Resource Capital Fund IV LP – Full Federal Court of Australia finds that the effecting of a share sale pursuant to an Australian Scheme of Arrangement pointed to an Australian source

Two Caymans investment LPs with mostly U.S.-resident limited partners realized income-account gains from the disposal, pursuant to an Australian Scheme of Arrangement, of a 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. Pagone J had found that such gains were 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.

In affirming this finding, the Full Court stated:

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.

Pagone J had also found 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. The Full Court reversed this finding, partly based on its view that the on-site processing operations were part of the mining operation, so that most of the processing assets also were mining assets (and the associated leases, effectively mining leases).

Neal Armstrong. Summaries of Commissioner of Taxation v Resource Capital Fund IV LP [2019] FCAFC 51 under s. 152(1), s. 115(1)(a)((ii) and s. 248(1) – taxable Canadian property – para. (d).