On Wednesday 25.5.2016, the Federal Court dismissed the Commissioner’s appeal from the decision in AAT Case [2013] AATA 626, Re AP Energy Investments Limited and FCT, effectively holding that the taxpayer company (a Chinese company) was not liable for CGT on sale of shares it held in an Australian mining company.

The AAT had ruled that the company which made a capital gain of some $4m in the 2007 income year, when it sold 75% of its 21.4% shareholding, in an Australian company (Abra Mining Limited ACN 110 233 577), was not liable to Australian CGT on the gain. The Australian company carried on a business of mining exploration and development in Australia. It did so on the taxpayer did not pass the “principal asset” test (PAT), in Subdiv 855-A of the ITAA 1997. This meant that the shares, it sold, did not qualify as “indirect Australian real property interests” and were outside the Australian CGT net. The Federal Court noted that the amount of tax in issue, which had already been paid by AP Energy to the Commonwealth, was $1,406,781.

The Federal Court noted that the debate before the Tribunal turned, essentially, on the method of valuation of those shares, in particular, the value to be attributed to mining information (compared with the Australian real property). The Court said that despite the complexity of the case, the real question was whether the Tribunal’s overall valuation method departed from established legal tests. That is a question of law, the Court said. If the Tribunal did not, the Court said it “should not second guess minute detail within the Tribunal process”.

The Commissioner contended that the Tribunal impermissably followed the first instance decision in Resource Capital Fund III LP v FCT [2013] FCA 363 (RCF) as to the method of valuation (which allowed the taxpayer to win) but was relevantly overturned, on appeal to the Full Federal Court, on valuation issues FCT v Resource Capital Fund III LP [2014] FCAFC 37.

Before the Court, AP Energy rejected the contention that the Tribunal impermissibly followed RCF. After lengthy review, the Federal Court found the Commissioner’s grounds of appeal were not made out and it dismissed the appeal.

(FCT v AP Energy Investments Pty Ltd [2016] FCA 577, Federal Court, McKerracher J, 25 May 2016.)