Resource Capital Fund IV L.P. & Anor v Commissioner of Taxation; Resource Capital Fund v L.P. & Anor v Commissioner of Taxation

Resource Capital Fund IV L.P. and Resource Capital Fund V L.P. (the applicants) sought special leave to appeal to the High Court of Australia from a decision of the Full Court of the Federal Court of Australia. The dispute concerned the application of Division 855 of the *Income Tax Assessment Act 1997* (Cth) and Division 5A of the *Income Tax Assessment Act 1936* (Cth) in relation to profits derived by the applicants from Australian mining operations. The applicants argued that the Full Court erred in its construction of these provisions, particularly concerning the definition of "mining, quarrying or prospecting right" and the effect of deeming certain partnerships to be companies for tax purposes.

The legal issues before the High Court included whether a general purpose lease, which permitted the processing and concentration of ore but not its extraction, constituted a "mining, quarrying or prospecting right" for the purposes of Division 855. This division generally disregards gains made by foreign residents unless they involve an interest in Australian real property, which includes such rights. A further issue was whether the statutory fiction in Division 5A, which treats certain partnerships as companies for tax purposes, could override the rights of US resident partners under the business profits article of the applicable double tax agreement.

The applicants contended that the Full Court incorrectly interpreted "mining, quarrying or prospecting right" by relying on cases dealing with "mining operations" in different statutory contexts, thereby deeming the general purpose lease to be a right to mine when it only permitted downstream processing. They also argued that Division 5A creates a statutory fiction for the calculation of tax liability and does not create a separate legal entity, meaning obligations are imposed on the partners, not the fictional entity itself, thus preserving the application of the double tax agreement. The applicants also raised a separate point regarding the valuation of assets under Division 855, specifically whether an expectation of a future lease extension constituted part of the value of an expiring lease.

The High Court granted special leave to appeal. The applicants' primary argument was that the Full Court erred in its construction of Division 855 by treating a general purpose lease, which allowed for the processing of ore but not its extraction, as a "mining, quarrying or prospecting right." They also contended that the deeming provisions in Division 5A, which treat partnerships as companies for tax purposes, do not create a separate legal entity and therefore do not preclude the application of double tax treaty provisions to the individual partners.