Placer Dome – High Court of Australia finds that $6B in goodwill for accounting purposes largely did not exist for tax purposes

Whether the acquisition by Barrick Gold of Placer Dome triggered Western Australia stamp duty of A$55 million on the lands in Western Australia of an Australian subsidiary of Placer Dome turned on whether, on a global consolidated basis, the value of all of Placer Dome's land (defined to include mining tenements and improvements) equalled or exceeded 60% of the value of all its property.

The post-acquisition balance sheet of Placer valued its land assets at $5.694 billion, and recognized goodwill of $6.506 billion, being the excess of the acquisition cost (grossed-up for liabilities) over the fair value of the specifically identified tangible and intangible assets.

In rejecting the proposition that sufficient value could thus be assigned to the goodwill to avoid a conclusion that Placer Dome did not exceed the 60% threshold, the plurality stated:

Murry [(1998) 193 CLR 605] did not broaden the legal concept of goodwill to include sources which did not generate or add value (or earnings) to the business by attracting custom. …

[A]t the acquisition date, there were no sources of goodwill that could explain the $6 billion gap which was attributed by Barrick to goodwill. That unexplained gap suggests that the DCF calculations used by Barrick's valuers to value Placer's land, its principal asset, were wrong. … [T]he danger identified by the majority in Murry of attributing a value to goodwill which actually inheres in an asset was readily apparent. …

At the acquisition date, Placer was a land rich company which had no material property comprising legal goodwill. [annoying italics in original]

In most instances, it will be obvious that shares of a private Canadian resource company (or 25% public company bloc) will be taxable Canadian property. This case may be more germane to the question whether a company which for accounting purposes has recognized goodwill in relation to a real estate portfolio (e.g., shopping centres, office towers, retirement homes or hotels) will have significant goodwill for tax purposes. Goodwill is also specifically referenced in ETA s. 167.1.

Neal Armstrong. Summary of Commissioner of State Revenue v Placer Dome Inc, [2018] HCA 59 under Sched. II, Class 14.1 - para. (a).