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Resource Capital Fund IV LP v Commissioner of Taxation, [2018] FCA 41 (Federal Court of Australia), rev'd on various grounds [2019] FCAFC 51

Two Caymans investment LPs (“RCF IV” and RCF V”) whose limited partners were mostly U.S. residents, realized gains on income account from the disposal 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 U.S.-resident partners’ share of the partnership gains from selling the shares of Talison Lithium were not exempt 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. In this regard, Art. VI defined real property to include “rights to exploit or to explore for natural resources,” and Art. 13(2)(b) provided:

  1. the term “real property”, in the case of Australia, shall have the meaning which it has under the laws in force from time to time in Australia and, without limiting the foregoing, includes:
  1. real property referred to in Article 6;
  2. shares or comparable interests in a company, the assets of which consist wholly or principally of real property situated in Australia… .

After first finding (at para. 81) that “real property” in Art. 13(2)(b)(ii) also had its extended Art. VI meaning notwithstanding the absence of a reference to Art. VI in that subparagraph. Pagone J went on to find that (based on Commissioner of Taxation v Lamesa Holdings BV (1997) 77 FCR 597) that “consists of” language, such as that quoted above “was intended to assimilate as realty only one tier of companies rather than numerous tiers,” so that “the alienation by the partners of RCF IV and RCF V of the shares in Talison Minerals would not come within the terms of Article 13 consistently with the reasoning in Lamesa” (para. 83).

However, Lamesa was overruled by s. 3A(1) of the International Tax Agreements Act 1953 (Cth), which extended the application of the Art. XIII exclusion to dispositions of shares of companies “the value of whose assets is wholly or principally attributable, whether directly, or indirectly through one or more interposed companies or other entities, to … real property or interests”. Thus the Art. XIII exclusion applied to the “disposal of real property indirectly by the partners of RCV IV and RCF V by their disposal of shares” (para. 85).

Other locations for this summary
Tax Topics - Treaties - Income Tax Conventions - Article 13 exclusion in Art. 13 of Aust.-U.S. Treaty for real property dispositions extended to shares of Australian holding company holding mining leases through grandchild
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Shares private equity fund LP with 5-year holding objective realized share gain on income account 175
Tax Topics - Income Tax Act - Section 115 - Subsection 115(1) - Paragraph 115(1)(a) - Subparagraph 115(1)(a)(ii) gains of a NR PE fund from disposals of Australian share investments that were managed in part in Australia were derived from Australia 427
Tax Topics - Treaties - Income Tax Conventions - Article 3 each U.S.-resident partner of a Caymans PE LP carried on a U.S. “enterprise” 234
Tax Topics - General Concepts - Stare Decisis lower court not bound by a point of law that was assumed rather than examined by a higher court 292
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1) assessment of partnership was assessment of partners 89
Tax Topics - Treaties - Income Tax Conventions - Article 6 Art. 6 extends common law meaning of real property 198
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Taxable Canadian Property - Paragraph (d) shares of lithium mining and processing company were derived principally from the processing rather than mining operation and, thus, were not taxable Australian real property 514
Tax Topics - Income Tax Act - Section 218.3 - Subsection 218.3(1) - Canadian Property Mutual Fund Investment shares of Australian mining company were primarily attributable to the processing rather than mining operations 142
Tax Topics - General Concepts - Fair Market Value - Other processing assets of mining company were more valuable than its mining assets 238

Administrative Policy

30 May 2007 External T.I. 2006-0218101E5 F - Interaction entre 125.4(1) et 256(1.2)c)

CRA noted that the expanded definition of control in s. 256(1.2)(c) does not apply for s. 256(5.1) purposes and, therefore, did not apply for purposes of determining whether there was control as described in the definition of prescribed taxable Canadian corporation in Reg. 1106(2).

Other locations for this summary
Tax Topics - Income Tax Regulations - Regulation 1106 - Subsection 1106(2) s. 256(1.2)(c) does not inform the definition of prescribed taxable Canadian corporation
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 256 - Subsection 256(1.2) - Paragraph 256(1.2)(c) s. 256(1.2)(c) does not affect the determination of de facto control 33

24 July 2007 External T.I. 2007-0227261E5 F - Remise de certificats cadeaux à des employés

An employer gave out $25 gift certificates to its employees at a recognition event, as prizes awarded in a draw in which only the employees participated. CRA stated:

[A]n employee who receives a prize in a draw organized by the employee’s employer, which is open only to employees, must include the value of the prize in computing the employee’s employment income by virtue of subsection 5(1).

The CRA has a policy that an employer may give up to two non-cash gifts or awards per year on a tax-free basis. However, this policy does not apply to cash or cash equivalent gifts and awards. The CRA considers a cash equivalent item to include a gift certificate.

Other locations for this summary
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) gift certificates given out to employees on a draw are cash equivalent taxable gifts