Commissioner of Taxation v Resource Capital Fund IV LP Commissioner of Taxation v Resource Capital Fund IV LP, [2019] FCAFC 51

After concluding (contrary to the finding below) that two Cayman LPs (RCF IV and RCF V) who had received assessment notices were themselves taxable entities for the relevant Australian income tax purposes, the Court went on to also find that, even if this conclusion were not correct, such assessments made in the name of the partnerships were to be taken as assessments of the partners. In this regard, the Court referenced (at para. 45) the statement in Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1 that “it is necessary that the notice should bring to the attention of the person on whom it is served that the assessment to which it relates is an assessment of that person to tax,” and then stated (at paras. 46-47):

Here, if our earlier conclusion that RCF IV and RCF V are competent to be assessed be incorrect, then the “assessments” issued to each were misconceived. That is because each of the Commissioner’s notices of assessment failed to be served on a taxpayer, and no notice was given, by sending the notices to RCF IV and RCF V, of “an assessment of that person to tax”, to use the language of Prestige Motors.

In our view, it is also not possible to read each assessment as having been served on each partner, or on the partners collectively. The partners, some of whom reside in the United States, were not, as a fact, served with any assessment.

Two Caymans investment LPs, whose limited partners were mostly U.S. residents, realized income-account gains from the disposal, pursuant to an Australian Scheme of Arrangement, of shares of significant shareholdings in a TSX-listed Australian corporation (Talison Lithium) which, through a grandchild corporation, held mining leases in Australia and carried out an operation there of mining lithium ores and processing them. Pagone J found that the gains were income derived from an Australian source - notwithstanding that significant decisions were made outside Australia by the general partner’s investment committee and that the manager was outside Australia - given the Australian location of the business and assets, occasioned substantial activities in Australia that were an integral part of the investment, its management, and the guidance and assistance provided by partnership representatives on the Talison Lithium board and in light of other functions performed.

In affirming this finding, the Full Court stated (at paras. 64-65):

What bound the respondents to dispose of their shares and interests in Talison Lithium was not the entry into a contract of sale overseas but the convening of the scheme meeting, the approval at that meeting of the scheme of arrangement, the approval of that scheme by the Court, and the lodging of the order of the Court with the Australian Securities and Investment Commission … .

Here, each respondent’s “enforceable right” to the proceeds of the sale of the interests and shares in Talison Lithium arose from the scheme of arrangement. That arrangement took place in Australia, and accordingly, because the scheme was the “proximate” origin of the profits earned, and because of the other connections with Australia summarised by the primary judge … including the location of the mine in Western Australia, those profits had a source in Australia. At the very least, it was open to his Honour so to conclude.

Two Caymans investment LPs (“RCF IV” and RCF V”) whose limited partners were mostly U.S. residents, realized gains from the disposal of shares of significant shareholdings in a TSX-listed Australian corporation (Talison Lithium) which, through a grandchild corporation, held leases in Australia and carried out an operation there of mining lithium ores and processing them. Although their (income account) gains were from selling the shares of Talison Lithium were not exempted under Art. 7 of the Australia-U.S. Convention because of the exclusion in Art. 13 (as expanded in Australian domestic legislation) for dispositions of (deemed) real property situated in Australia, their appeals nonetheless were allowed by Pagone J below on the basis that the shares of Talison Lithium were not taxable Australian real property because their value was attributable more to the “downstream” lithium processing operations than to the “upstream” mining operations. This finding was reversed by the Full Court on various grounds including that the mining operations did not end with the extraction of ore from the ground (so that most of the processing assets also were mining assets, and the associated leases, effectively mining leases).

The Court stated (at para. 167):

In our view, the separation and processing at those buildings of the different grades of lithium concentrate from the ore extracted may fairly be seen as mining because:

1. the object of the Greenbushes mine was the winning of two types of lithium concentrate, not lithium containing minerals in hard rock, and those products were first won following the processing into lithium concentrate. That processing was not an improvement of the mineral mined, but a step in obtaining the mineral sought;
2. all of this processing took place at the mine site;
3. this processing was not a distinct activity from excavation, but was a step in a single integrated process to produce the product sought to be won by Talison Lithium. This integration can be seen in the way in which Talison Lithium itself described the Greenbushes operations in its “Annual Information Form” … .
4. the foregoing passage [in the AIF] draws no distinction between the activities of extraction, said to be mining by the respondents, and the activities of processing. …
5. … The term “mine”, as a verb, is defined by s 8 of the Mining Act to mean any manner or method of “mining operations” and that term refers to a number of different means of refining a mineral. In our view, it includes the processing that takes place to convert the ore into concentrate.