The Federal Court has refused to grant the Tax Office a stay of proceedings in a case involving Div 855 ITAA 1997, pending the outcome of an appeal in a different, but similar, issue.
The taxpayer appealed under Pt IVC TAA against assessments for the 2011 income year totalling just over $120m (the Newmont appeals).
The Tax Office sought a stay of proceedings until the outcome of its appeals to the Full Federal Court in Resource Capital Fund IV LP v FCT [2018] FCA 41 (see related TT Article). This is a decision where Pagone J found that
- the Limited Partnership provisions (in Part 5A of the ITAA36) didn’t work to tax any particular partner.
- that the gain was ordinary income and prima-facie taxable under our domestic law, as such (so the Div 855 ‘substantial’ land rules, for CGT purposes, didn’t apply.
- Each partner had access to the US-Australia Double Tax Agreement, if not through 1, then by the Commissioner’s binding ruling: TD 2011/25, which accepted this result, if the partner’s home jurisdiction treated the profits as derived by the partner (and not the Limited Partnership).
- Each partner’s profits where ‘business profits’ under Article 7 of the DTA which were not taxable in Australia (as they didn’t have a ‘permanent establishment’ in Australia), subject to the possible application of Article 13: ‘Alienation of Real Property’ (via Article 7(6)).
- Article 13 didn’t apply, as the assets of each partner were not ‘principally of real property in Australia’ (using the CGT Div 855 ‘majority’ underlying land interests as a proxy for the operation of the DTA, in the light of the unilateral s3A of the International Agreements Act 1953 – see related TT Article above).
Some of the issues in the two cases were similar, particularly the interpretation and application of the definition of “mining, quarrying or prospecting rights” in the context of Div 855 in relation to “taxable Australia real property”.
Although the Court accepted that the decision in the Resource Capital appeal may be helpful in guiding the outcome, at least in part, in the Newmont appeals, it refused to grant a stay of proceedings.
The relevant factors included:
- if the taxpayer succeeded in the Newmont appeals, the statutory interest payable on the refunded income tax (which the taxpayer had paid in February 2012) would not be a commercial rate of interest, yet if it was unsuccessful the taxpayer would be liable to pay the GIC, which accrues at a rate 7 percentage points higher than the base rate, on the tax payable under further amended assessments (totalling just over $81m) issued in October 2017;
- the taxpayer was expending significant internal and external resources on the appeals and was also liable to pay a fee to the bank which provided financial guarantees in relation to a 50/50 agreement between the taxpayer and the Tax Office in respect of the October 2017 amended assessments;
- the Tax Office should not start incurring substantial costs until about the time the Full Court’s decision in Resource Capital was handed down;
- certain issues in the Resource Capital case were not present in the Newmont appeals, but which could decide the Resource Capital appeal; and
- most of the areas of purported commonality, identified by the Tax Office, between the Resource Capital appeal, and the Newmont appeals, were matters of fact and evidence.
- a review of the chief findings on the chief issues in the Resource Capital IV first instance decision, ought make it clear that not all the issues are likely to be the same.
(Newmont Canada FN Holdings ULC v FCT [2018] FCA 958, Fed Ct, McKerracher J, 6 June 2018.)
FJM 5.7.18
[LTN 124, 2/7/18; Tax Month – July 2018]
Study questions (answers available)
- Did the Commissioner get leave to stay the hearing of the Newmont case until the appeal of the Resource Capital IV was decided?
- Did the Resource Capital IV case have at least 5 issues?
- Were all those issues likely to be present in the Newmont case?
- Were there ‘non-legal issues’ relevant to denying the stay?
