Commissioner of Taxation v Resource Capital Fund III LP

Commissioner of Taxation v Resource Capital Fund III LP - [2014] FCAFC 37 - FCAFC 2014 case summary — Zoe

REASONS FOR JUDGMENT 1 In issue in this appeal is whether the primary judge was correct to find the respondent ("RCF"), a non-resident limited partnership, not taxable on the capital gain that it made on the sale of shares that it held in an Australian mining company, St Barbara Mines Ltd ("SBM"). The primary judge held that RCF was not taxable on the gain because: the provisions of the Income Tax Assessment Act 1997 (Cth) ("the 1997 Act) which imposed the liability for the tax on the gain on RCF as the relevant taxable entity were inconsistent with the provisions of the Double Tax Agreement between Australia and the United States ("the DTA") which treated the gain not as derived by RCF but as derived by the partners of RCF, and that the assessment of RCF was therefore precluded by s 4(2) of the International Tax Agreements Act 1953 (Cth) ("the Agreements Act")("the first issue"); and (if it were necessary to decide) RCF's membership interest in SBM did not pass the "principal interest test" in s 855-30 of the 1997 Act because the market values of SBM's non "taxable Australian real property" ("TARP") assets exceeded the market values of SBM's TARP assets, and therefore the shares were not "taxable Australian property" ("the second issue"). 2 With the greatest respect, we are unable to agree with either of the conclusions of the primary judge. In our view, the correct analysis on the first issue is that the inconsistency resides in the difference between Australia and the United States ("US") in the tax treatment of partnerships, not in the terms of the DTA. Whereas Australia recognises certain limited partnerships as taxable entities, the US treats partnerships as transparent entities and taxes the partners so that the application of the DTA by the Source State (Australia) is different from the application of the DTA by the Residence State (the US). We therefore disagree that s 4(2) of the Agreements Act precluded Australia from taxing RCF on the gain. As to the second issue, we disagree with the primary judge's construction of s 855-30 of the 1997 Act and consequently with the valuation hypothesis adopted by the primary judge in determining the market values of SBM's assets.

[5]

THE FIRST ISSUE: THE DTA 3 The analysis must start with a consideration of RCF's tax status in Australia. RCF is a corporate limited partnership, and in Australia corporate limited partnerships are taxed as companies: s 94H of the Income Tax Assessment Act 1936 (Cth). This means that RCF is a taxable entity for Australian tax purposes and liable for any tax on the capital gain from the share sale. However, as RCF is a foreign partnership (it is not resident in Australia), RCF is not taxable on the capital gain in Australia unless the shares that it sold were "taxable Australian real property" as that expression is defined in Div 855 of the 1997 Act. 4 US tax law becomes relevant to the analysis because virtually all of RCF's partners, at the relevant time, were also resident in the US. RCF is not a taxable entity in the US as the US tax laws do not recognise limited partnerships as taxable entities. For US tax purposes, RCF is a "fiscally transparent" or "flow through" entity that is not subject to tax. US tax law makes the partners taxable on their individual shares of Australian sourced gain that RCF made on the sale of the SBM shares. 5 The disconformity in tax treatment raised the issue in the Court below as to whether, and if so how, the DTA applied in the circumstance that: (1) for Australian tax law purposes, the gain was derived by RCF; and (2) for US tax law purposes the gain was derived by the partners of RCF. As the primary judge stated: 25. Thus, while a corporate limited partnership, such as RCF, is treated as a separate taxable entity for Australian tax purposes, irrespective of whether it is a resident of Australia for Australian income tax purposes or not, such a partnership is treated as fiscally transparent or flow-through for US tax purposes, and again irrespective of whether it is resident in the US for US tax purposes or not. 26. These treatment differences create various difficulties when it comes to applying the provisions of double tax treaties to partnerships.… 6 Article 13(1) of the DTA provides that: Income or gains derived by a resident of one of the Contracting States from the alienation or disposition of real property situated in the other Contracting State may be taxed in that other State. "Real property", in the case of Australia, is defined to include shares in a company, the assets of which consist wholly or principally of real property situated in Australia: Article 13(2)(ii). 7 Article 13(7) of the DTA provides that: Except as provided in the preceding paragraphs of this Article, each Contracting State may tax capital gains in accordance with the provisions of its domestic law. 8 Section 4(2) of the Agreements Act provides that: The provisions of this Act have effect notwithstanding anything inconsistent with those provisions contained in the Assessment Act (other than Part IVA of the Income Tax Assessment Act 1936) or in an Act imposing Australian tax. 9 The "Assessment Act" is defined in the Agreements Act to mean the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997. 10 The appellant ("the Commissioner") argued that Article 13 of the DTA did not preclude him from taxing RCF on the gain because: the provisions of the DTA only had application to RCF if RCF was a resident of the US and if RCF was a resident of the US, Article 13(1) allocated to Australia the right to tax RCF on the gain; and in so far as the provisions of the DTA applied to the partners of RCF resident in the US, Australia had the right under Article 13(7) to tax the gain in accordance with Australian tax law, which imposed the tax on RCF as the relevant taxpayer. 11 The Commissioner's "preferred position" was that RCF was a resident of the US but he submitted that "ultimately" it did not matter whether RCF was, or was not, a resident of the US because either way, there was no relevant inconsistency between Article 13 and the application of the Assessment Act in relation to the treatment of RCF as the entity taxable in Australia on the gain. 12 RCF argued that the imposition of the tax on RCF under the Assessment Act was inconsistent with the application of the DTA by reason that: • Article 7 of the DTA applied to the gain (which US tax law treated as the "business profits" of the US resident partners) and prevented Australia from taxing the gain, "subject to" Article 7(6) of the DTA which provides: Where business profits include items of income which are dealt with separately in other Articles of this [DTA], then the provisions of those Articles shall not be affected by the provisions of this Article. Article 13 of the DTA operated as an exception to Article 7, but Article 13 only authorised Australia to tax "gains derived by a [US] resident"; RCF was not a US resident because it was not a taxable entity in the US, alternatively because it was resident in the Cayman Islands where it was formed, and therefore Article 13(1) of the DTA did not authorise Australia to tax RCF on the gain; and Article 13(7) was not a general taxing power that authorised the Contracting States to tax gains in accordance with their domestic law, but an authority to the Contracting States to impose tax on gains subject to the restrictions in Article 13(1). 13 The primary judge held that RCF was not a resident of the US for the purpose of the DTA because it is a fiscally transparent entity in the US. 14 The primary judge accepted RCF's argument that Article 13(1) did not "authorise" Australia to tax RCF on the gain. His Honour reasoned at [61] - [62] as follows: 61. Article 13 authorises taxation of "gains derived by a resident of one of the Contracting States from the alienation or disposition of real property situated in the other Contracting State" (Art 13(1)), including the disposal of shares "in a company, the assets of which consist wholly or principally of real property situated in Australia" (Art 13(2)(b)(ii)), but does not authorise taxation of a gain not made by a resident of one of the Contracting States. 62. As RCF, on my view, is not resident in the US for the purposes of its tax and therefore is not a resident of the US for the purposes of the Convention, Art 13 does not authorise Australia to tax the gain to RCF. 15 The primary judge also rejected the Commissioner's submission on Article 13(7), reasoning as follows at [63]: 63. But the Commissioner points to para (7) of Art 13, which states that, except as provided in the preceding paragraphs, each Contracting State may tax capital gains in accordance with its domestic law. The Commissioner submitted that because the Convention grants primary taxing authority over capital gains to the source Contracting State, in this case Australia, the Convention has no further role. This view rests upon the Commissioner's observation that the wording of para (7) is broad enough to cover gains of every type, including gains from the disposition of real property. In my view, para (7) does not put a Contracting State at large to tax capital gains in accordance with its domestic law. Paragraph (7) is limited by the context in which it appears. First, it does not apply to authorise Australia to tax capital gains from the disposition of "real property" as defined in para (2)(b), otherwise para (1) would be unnecessary. Second, it only authorises Australian taxation of capital gains derived by a resident of the US for the purposes of the Convention and, as reasoned in [55] to [60] above, RCF is not a resident of the US for the purposes of the Convention. Support for such limitation is to be found in the observation in [2.84] of the Explanatory Memorandum to the International Tax Agreements Amendment Bill (No 1) 2002 which, when enacted, facilitated the entry into force of the 2001 Protocol that, by para (7): Australia will...continue to be able to tax, for instance, capital gains derived by US residents on the disposal of Australian entities. (Emphasis added by the primary judge) 16 The primary judge went on to consider, and accepted, RCF's argument that the gain was "derived" by the US partners, not RCF, for the purposes of Article 13(1). 17 The primary judge concluded that there was an inconsistency between the application of the DTA and the application of the Assessment Act because the DTA did not authorise Australia to tax RCF on the gain. His Honour applied s 4(2) of the Agreements Act to resolve the inconsistency in favour of the application of the DTA to the US partners in RCF against the application of the Assessment Actto RCF and held that the issue of the assessment to RCF was precluded by the DTA. 18 The Commissioner on appeal does not contest the primary judge's finding that RCF was not a resident of the US for the purposes of the DTA, nor does he contest the primary judge's conclusion on Article 13(7). He does, however, contest the primary judge's conclusion that the assessment of RCF was precluded by the DTA because of an inconsistency between the provisions of the Assessment Act and the provisions of the DTA. The Commissioner argued that there was no inconsistency for the simple reason that the DTA did not apply to the gain derived by RCF, as RCF was not a resident of the US. 19 The Commissioner argued that the "essential error" made by the primary judge was that his Honour construed Article 13 of the DTA as containing a negative implication to the effect that, in the case of a partnership treated as fiscally transparent in the Resident State, the Source State is precluded from taxing the partnership and is permitted only to tax the partners. It was put that this "negative implication" was not justified by the text or context of the relevant provisions of the DTA and was contrary to the OECD Model Commentary. 20 RCF argued on the other hand that the Commissioner misrepresented the reasons of the primary judge who correctly considered whether Article 13 "authorised" the Commissioner to tax RCF and concluded "indisputably correctly" that the limitation of Article 13 to "gains derived by a resident of one of the Contracting States" meant that the Article did not "grant" Australia authority to tax RCF, which was not such a resident. 21 The differences in the way in which each party expressed the approach taken by the primary judge reflect the case that each presented below. RCF had framed its case before the primary judge on the basis that Article 7 applied to the gain because the partners of RCF were entitled to the benefit of Article 7, subject to Article 7(6) and therefore that Australia did not have taxing rights unless Article 13 "authorised" Australia to tax the gain. The Commissioner had framed his case on the basis that Article 7 did not apply to the gain in the hands of RCF if it was not a resident of the US for the DTA purposes, albeit that the partners of RCF were entitled to the benefit of Article 7, subject to Article 7(6). 22 The primary judge rejected the Commissioner's "preferred position" and found that RCF was not a resident of the US for the purposes of the DTA. Nonetheless, his Honour held that the issue of the assessment to RCF was precluded by the DTA, reasoning that the US partners "derived" the gain for the purposes of the application of the DTA. The primary judge had regard to the OECD commentary on the application of the model DTA to partnerships in support of his conclusions. The primary judge in particular made reference at [65] to paragraph 6.6 in the commentary on Article 1. The primary judge stated at [65]: 65. … The OECD Commentary on Art 1 of the OECD Model (which, as noted in [38] above, substantially corresponds with Article 1(1) of the Convention) provides that when partners are liable to tax in the country of their residence on their share of partnership income it is expected that the source country, (in this case, Australia) will apply the provisions of a convention - ... as if the partners had earned the income directly so that the classification of the income for purposes of the allocative rules of Articles 6 to 21 will not be modified by the fact that the income flows through the partnership. (emphasis added) 23 The primary judge then reasoned at [66]: 66. Thus, the requirement, imposed by Art 13 of the Convention, that income or gains derived by a resident of one of the Contracting States (US) from the alienation or disposition of real property situated in the other Contracting State (Australia) may be taxed in the other State, is met in the circumstances of the present case by treating the gain as having been derived not by RCF but by its limited partners who or which are residents of the US for the purposes of the Convention. This interpretation avoids denying the benefits of tax Conventions to a partnership's income on the basis that neither the partnership, because it is not a resident, nor the partners, because the income is not directly paid to them or derived by them, can claim the benefits of the Convention with respect to that income. Following from the principle discussed in paragraph 6.3, the conditions that the income be paid to, or derived by, a resident should be considered to be satisfied even where, as a matter of the domestic law of the State of source, the partnership would not be regarded as transparent for tax purposes, provided that the partnership is not actually considered as a resident of the State of source. (OECD Commentary on Art 1, para 6.4). 24 The error in the primary judge's reasoning appears, in our view, in the following two paragraphs: 67. Here, RCF was not a resident of Australia for the purposes of the Convention in the year of income and while the Assessment Acts regarded RCF as not being transparent, the OECD Commentary on Art 1 of the OECD Model - ...is founded upon the principle that the State of source (Australia) should take into account, as part of the factual context in which the Convention is to be applied, the way in which an item of income, arising in its jurisdiction, is treated in the jurisdiction of the person claiming the benefits of the Convention as a resident. (OECD Commentary on Art 1, para 6.3). 68. This same approach and conclusion would be reached even if RCF was a resident in the US for the purposes of its tax and therefore a resident of the US for the purposes of the Convention under Art 4(1)(b)(iii) because it would, nevertheless, be fiscally transparent under US law with the liability for tax falling on the limited partners. So much explains my agreement with the Commissioner's submission recorded in [55] above that ultimately it does not matter in the present case if RCF is resident within the meaning of Art 4(1)(b)(iii) or not. It is the limited partners of RCF, not RCF the limited partnership, that Australia is authorised to tax under Art 13(1) of the Convention. 25 We consider, with respect, that the error was in the conclusion that it therefore follows that it is the limited partners of RCF, not RCF the limited partnership, that Australia is authorized to tax under Art 13(1) of the DTA. Whilst it is permissible to have regard to the OECD commentary to assist in ascertaining the meaning of the provisions of the DTA (see Thiel v Federal Commissioner of Taxation (1990) 171 CLR 338; Commonwealth Minister for Justice v Adamas (2013) 304 ALR 305), the context for the OECD commentary is the recognition of the difficulties in applying Double Tax Agreements in relation to partnerships where one Contracting State treats partnerships as independently taxable entities, but the other Contracting State treats partnerships as fiscally transparent and taxes the partners: see paragraphs 2 and 3 of the OECD commentary. Paragraph 4 of the OECD commentary identifies as the "first difficulty", the extent to which a partnership is entitled to the benefits of the DTA. That paragraph states: 4. … Under Article 1, only persons who are residents of the Contracting States are entitled to the benefits of the tax Convention entered into by these States. While paragraph 2 of the Commentary on Article 1 explains why a partnership constitutes a person, a partnership does not necessarily qualify as a resident of a Contracting State under Article 4. 26 The primary judge held that RCF was not a resident of the US. It follows from that finding that the DTA does not apply to the gain in the hands of RCF because RCF was neither a resident of the US nor a resident of Australia: see Article 1 of the DTA. The Commissioner's argument that the DTA does not apply because RCF was not a resident of either of the Contracting States should be accepted but further elaboration is required in view of the analysis of the primary judge which depended on the OECD commentary. 27 The paragraphs of the OECD commentary to which the primary judge referred were about the application of DTAs where the tax treatment of partnerships by the Contracting States is different. Paragraph 5 of the OECD Commentary explains that where a partnership is not a resident of a Contracting State "the application of the [DTA] to the partnership as such would be refused" but "the partners should be entitled, with respect to their share of the income of the partnership, to the benefits provided by the [DTA] entered into by the States of which they are residents to the extent that the partnership's income is allocated to them". Paragraphs 6.1 and 6.2 show how there is a potential for double taxation where the income of the partnership is allocated differently by the Contracting States: by one State to the partnership and by the other State to the partners. Paragraphs 6.3 and 6.4 explain how the provisions of the DTA may be applied to avoid double taxation. The principle discussed in paragraph 6.3 is that the State of Source should take into account, as part of the factual context in which the Convention is to be applied, the way in which the income is taxed in the jurisdiction of the person claiming the benefits of the DTA as a resident of the other Contracting State. The principle discussed in paragraph 6.4 is that where income has "flowed through" a transparent partnership to the partners who are liable for the tax on that income in the State of their residence, then the income is "appropriately viewed" as "paid to" or "derived by" the partners since they are allocated the tax liability in their state of residence and, it is said: This interpretation avoids denying the benefits of tax Conventions to a partnership's income on the basis that neither the partnership, because it is not a resident, nor the partners, because the income is not directly paid to them or derived by them, can claim the benefits of the Convention with respect to that income 28 With respect to the primary judge, paragraph 6.4 is about the application of the DTA, not about the terms of the DTA. This is made clear in paragraph 6.6 which reads: Differences in how countries apply the fiscally transparent approach may create other difficulties for the application of tax Conventions. Where a State considers that a partnership does not qualify as a resident of a Contracting State because it is not liable to tax and the partners are liable to tax in their State of residence on their share of the partnership's income, it is expected that that State will apply the provisions of the Convention as if the partners had earned the income directly so that the classification of income for purposes of the allocative rules of Articles 6 to 21 will not be modified by the fact that the income flows through the partnership. (emphasis added) 29 RCF is an independent taxable entity in Australia and liable to tax on Australian sourced income and the DTA does not gainsay RCF's liability to tax. There is no inconsistency between the DTA and the provisions of the Assessment Act with respect to the taxation of the gain in the hands of RCF. The inconsistency is between US tax law and Australian tax law with respect to the tax treatment of RCF. To put it another way, the inconsistency relates to the imposition of the liability for the tax on the gain, with the consequence that the provisions of the DTA apply differently between Australia as the source country and the US as the place of residence of many of RCF's partners. 30 Whilst US tax law treats RCF as a transparent entity for tax purposes and taxes the partners of RCF on their individual shares of RCF's income, under Australian tax law RCF is not transparent for tax purposes but is a separate taxable entity taxed as a company and, in Australia, the gain is taxable in RCF's hands. Though US law attributes to the partners the liability for any tax payable on the gain made by RCF, Australia attributes the liability for any tax payable to RCF. It may be open to argument by the US partners that they should obtain the benefits of the DTA on the basis that it was appropriate for Australia to view the gain as derived by the partners resident in the US, and to apply the provisions of the DTA accordingly, as discussed in the OECD commentary (about which we express no view) but that consideration is a separate issue to the question of whether the effect of the provisions of the DTA was to allocate the liability for the tax on the gain differently to the Assessment Act. 31 It follows therefore that the assessment was not precluded by s 4(2) of the Agreements Act. 32 It is necessary to address the further argument put by RCF based on Taxation Determination TD 2011/25: Income Tax: Does the business profits article (Article 7) of Australia's tax treaties applied to Australian sourced business profits of a foreign limited partnership (LP) where the LP is treated as fiscally transparent in a country with which Australia has entered into a tax treaty (tax treaty country) and the partners in the LP are residents of that tax treaty country? The answer to the question posed by TD 2011/25 was: Yes, to the extent the business profits are treated as the profits of the partners (and not the LP) for the purposes of the taxation laws of the country of residence of the partners and the resident partners meet any other applicable tax treaty requirements. 33 RCF contended that the Commissioner is bound by the ruling in TD 2011/25. Section 357-60 of Schedule 1 to the Taxation Administration Act 1953 (Cth) sets out when rulings are binding on the Commissioner. The section provides, relevantly: When rulings are binding on the Commissioner: (1) … a ruling binds the Commissioner in relation to you (whether or not you are aware of the ruling) if: (a) the ruling applies to you; and (b) you rely on the ruling by acting (or omitting to act) in accordance with the ruling. 34 RCF contended that the ruling applies to it and that it has relied on that ruling by conducting its case in this proceeding in accordance with the ruling, citing Intoll Management Pty Ltd v Federal Commissioner of Taxation (2012) 208 FCR 115 in support of that submission. We do not read Intoll as authority for the proposition that the requirement of reliance in s 357-60(1)(b) will be met merely by raising the fact of the ruling in the course of challenging an assessment in Part IVC proceedings. The Court did state that the Commissioner was bound by the ruling in question for the purposes of Division 357 but the matter under consideration by the Court was the Commissioner's submission that the ruling in question did not apply to the taxpayer. The Court's focus was on the application of the ruling to the taxpayer and no separate or express consideration was given to the question of reliance. Moreover, the question of whether there has been reliance is a matter that will need to be decided on the particular facts of each case and no universal proposition can, or should, be drawn from Intoll about reliance. 35 In any event, it is unnecessary to decide whether there was reliance for the purposes of s 357-60(1) because TD 2011/25 does not deal with the taxing position where the item of income is dealt with under another article of the DTA and is taken out of Article 7 by virtue of Article 7(6) of the DTA. Specifically, the TD says nothing about taxing rights in relation to gains dealt with under Article 13. The TD cannot bind the Commissioner concerning the application of Article 13 to the taxation of the gain. 36 We therefore turn to consider whether the gain was taxable Australian property.

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THE SECOND ISSUE: DIVISION 855 37 As RCF is a foreign resident of Australia, it is only assessable on the capital gain that it made from the sale of the SBM shares if the shares were "taxable Australian property": s 855-10 of the 1997 Act. The shares were "taxable Australian property" if RCF's "membership interest" in SBM was "an indirect Australian real property interest": s 855-15 item 2(a); s 855-25; s 960-135 (definition of "membership interest"). RCF's membership interest was "an indirect Australian real property interest" if the membership interest passed the non-portfolio interest test (see s 960-195) and the "principal asset test" in s 855-30. It was common ground that the non-portfolio interest test was passed. In issue was whether the membership interest passed the "principal asset test". RCF's membership interest passed the "principal asset test" if the sum of the market values of SBM's assets that were "taxable Australian real property" ("TARP assets") exceeded the sum of the market values of its assets that were not TARP assets ("the TARP issue"): s 855-30(2). 38 Section 855-30 relevantly provides: (1) The purpose of this section is to define when an entity's underlying value is principally derived from Australian real property (see paragraph 855-5(2)(b)). (2) A membership interest held by an entity (the holding entity) in another entity (the test entity) passes the principal asset test if the sum of the *market values of the test entity's assets that are *taxable Australian real property exceeds the sum of the *market values of its assets that are not taxable Australian real property. (Original emphasis) 39 The reference to "paragraph 855-5(2)(b)" is to the provision that states that the objects of the Subdivision were achieved, in part, by ensuring interests in an entity remain subject to Australia's capital gains tax laws if the entity's underlying value is principally derived from Australian real property. 40 The primary judge held that it was clear from the text of s 855-30(2) that the "principal asset text" requires the separate determination of the market value of each of the entity's assets; not the determination of the market value of all its TARP assets as a class and the determination of the market value of all its non-TARP assets as a class "and certainly not the determination of the market value of all its assets on a going concern basis". The primary judge explained at paragraph 95: Sub-section (1) speaks for the purpose of the section as being to define when an entity's underlying value is principally derived from Australian real property. What the section is concerned to measure is not the value (singular) of SBM or all the assets of its business as a going concern, but the values (plural) of its underlying assets (whether or not used in a business) and to define when the sum of the values of its underlying assets (what it calls the "entity's underlying value") is principally derived from Australian real property. Sub-section (2) provides the criterion for passing the "principal asset test": when the sum of the market values of the entity's assets that are TARP exceeds the sum of the market values of its assets that are non-TARP. (original emphasis) 41 The primary judge also stated that the test further requires the classification of the company's assets into TARP or non-TARP assets and finally that it requires the summing of the values in each class to determine whether the sum of the market values of the entity's TARP assets exceeds the sum of the market values of the entity's non-TARP assets; "only if it does, is the 'principal asset test' passed": paragraph 96. 42 The contest on the TARP issue centred around the valuation of three assets, which were: 1. Mining Rights; 2. Mining Information; and 3. Plant and Equipment. It was not in dispute that the mining information and plant and equipment were non-TARP assets. 43 The primary judge assessed the market values of each of these assets on the basis that: (a) as each asset must be valued separately for the purposes of s 855-30(2), each asset should be valued as if only that asset was offered for sale; and (b) the test laid down in Spencer v Commonwealth (1907) 5 CLR 418 ("Spencer's case") required the market values of those assets to be determined on the assumption that the hypothetical purchaser would be able to use those assets in a manner consistent with their "highest and best use" use - that is, in a business of mining the reserves on SBM's mining tenements - so that in the case of the mining information and plant and equipment, it was to be assumed that the hypothetical purchaser was the owner of the mining rights and would be able to use those assets. 44 To arrive at the market values of the assets, the primary judge valued (at paragraphs 105-107): (a) the mining rights on the basis of the discounted cash flow of SBM's mining operations, "less the cost (time delay cost as well as outlay) of re-creating the mining information and replacing the plant and equipment assumed not to be owned by the owner of the mining rights and not otherwise available for purchase"; (b) the mining information on the basis of the cost to the hypothetical purchaser of re-creating that information and the value of loss of cash flow suffered to recreate it; and (c) the plant and equipment - on the basis of replacement cost of that plant and equipment. 45 The primary judge reasoned that this approach was consistent with Commissioner of State Taxation (WA) v Nischu Pty Ltd (1991) 4 WAR 437 ("Nischu"). The issue in Nischu was whether the sale of shares in a company that had an interest in a mining joint venture attracted stamp duty on the basis that the value of its mining tenement (the land) was 80 per cent of the value of all its property. Aside from the mining tenements, the company's assets included documents and other chattels that held relevant mining information. Malcolm CJ, with whom Pidgeon J agreed, said at 446: Spencer's case requires that the purchaser should be fully acquainted with all relevant information regarding the land. This would include the mining information. It would not include any permanent right of access to that information. That right would have to be acquired by obtaining ownership or possession of the chattels containing the information or obtaining the information by supplementing what was not available from public sources by redoing whatever work was necessary to duplicate the information previously obtained. Earlier at 446 Malcolm CJ also said: Ownership of the mining tenements does not include a right of access to the information. Ownership or possession of the documents and things which contain the information must be acquired in order to gain permanent access to the information. It follows, in my view, that any relevant value must be reflected in the value of the chattels rather than the value of the mining tenements. Having determined that the value of the information did not form part of the value of the mining tenements to which such information related but formed part of the value of the chattels containing the information, the tenements were valued by deducting from the value of all the company's property the cost of reproducing the information, and also the lost cash flow for the two years that it would take to reproduce that information. 46 The Commissioner argued that Nischu was distinguishable because it concerned a different statutory scheme involving the application of the Spencer test to the mining tenements alone whereas in the present case s 855-30(2), properly considered, required the valuation of all of SBM's assets on the basis of a simultaneous sale to a single purchaser. The Commissioner further submitted that Nischu in any event was disapproved by Boland v Yates (1999) 167 ALR 576. 47 The starting point is s 855-30 considered in its statutory context: Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority (2008) 233 CLR 259; Leichhardt Municipal Council v Roads and Traffic Authority of New South Wales [2006] NSWCA 353; (2006) 149 LGERA 439. In Leichhardt, Spigelman CJ (with whom Beazley, Bryson, Basten JJA and Campbell J agreed) said at [35] - [36]: Matters of valuation turn in large measure on the precise statutory scheme. These schemes differ from one area of discourse to another. It is always important to commence with the precise words of the statute. There appears to be a tendency to take a judgment about one statutory regime and classify its conclusion as a "valuation principle" which is applied to any process of valuation, no matter how different the statutory regime may be. The need to determine the value of assets arises in many different legal contexts. It is the context which determines the relevant principles of valuation to be applied. An assumption that there is in existence some abstract body of "valuation principles" applicable in all contexts, irrespective of the statutory scheme or contractual provision, is liable to lead to error. Judgments in one context may prove instructive by way of an analogy when dealing with another context. Nevertheless, statutory differences must be borne in mind. The ultimate task must always come back to the application of the principles in the particular context… The particular context here includes two provisions which specifically state the purpose of the "principal asset test" in s 855-30: Certain Lloyd's Underwriters Subscribing to Contract No IH00AAQS v Cross (2012) 248 CLR 378 at [25]. 48 Section 855-5 sets out the objects of Division 855 and provides as follows: Objects of this Subdivision (1) The objects of this Subdivision are to improve: (a) Australia's status as an attractive place for business and investments; and (b) the integrity of Australia's capital gains tax base. (2) This is achieved by: (a) aligning Australia's tax laws with international practice; and (b) ensuring interests in an entity remain subject to Australia's capital gains tax laws if the entity's underlying value is principally derived from Australian real property. (emphasis added) 49 Section 855-30(1) is cast in the same language and provides that the "purpose" of s 855-30 is to "define" when an entity's underlying value is principally derived from Australian real property. The section requires the identification of two figures: (1) the sum of the market values of the test entity's TARP assets; and (2) the sum of the market values of the test entity's non-TARP assets. An entity's underlying value will be principally derived from Australian real property if the sum of the market values of the test entity's TARP assets exceeds the sum of the market values of the test entity's non-TARP assets. 50 The question raised by the appeal is whether the market value of each asset is to be determined under s 855-30(2) as if each asset was the only asset offered for sale (as the primary judge held) or on the basis of an assumed simultaneous sale of SBM's assets to the same hypothetical purchaser (as the Commissioner contended). 51 That question is to be answered in the statutory context and by reference to the statutory purpose for which the values are to be determined: that is, to ascertain whether SBM's underlying value is principally in its TARP or non-TARP assets. In light of the statutory context and purpose, in our opinion it is implicit that to determine where the underlying value resides in SBM's bundle of assets, the market values of the individual assets making up that bundle are to be ascertained as if they were offered for sale as a bundle, not as if they were offered for sale on a stand-alone basis. The reference to "the sum" of the "market values" does not, even in its literal terms, require the ascertainment of the market value of each relevant asset separately, and then upon their ascertainment, an arithmetical calculation. The statutory criterion referred to in s 855-30(2) can still be applied by considering the matter on the basis of an assumed simultaneous sale of SBM's assets to the same hypothetical purchaser. In our opinion there is insufficient indication in the language and context of s 855-30 to found what is, in our respectful opinion, the artificial conclusion for which RCF contended. 52 It follows that the assets should be valued on the basis of an assumed simultaneous sale of SBM's assets to the same hypothetical purchaser, not as stand-alone separate sales. 53 By approaching the valuation on the basis that the market values of the individual assets were to be determined as if sold separately from the other assets, in our opinion the primary judge failed to give due recognition to the statutory context and purpose and fell into error by following the approach in Nischu, where the market value of the mining tenement was determined as a stand-alone asset. As Nischu does not apply, it is unnecessary to consider the Commissioner's further submission that Nischu is no longer good law. Subject to what we say below, it also makes it unnecessary to consider the other issues raised by the appeal which only required determination if the primary judge's valuation hypothesis was accepted as correct. 54 The principles for the determination of market value are not in doubt. The determination requires the application of the Spencer test: that is to consider what a willing not anxious purchaser would have to offer to induce a willing not anxious vendor to sell the asset in question, and, in the present case, on the hypothesis of a simultaneous sale to the one purchaser with the capacity to use those assets in combination in a gold mining operation as their highest and best use. We note 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. How this will bear upon the final calculations for the purposes of s 855-30 will need to be considered by the parties before final orders can be made. 55 On the basis of the submissions made by the parties, it would seem that in light of our reasons, the Commissioner would be successful in the appeal on the second issue. However, as indicated to the parties at the end of oral submissions, the Court will give the parties the opportunity to consider these reasons and to indicate to the Court whether any issue remains to be determined, particularly as to the final calculations.

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