Commissioner of Taxation of the Commonwealth of Australia v Resource Capital Fund III LP

REASONS FOR JUDGMENT 1 On 3 April 2014, we delivered judgment in this appeal: Commissioner of Taxation v Resource Capital Fund III LP [2014] FCAFC 37. The parties were directed to confer and file and serve agreed minutes of orders or, if in disagreement as to the proper disposition of the appeal in relation to the second issue, written submissions as to their respective positions. The parties were unable to agree on the appropriate form of orders and each party filed submissions supporting the orders for which they contend. These reasons should be read with our earlier judgment. 2 In dispute between the parties is whether the Commissioner must succeed on the second issue in the appeal ("the TARP issue"). The TARP issue concerned whether, on each of two relevant dates (July 2007 and January 2008), the market values of St Barbara Mines Ltd's ("SBM") assets which were "taxable Australian real property" exceeded the market values of SBM's assets that were not: see s 855-30(2) of the Income Tax Assessment Act 1997 (Cth). 3 Resource Capital Fund III LP ("RCF") concedes that the Commissioner has succeeded on the TARP issue on the second date, January 2008, but not on the first date, July 2007. RCF contended that it can be concluded on the valuation evidence adduced below that the principal asset test was not passed as at July 2007. That contention rested on the proposition that it is possible to attribute market values to the mining information and plant and equipment consistently with our earlier judgment - that is, on the basis of an assumed simultaneous sale of SBM's assets to the same hypothetical purchaser with the capacity to use those assets in combination in a gold mining operation as their highest and best use. RCF contended that since there was evidence of their replacement and scrap values and, it was submitted, as rational negotiating parties would each take half the difference rather than none of it (by failing to agree), a figure can be arrived at by taking the mid-point between the replacement and scrap values of those assets. 4 At [54] of our earlier judgment we noted that all the experts who gave evidence before the primary judge agreed that in the case of a simultaneous sale to the one purchaser, the hypothetical purchaser could expect to acquire the mining information and plant and equipment for less than their re-creation costs with little or no delay. However, we do not accept as a proper basis for valuation in accordance with our earlier judgment the unsupported and speculative proposition that market value is to be assessed as the mid-point between the replacement and scrap values of those assets. 5 As RCF's valuation evidence adopted valuation hypotheses and methods inconsistent with the hypotheses and methods that we have held to be the correct approach, RCF did not discharge its burden of proof under s 14ZZO of the Taxation Administration Act 1953 (Cth) that the assessment was excessive: Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 623 per Brennan J and at 630-631 per Toohey J (with both of whom Mason CJ, Dawson, Gaudron and McHugh JJ agreed). Accordingly, the Commissioner had succeeded on the TARP issue on both of the dates. 6 The orders to be made are as follows: 1. The appeal be allowed. 2. The orders of the primary judge of 26 April 2013 be set aside. 3. In lieu thereof, the amended application dated 8 July 2011 be dismissed. 4. The respondent is to pay the appellant's costs of the appeal and his costs of the proceeding before the primary judge. I certify that the preceding six (6) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Middleton, Robertson & Davies.