Following the decision of the Full Federal Court in FCT v Resource Capital Fund III LP [2014] FCAFC 37 in which the Court unanimously allowed the Commissioner’s appeal and held that the taxpayer, a non-resident limited partnership, was assessable on a capital gain of $58m it made on the sale of shares it held in an Australian company that carried out mining operations in Australia, the Full Court has given its final orders in the matter after directing that the parties confer and serve agreed minutes of orders. The orders sought directions from the parties as to which of 2 dates the taxpayer breached the “principal asset” test under the TARP provisions of Div 855 of the ITAA 1997.

The issue was of importance because the taxpayer, in agreeing that the second date was the relevant time, acknowledged it was possible to attribute market values to the mining information and plant and equipment on the basis of an assumed simultaneous sale of relevant assets to the same hypothetical purchaser with the capacity to use those assets in combination in a gold mining operation at their highest and best use.

Furthermore, in doing so, the taxpayer also acknowledged there was evidence of their replacement and scrap values and that, as rational negotiating parties would each take half the difference rather than none of it, a figure could be arrived at by taking the mid-point between the replacement and scrap values of those assets.

The Full Court also restated its original finding that as the taxpayer’s adopted valuation hypotheses and methods were inconsistent with the hypotheses and methods that the Full Court considered to be the correct approach, the taxpayer had not discharged its burden of proof that the Commissioner’s assessments were excessive. The result was that the Commissioner succeeded on the TARP issue on both of the dates in question.

(FCT v Resource Capital Fund III LP (No 2) [2014] FCAFC 54, Full Federal Court, Middleton, Robertson and Davies JJ, 2 May 2014.)

[LTN 84, 6/5/14]