Australia’s Federal Court rules in RCF

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The Federal Court rules in RCF: treaty benefits for fiscally transparent entities and other interesting issues - .PDF file.

Recently, the Federal Court of Australia handed down its decision in Resource Capital Fund III LP v Commissioner of Taxation [2013] FCA 363 (RCF). In RCF, the court (constituted by Edmonds J) considered whether a Cayman Islands limited partnership was taxable in Australia on a capital gain arising from the disposal of the taxpayer’s interest in St Barbara Ltd, an ASX-listed Australian mining company.

The Court found that the Caymans LP was not subject to Australian tax on those gains because:

  • the terms of the US/Australia tax treaty (“US Treaty”) protected the Caymans LP from tax as it should be considered to be fiscally transparent for Australian tax purposes in accordance with the US Treaty. This was the case notwithstanding that the Caymans LP was not a US resident entity; and
  • in any event, the Australian foreign resident capital gains tax exemption applied to preclude Australia from taxing the capital gain arising on the disposal of the shares in the Australian Mining Company as those shares were not “taxable Australian real property”…

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