The Income Taxation of Native Title Agreements
| Published date | 01 September 2011 |
| DOI | 10.22145/flr.39.3.2 |
| Date | 01 September 2011 |
| Subject Matter | Article |
THE INCOME TAXATION OF NATIVE TITLE
AGREEMENTS
Miranda Stewart*
I INTRODUCTION
In this paper is the agreement between Argyle, Traditional Owners for the mine area and
the Kimberley Land Council. This paper carries all the rules to make sure that we treat
each other properly. It has taken many years and a lot of hard work to ma ke this
agreement. We are very proud to sign it. With this agreement as a start, we can make the
future better for Traditional Owners and Argyle.
1
This article examines the tax issues that arise in respect of native title agreements and
recent proposals for tax reform by the Australian Government. N ative title agreements
sit at the i ntersection of indigenous economies, the market economy and the state.
They contribute to sharing the benefits of resource development with traditional
owners and compensate for the replacement value of non-renewable resources to the
future generations.
The recognition of native title in Mabo v Queen sland (No 2)
2
and in the Native Title
Act 1993 (Cth) ('NTA') has led to si gnificant changes in the status of indigenous
peoples in negotiating with governments and private stakeholders . Although the legal
content of native title has disappointed many and there have been only a small number
of successful compensation claims, native title agreement-making has b ecome
increasingly wide spread across Australia and payments and benefits provided under
native title agreements have become increasingly valuable in some regions. It is not
surprising, then, that t he tax treatment of payments provided under native title
agreements has become a matter of concern to traditional owners and other
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* Associate Professor, Melbourne Law School; Chief Investigator on the Australian Research
Council Linkage Project 'Poverty in the Midst of Plenty' (LP 0990125). The author
acknowledges the support provided by the Australian Research Council, the Australian
Institute for Aboriginal and Torres Strait Islander Studies and the project linkage partners:
Department of Families, Community Services and Indigenous Affairs; Marnda Mia Ltd;
Rio Tinto Services Ltd; Santos Ltd; and Woodside Energy Ltd. The views expressed in this
work are solely the views of the author . My thanks go to my colleagues on this project for
their patience as I began to find my way around the Native Title Act and to an anonymous
reviewer for their insightful and provocative comments. All errors are, of course, my own.
1
Argyle Diamond Mine Participation Agreement — Indig enous Land Use Agreement (8 April
2005), 'Plain English' text preamble, ATNS Project Database,
<www.atns.net.au/objects/Agreements/Argyle%20ILUA.pdf> ('Argyle Diamond
Agreement').
2
(1992) 175 CLR 1 ('Mabo').
362 Federal Law Review Volume 39
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stakeholders (in particular the re sources industry) in recent years. A number of studies
of tax issues have been carried out,
3
and several workshops held that have brought
together indigenous peoples and their representatives, resource companies,
governments and other stakeholders, leading to the current consideration by the
Australian Treasury of tax reform for native title agreements. In May 2010, the
Treasury released its Consultation Pa per on Native Title, Indigenous Econom ic
Development and Tax (the 'Treasury Paper').
4
As at the date of writing, no final reform
proposal or draft legislati on has been released by the govern ment. The Treasury Paper
presents three main options for reform:
(1) A legislated inc ome tax exemption for native title payments;
(2) A tax -exempt Indigenous Community Fund;
(3) Native title w ithholding tax.
Most attention to date has focused o n the question of how to interpret native tit le
payments in the existing tax law framework, and the uncertainty generated in this
interpretive process. Current tax treatment is co mplicated because it involves the
intersection of two highly complex and technical legal regimes: na tive title law and tax
law. There is a risk, in the words of Attorney-General Robert McClelland, that exper ts
in native title and tax law will become 'intoxicated by their expertise' in this analysis.
5
The complexity of these two legal regimes also o bscures the more fundamental
conceptual issue of how, a nd whether, one should a pply income tax at all to native
title.
Part II explains the fundamental legal concepts of native title and compensation,
which forms the context for the income tax analysis. Part III briefly examines the
income tax treatme nt of na tive title payments in current law. Part IV presents the core
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3
Lisa Strelein, 'Taxation of Native Title Agreements' (2008) 1 Native Title Research Monograph;
Commonwealth of Australia, Department of Families, Housing, Community Services a nd
Indigenous Affairs, Optimising Benefits from Native Title Agreements, Discussion Paper (2008)
<http://www.fahcsia.gov.au/sa/indigenous/progserv/land/Documents/native_title_
discussion_paper/default.htm>; ATNS Project, 'Optimising Benefits from Native Title
Agreements' (Submission to Department of Families, Housing, Community Services and
Indigenous Affairs Discussion Paper, 6 December 2008); A Levin, Improvements to the Tax
and Legal Environment for Aboriginal Community Organisations and Trusts (Discussion paper
presented at the Indigenous Community and Economic Development a nd Tax Policy
Workshop, ATNS Project, 28 August 2007); Minerals Council of Australia ('MCA') with
Jackson McDonald Lawyers and AIATSIS, 'Improving the Tax Treatment of Benefits and
Payments to Indigenous Communities fr om Resource Agreements, Introducing an
Alternative: Indigenous Community Development Corporations' (Consultative Discussion
Paper, Minerals Council of Australia, August 2009).
4
Commonwealth of Australia, Treasury, Native Title, Indigenous Economic Development and
Tax, Consultation Paper (2010), <http://www.treasury.gov.au/documents/1890/PDF
/20101020_Native_Title_Tax _Consultation_Paper.pdf>. The consultation process was
suspended during the 2010 election but recommenced in October 2010; 32 submissions
were received by November 2010, available at <http://www.treasury.gov.au/
contentitem.asp?ContentID= 1916&NavID=037>.
5
Robert McLelland, ' Negotiating Native Title Forum' (Speech delivered at the Negotiating
Native Title Forum, The Novotel Brisbane, 29 February 2008) [17]
<http://www.ag.gov.au/www/ministers/mcclelland.nsf/Page/Speeches_2008_FirstQuar
ter_29February2008-NegotiatingNativeTitleForum>.
2011 Taxation of Native Title Agreements 363
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analysis as to whether native title payments should be subject to income taxa tion. It is
concluded in Part IV that there are a number of good a rguments for the position that
payments under native title agreements are not 'income' as a matter of income tax
principle, because they are compensation for a loss or damage in property or personal
rights, or for non-economic benefits or value, or alternatively because they do not
accrue as individual gain but are a social, or collective benefit. However, the matter is
not free from doubt, and may not be resolvable in traditional tax policy terms. The
analysis in Part IV reveals a clash of discourses, or conceptual frameworks that
underpin native title and income taxation and the limitations of the legal and economic
approaches to fundamental concepts such as property, compensation and income.
Further, even if the analysis is accepted for payments for native title holders, it cannot
address the issues of justice a nd development for traditional owner s, or other
indigenous people, who are unable to demonstrate native title.
In light of the conceptual analysis in Part IV, it is argued that there are good social
and economic p olicy reasons t o justify t he exemption of all native title paymen ts from
income tax. Part V consi ders the detail of Treasury's option (1) relating to t his
exemption, including an examination of the range a nd diversity of native title
agreements to be covered and the design of the legislative exclusion. In Part VI, this
article finally turns to Trea sury's option (2), which proposes the establishme nt of a tax -
exempt Indigenous Community Fund that may receive native title payments and other
forms of payment for the benefit of indigenous co mmunities. Part VI ex plains the
context of this prop osal, being the widespread and unsatisfactory use of charitable
trusts to receive payments under native title agreements, and considers the various
features of such a fund. It is concluded that there are good arguments in support of
option (2), however significant further community c onsultation will be required to
establish the best model.
This article does not address the merits of option (3) in t he Treasury Paper,
concerning a native title withholding tax. A native title withholding tax was proposed
by the Howard government in 1998 but was not enacted at that time.
6
The proposal
was modeled on the existing Mining Withholding Tax ( 'MWT') which is levie d at 4
percent on 'mining payments' made to Aboriginal people or a distributing body in
respect of Aboriginal land.
7
It is the view of this author, consistent with the majority of
submissions to the Treasury consultation, as well as the weight of academic opinion,
that the option of a native title withholding tax should not be pursued.
8
Further, it may
be appropriate to repeal the existing MWT. In short, the MWT is inequitable, creates a
two tier tax sy stem, applies tax where recipients of payments would be under the
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6
Commonwealth of Australia, Treasury, above n 6, 14.
7
Income Tax Assessment Act 1936 (Cth) Div 11A, applying among other things to mining
payments under the Aboriginal Land Rights Act 1976 (NT).
8
See especially Strelein, above n 3; Jon Altman, Submission to the Treasury (Cth),
Consultation Paper: 'Native Title, Indigenous Economic Development and Tax' 25 November
2010 <http://www.treasury.gov.au/documents/1916/PDF/Altman.pdf>; Jon Altman,
'Native Title a nd Taxation' (CAEPR Topical Issue 4/2010, Centre for Aboriginal Economic
Policy Research, the Australian National University, September 2010)
<http://caepr.anu.edu.au/sites/default/files/Publications/topical/Topical_Altman_Nati
ve%20Title%20and%20tax.pdf>; Fiona Martin, 'Native Title Payments and their Tax
Consequences: Is the Federal Government's Recommendation of a Withholding Tax the
Best Approach?' (2010) 33 University of New South Wales Law Journal 685.
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