our alert of 9 August 2012 legislation clarifying the way
native title benefits interact with the Australian income tax
system, and providing for breaks for benefits provided to
Indigenous groups, has now passed through Parliament.
Here, partner Jonathan Fulcher, special counsel Justin Byrne and
senior associate Rosalie Cattermole review the amendments and
outline the impact these changes are likely to have in
The amendments are part of a range of reforms following the
completion of the 2010 consultation paper Native Title,
Indigenous Economic Development and Tax.
Prior to these changes, it was unclear whether or not benefits
provided under a native title agreement were assessable income. The
new law clarifies this position: Native title benefits provided
under an agreement on or after 1 July 2008 will not be subject to
income tax or capital gains tax where the benefit is for an
Indigenous holding entity (the Indigenous group's nominated
body receiving benefits under the agreement, referred to here as
'nominated body') or one or more Indigenous people.
Where payments are provided in a lump sum for a range of
purposes, it may be necessary to apportion the payment as between
taxable purposes and (tax-free) native title benefits covered by
Mining companies making native title benefits payments should
also be entitled to a tax deduction.
Unfortunately there is still uncertainty regarding the tax
treatment of native title benefits provided under agreements
entered into before 1 July 2008.
Which native title benefits will the new laws apply to?
The new laws will apply to benefits (both monetary and
non-monetary) provided to a nominated body or to one or more
Indigenous people (or applied for their benefit) under:
an Indigenous Land Use Agreement (ILUA);
a right to negotiate agreement; or
compensation paid for loss of native title due to
extinguishment, where a compensation determination application has
been successful in the Federal Court.
The new laws will also apply to native title benefits provided
under agreements under the Traditional Owner Settlement Act
2010 (Vic) or other State legislation. The new laws will not
apply to common law agreements or agreements that are otherwise
outside of the framework established by the Native Title
A nominated body can be a prescribed body corporate, an
Aboriginal land council or an Indigenous corporation registered
under the Corporations (Aboriginal and Torres Strait Islander)
Act 2006. A trust with Indigenous beneficiaries will also be
classed as a nominated body.
It should be noted that a nominated body can be a discretionary
trust but cannot be a private company unless certain other
Where a nominated body provides a native title benefit to one or
more Indigenous people, the native title benefit will remain as
non-taxable income. This gives Indigenous groups flexibility in
structuring their financial affairs, and ensures that native title
benefits can be distributed to beneficiaries without tax
What will be taxable despite the new laws?
The new legislation will also not affect native title benefits
where the payment is:
not provided to an Indigenous holding entity or an Indigenous
person, or applied for their benefit;
to be used to meet administrative costs; or
to be used for remuneration or consideration for the provision
of goods and services.
In these instances, the payment may be taxed.
The nominated body or Indigenous person's subsequent use of
the native title benefit may also be taxable. For example, where a
nominated body invests funds received as a native title benefit, or
the benefit is used to establish a profitable business, the
earnings (such as interest income) or capital gains/losses will
form part of the entity's taxable income. In these
circumstances, using a charitable trust may continue to assist in
avoiding tax liabilities.
Impact of the changes
For native title groups, the changes provide clarity and
certainty around the tax treatment of payments received under a
native title agreement or under the Native Title Act 1993
Timing of reforms
The amendments are proposed to apply to native title benefits
provided on or after 1 July 2008. Indigenous groups that have paid
tax on native title benefits received after 1 July 2008 will have
two years from now to amend their tax returns.
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