Resource Capital Fund – Australian decision suggests that many or most Canadian mining company shares may not be taxable Canadian property

The Australian Federal Court found that even if a sale of shares of an Australian gold mining company had not been Treaty-exempt (as discussed in the post below), the company should not be considered to have more than 50% of its assets as Australian real property (i.e., its mining rights), so that the gain also would not have been taxable under the Australian equivalent of the taxable Canadian property rules.

This rested on a finding that one of the quite valuable non-real estate assets of the company was its "mining information."  The logic was that if a purchaser acquired only the mining rights and not the drilling results and mining model, it would have to spend a huge sum on exploration in order to be able to commence production approximately four years later.

This case suggests that many or most Canadian mining company shares may not be taxable Canadian property – as well as not being real property under many or most of the applicable Treaties.

Neal Armstrong.  Summary of Resource Capital Fund III LP v. Commissioner of Taxation, [2013] FCA 363 (Fed. Ct. of Austr.) under Treaties – Art. 13.