The AAT has ruled that a Chinese 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”), was not taxable on that gain. Abra carried on a business of mining exploration and development in Australia.
The decision to not to tax the Chinese company was on the grounds of finding that the “principal asset” test (PAT) in Subdiv 855-A of the ITAA 1997 was not passed in Abra and that therefore its shares did not qualify as “indirect Australian real property interests” and their sale did not attract Australian CGT.
The issue before the AAT turned on expert opinion evidence as to the operation of the PAT and the value of the Taxable Australian real property (TARP) and non-TARP assets of Abra. (For the PAT to be passed, more than 50% of the value of Abra’s assets was required to be TARP).
In particular, the AAT was required to rule on whether the mining information was a TARP asset in its own right that was separate and distinct from mining rights, and the value to be attributed to it (noting that “TARP” by definition included “mining rights”).
In finding that the PAT test had not been passed, the AAT preferred the expert valuation evidence of the taxpayer over that of the Commissioner. In doing so, the AAT relied on the principles in the Federal Court decision in Resource Capital Fund III LP v FCT[2013] FCR 363(RCF). In particular, the AAT concluded that the residual intangible or “marriage value” of the “specialised assets” (ie the mining information) was not a TARP asset. In other words, the AAT found that, to the taxpayer’s benefit, mining information connected with the relevant mining rights was not to be taken into account in the PAT test.
(AAT Case [2013] AATA 626, Re AP Energy Investments Limited and FCT, AAT, Ref No 2010/2845, Walsh SM, 2 September 2013.
[LTN 171, 4/9/13]