Resource Capital Fund III LP v. Commissioner of Taxation, [2013] FCA 363 (Fed. Ct. of Austr.), rev'd supra.

The appellant ("RCF") was a Caymans limited partnership with mostly US-resident partners, which was assessed under the "taxable Australian real property" rules on its gain from the sale of an Australian company ("SBM") with two underground gold mines in Western Australia. The SBM shares qualified as TARP "if the sum of the market value of [SBM]'s assets that [were] taxable Australian real property exceed[ed] the sum of the market values of its assets that [were] not taxable Australian real property." After already having decided in RCF's favour on the basis that the gain was Treaty-exempt, Richard Edmonds J further found that the SBM shares were not TARP, so that the gain also was not assessable under the TARP rules.

In reaching this conclusion, he found that:

• the plant and equipment, to the extent it was fixtures, was fixtures to the land (which was not owned by SBM and, therefore, was not TARP of SBM) and not to its mining rights (which were TARP): para. 112
• the mining information of SBM (which was not TARP) had a substantial value in light of the substantial exploration cost that would be required to reproduce this information, as well as the substantial present value of the mining production that would be foregone during the three to five year exploration and evaluation process (para. 105, 132)
• the question of what a hypothetical purchaser would pay for the mining information, being anything in the range of nil (being what it could be sold for by itself) to the full replacement cost (including foregone production as noted above), was indeterminate – however, "the fair valuation is one which shares equally between the holder, and the potential user, of the relevant asset the benefit to the user of immediate acquisition of the asset" (para. 157, see also 106, 129), so that the mining information was valued at the mid-point between the two extremes
• similarly, the plant and equipment should be valued "by dividing the notional ‘bargaining zone' equally" (para. 159, see also 107) between its replacement cost and its minimal scrap value
• it was not necessary to address whether any value should be assigned to goodwill as the SBM non-TARP assets were more valuable even without doing so
• it was inappropriate to add an asset value representing the excess of the market capitalization of SBM (which was a listed company) over its discounted cash flow valuation (para. 111, 121)

The appellant ("RCF") was a Caymans limited partnership with mostly US-resident partners, which was assessed under the "taxable Australian real property" rules on its gain from the sale of an Australian company ("SBM") with two underground gold mines in Western Australia. The SBM shares qualified as TARP "if the sum of the market value of [SBM]'s assets that [were] taxable Australian real property exceed[ed] the sum of the market values of its assets that [were] not taxable Australian real property." After already having decided in RCF's favour on the basis that the gain was Treaty-exempt, Richard Edmonds J further found that the SBM shares were not TARP, so that the gain also was not assessable under the TARP rules.

In reaching this conclusion, he found that:

• the plant and equipment, to the extent it was fixtures, was fixtures to the land (which was not owned by SBM and, therefore, was not TARP of SBM) and not to its mining rights (which were TARP): para. 112
• the mining information of SBM (which was not TARP) had a substantial value in light of the substantial exploration cost that would be required to reproduce this information, as well as the substantial present value of the mining production that would be foregone during the three to five year exploration and evaluation process (para. 105, 132)
• the question of what a hypothetical purchaser would pay for the mining information, being anything in the range of nil (being what it could be sold for by itself) to the full replacement cost (including foregone production as noted above), was indeterminate – however, "the fair valuation is one which shares equally between the holder, and the potential user, of the relevant asset the benefit to the user of immediate acquisition of the asset" (para. 157, see also 106, 129), so that the mining information was valued at the mid-point between the two extremes
• similarly, the plant and equipment should be valued "by dividing the notional ‘bargaining zone' equally" (para. 159, see also 107) between its replacement cost and its minimal scrap value
• it was not necessary to address whether any value should be assigned to goodwill as the SBM non-TARP assets were more valuable even without doing so
• it was inappropriate to add an asset value representing the excess of the market capitalization of SBM (which was a listed company) over its discounted cash flow valuation (para. 111, 121)

The appellant ("RCF") was a Caymans limited partnership, with more than 97% of its capital held by a diversified group of US residents, principally funds and institutions. For Australian income tax purposes, it was deemed to be a corporation; whereas for Code purposes, it was a (fiscally transparent) foreign partnership, so that under Code s. 701, any liability for US tax on partnership income was that of its partners (except to the extent they also were fiscally transparent). It was assessed under the Australian equivalent of the Canadian taxable Canadian property rules on its gain from the sale of an Australian company with two underground gold mines in Western Australia.

Article 1 of the Australia-US Convention provided that the Convention applied only to persons (defined to include partnerships) who were residents of one or both of the Contracting States; and Article 4 provided that a person is a US resident if the person is a US corporation "or any other person…resident in the United States for purpose of its tax…." Article 13 provided that gains of a US resident from the disposition of real property situated in Australia (including, in this case, the shares of the Australian company) may be taxed in Australia.

Before finding that the assessment was invalid as it was an assessment of the partnership (RCF) rather than its US-resident partners, Edmonds J referred (at para. 65) with approval to a statement in the OECD Commentary that

…when partners are liable to tax in the country of their residence on their share of partnership income it is expected that the source country (in this case, Australia) will apply the provisions of a convention "…as if the partners had earned the income directly so that the classification of the income for purpose of the allocative rule of Articles 6 to 21 will not be modified by the fact that the income flows through the partnership."