title Research Unit, AIATSIS, Canberra (Background Paper for workshop)
Strelein, L. (2007) Taxation of native title benefits , NTRB Legal Masterclass, Aurora Project, Sydney, July 2007.
Further ReadingStewart, M. (2005) 'Venture Capital Taxation in Australia and New Zealand' 11 New Zealand Journal of Taxation Law and Policy 216.
Stewart, M. (2006) 'Introduction: New Research in Tax Law and Political Institutions' in Stewart (ed) Tax Law and Political Institutions (Federation Press, Sydney).
Strelein, L. (2008) Submission to Henry Review of Australia's tax system, 9 October. AIATSIS, Canberra.
Strelein, L. and Tran, T. Native Title Representative Bodies and Prescribed Bodies Corporate: Native Title in a Post Determination Environment, Native Title Research Report No.2/2007, AIATSIS.