Newmont Canada: The Federal Court Of Australia Considers The Meaning Of 'Real Property' For Tax Purposes In A Mining Context

Introduction

On 10 November 2025, the Federal Court of Australia handed down its decision in Newmont Canada FN Holdings ULC v Commissioner of Taxation (No 2) [2025] FCA 1356.

The principal issue was whether two foreign resident companies, Newmont Canada FN Holdings ULC and Newmont Capital Limited (Taxpayers), were entitled to disregard a capital gain of around AUD $96 million (plus potential penalties and interest) resulting from the disposal of shares in Newmont Australia Pty Ltd (Newmont) as part of a restructure of the broader group. Newmont and its subsidiaries conduct gold mining activities in Australia through various joint ventures.

At the heart of the dispute were disagreements between the Taxpayers and the Commissioner as to the application of the 'principal asset test' in section 855-20 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) and the correct approach to the complex asset valuation exercises required to apply the test.

Consistent with the approach agreed by the parties, Colvin J did not resolve the ultimate issue in the proceedings, with a number of valuation questions still to be determined by a referee. However, his Honour's judgment provides helpful clarification on a number of aspects of the principal asset test, including the meaning of 'real property' for pision 855 purposes, particularly as it applies to mining plant and equipment.

This decision follows closely the decision of Hespe J in YTL Power Investments Ltd v Commissioner of Taxation [2025] FCA 1317 (YTL Power)(our note here), which also considered the principal asset test in an infrastructure context.

The key takeaways from the Newmont decision are as follows:

• The Court has again rejected the Commissioner's broad interpretation of the term 'real property' for the purposes of pision 855, reaffirming – as Hespe J held in YTL Power – that the term should be interpreted according to its general law meaning.
• The Court determined that Newmont's mining plant and equipment would only constitute 'real property' if, under general law principles, they formed part of the land (or a lease of the land). Drawing on the High Court's decision in TEC Desert, the Court concluded that the status of Newmont's mining plant and equipment should be determined by the 'source' of the authority conferred on Newmont to place the plant and equipment on the land which, in this case, was the mining tenements (which were 'personalty') rather than Newmont's freehold or leasehold interests.
• The case is a further example of the kind of scenario which the potential changes announced by the Australian Government to pision 855 may apply (our note here). Extending the capital gains tax regime to assets "with a close economic connection to Australian land and/or natural resources" may well extend to mining plant and equipment operated under a mining lease, notwithstanding that the rights under those leases are – according to the findings of Colvin J – personal property. A real question remains as to the effectiveness of the proposed changes for residents of countries with which Australia has a tax treaty (given those treaties apply the concept of 'real property' rather than 'immovable property') and – in the absence of a treaty override – raises questions about the effectiveness of the proposed changes for residents of countries with which Australia has a tax treaty.
• The complex valuation issues examined by the Court underscore the anticipated challenges arising from the related amendment proposed to pision 855, which would require the principal asset test to be applied 'at any time' during the 365 days preceding the disposal of the relevant membership interests. This is expected to be particularly challenging where minority interests are disposed of outside the context of a corporate reorganisation.
• Interestingly, the procedural route adopted in this case meant that the taxpayer did not fail to discharge its burden of proof (as had been the case in some of the earlier pision 855 cases) with several issues instead flagged to be determined by a referee.

Key Issues and Procedural Matters

The key issue for determination was whether the Taxpayers were entitled to disregard a capital gain which was triggered by the entry into two separate agreements for the sale of Newmont shares, dated 30 June 2011, as part of an internal restructure. The combined shareholding of the Taxpayers represented about 29% of the total shareholding in Newmont, with the balance of the shares also held within the broader corporate group.

The issue ultimately turned on whether the Taxpayers' shares in Newmont were 'taxable Australian property' as defined in Item 2 of the table in section 855-15 of the ITAA 1997 and specifically, whether the shares passed the 'principal asset test' in section 855-30 of the ITAA 1997. The parties were in agreement that the shares passed the 'non-portfolio interest test' in section 960-195 of the ITAA 1997.

This principal asset test considers, broadly, whether the market value of the underlying assets of the entity in which the shares are held comprise principally (at least 50%) 'taxable Australian real property' (TARP) within the meaning of section 855-20 of the ITAA 1997, this being:

1. real property situated in Australia (including a lease of land, if the land is situated in Australia); or
2. a mining, quarrying or prospecting right (to the extent that the right is not real property), if the minerals, petroleum or quarry materials are situated in Australia.

At the time of the share sale, the main assets of Newmont and its subsidiaries were associated with gold mining operations at four mines in Western Australia and the Northern Territory and included plant and equipment, mining information (geological information about specific sites) and mining tenements held under the relevant State or Territory mining legislation. Newmont and its subsidiaries also held freehold and leasehold interests in some of the land where the mining tenements were located and various other assets.

Prior to the hearing, the parties agreed on a list of twenty-three issues to be determined by Colvin J, with certain valuation calculations to be undertaken by a referee following the resolution of the substantive legal issues. These issues broadly considered:

1. the meaning of TARP under pision 855 of the ITAA 1997 and whether certain mining plant and equipment held by Newmont was TARP (Issues 13-17);
2. the appropriate approach for valuing TARP and non-TARP assets held by Newmont for the purposes of the principal asset test (Issues 1-12); and
3. other issues (including further valuation issues) relating to the calculation of the capital gain, assuming it could not be disregarded (Issues 18-23).

An overview of the key findings from the decision is set out below. For reference, the full list of issues and Colvin J's findings (including the matters still to be determined by a referee) are set out in [97] and [866] of the judgment.

Key Findings

Meaning of TARP and application to mining plant and equipment

Meaning of 'real property'

As a threshold issue, Colvin J considered the meaning of 'real property' as deployed in section 855-20 of the ITAA 1997.

The Commissioner submitted that the phrase should be understood according to its 'ordinary' meaning rather than its technical legal meaning, encompassing in effect, "both land and anything erected on or attached to land" (at [570]). This interpretation would include mining plant and equipment owned by Newmont and its subsidiaries as TARP for pision 855 purposes. The same argument was also made (unsuccessfully) by the Commissioner before Hespe J in YTL Power. The Commissioner's interpretation would, if correct, broaden the range of assets which would be considered TARP, expanding the circumstances in which the principal asset test may be satisfied (and, therefore, capital gains derived by foreign residents potentially taxable).

Colvin J held that the phrase 'real property' should be understood according to its technical legal meaning, although, unlike Hespe J, his Honour was prepared to accept that 'real property' did have an 'ordinary' meaning separate from its legal use. However, Colvin J was not convinced that even the ordinary meaning of 'real property' was as broad as the Commissioner contended, finding (at [573]):

"Both at law and in ordinary parlance, buildings, structures and other things erected on or attached to land become real property in a derivative way. They do not have the character of real property in a way that is separate and distinct from the land itself. Rather, it is because they are seen to be part of the immovable character of the land that they are described as real property. Further, it is ownership of the land that is viewed as the source of the property interest in the things that are erected on or attached to the land."

Colvin J referred (at [585]-[589]) to several authorities, including the High Court's decision in TEC Desert Pty Ltd v Commissioner of State Revenue (WA) [2010] HCA 49 (TEC Desert), which considered the general principles applicable to construction of legal terms of art appearing in legislation. His Honour held (at [589]) that there existed a rule of construction to the effect that "words that have acquired a legal meaning are to be given that meaning unless a contrary intention is clearly expressed having regard to matters of context."

Considering the context of pision 855, his Honour held that 'real property' was clearly intended to be understood according to its technical legal meaning, for the following reasons:

• The explanatory memorandum to the 2006 Bill introducing pision 855 described the amendments as aligning tax practice "with Australia's treaty practice" and "OECD practice" by "narrowing the range of assets on which a foreign resident is subject to Australia's CGT to Australian real property..." Colvin J considered that the reference to treaties and OECD practice suggested an intention to apply the legal meaning, as the OECD model convention on tax treaties specifically referred to 'immovable property' having "the meaning which it has under the law of the Contracting State in which the property in question is situated" (emphasis added). Similar wording is also used in Australia's tax treaties. Further, Colvin J was not persuaded by the Commissioner's arguments as to the significance of the phrase 'ordinary meaning' in the explanatory memorandum to the 2006 Bill (i.e., "Taxable Australian real property generally refers to real property, within the ordinary meaning of that term, that is situated in Australia"), finding that (at [600]):

"I am not persuaded that much can be made of the use of the expression 'ordinary meaning' in that context. It is quite likely that it could be referring to the fact that 'real property' is not statutorily defined but 'mining, quarrying or prospecting right' is so defined. It is possible also that it could be referring to ordinary legal meaning. The aspects of the explanatory memorandum that refer to alignment with OECD practice would support that conclusion."

• The express objects of pision 855, as set out in section 855-5, referred to ensuring that capital gains "remain subject" to Australian capital gains tax laws if a relevant entity's underlying value is principally derived from Australian real property, invoking an understanding of the previous capital gains tax regime. Colvin J was not convinced that the extrinsic materials or the pision 855 objects "manifested an intention to impose a liability to taxation based upon a conception of real property that was unconfined by recognised legal principle" (at [603]).
• The express inclusion of 'a lease of land' within the definition of TARP (which was added in 2009) served to confirm an intention to deploy the narrow legal meaning, as the amendment would otherwise have been unnecessary (under the general law, leases have historically been regarded as 'chattels real' rather than real property).
• Similarly, the specific inclusion of a 'mining, quarrying or prospecting right' as a separate category within the definition of TARP suggested an intention to deploy the narrow meaning, as otherwise the inclusion would have been unnecessary. Further, paragraph (d) of the definition of 'mining, quarrying or prospecting right' in section 995-1 of the ITAA 1997 only includes buildings or other improvements on land used in connection with mining operations within the definition of TARP when they are "acquired with... an authority, licence, permit, right, lease or interest [under an Australian law to mine, quarry or prospect for minerals, petroleum or quarry materials]." In his Honour's view, this definition evinced an intention exclude buildings or other improvements subsequently brought onto the land from the definition of TARP, whereas these would otherwise have been captured under the Commissioner's broad construction.

As such, the proper question to be determined was whether the Newmont mining and plant equipment were TARP for pision 855 purposes. As his Honour noted, this would require the plant and equipment to be 'real property' or 'a lease of land' at general law.

For completeness, although Colvin J rejected the Commissioner's submission that real property should bear its ordinary meaning and include "anything erected on or attached to land", his Honour found that (at [626]), under this (incorrect) construction, mining plant and equipment owned by Newmont or its subsidiaries, excluding mobile equipment, would be considered TARP.

Application to mining plant and equipment

Turning to whether the plant and equipment were real property or a lease of land at general law, Colvin J then considered an alternative submission by the Commissioner. In short, the Commissioner attempted to distinguish the reasoning of the High Court in TEC Desert where, relevantly, the Court held that mining plant and equipment located on land subject to a mining tenement was personal property (and therefore not dutiable under the relevant legislation). In TEC Desert, the taxpayer did not own or lease the underlying land where the tenement was located, leading the Commissioner to argue that the High Court had not dealt with the characterisation of plant and equipment where, as in the present case (for some of the mines), the grantee of the mining tenement and the holder of the freehold or leasehold were the same party. The Commissioner argued that, in those circumstances, the plant and equipment formed part of the freehold or leasehold as general law fixtures and were TARP for pision 855 purposes.

Colvin J rejected (at [641]) this argument, describing TEC Desert as standing for the principle that "the status of the mining plant was determined by the status of the source of the authority to place the mining equipment on the land (and affix it), namely the mining tenements." In other words, it was the statutory authority granted under the relevant mining statutes which conferred a right to bring the mining equipment onto the land and to operate it, regardless of whether the land was also owned or leased by the grantee of the tenement. Per the High Court in TEC Desert, the mining tenements were personal property and imparted that character to the relevant plant and equipment.

Further, Colvin J identified (at [650]-[652]) the following fundamental difficulties with the Commissioner's submissions:

1. If the mining plant and equipment became part of the freehold where the tenement and underlying freehold are in common ownership, there would be no mechanism to transfer the plant and equipment when the mining rights were transferred (as was contemplated by the relevant mining legislation), as these would have merged with the freehold.
2. If the Commissioner's view was correct, there would be no logical basis to confine the merging of plant and equipment with the land to instances where the tenement and freehold were in common ownership. In other words, if the determinative factor is whether or not the plant and equipment are general law fixtures, then they could potentially form part of the land regardless of the underlying ownership of the freehold. Such an outcome would be "entirely inconsistent with the scheme of the mining legislation" and would mean that mining plant and equipment could only be removed from the land through an analogy with the law of tenant's fixtures (this being the proposition that was expressly rejected in TEC Desert).
3. Lastly, assuming that the plant and equipment formed part of the freehold, the value of that plant and equipment could not be determined by reference to the use it could be put as part of the mining operations, as it would also be necessary to hold the relevant mining tenements to put them to that use. Where Newmont did hold the mining tenements, any value attributable to the plant and equipment for the holder of freehold or leasehold interests would therefore be akin to a residual disposal value at the end of the life of the mine.

Comments on fixtures

Notwithstanding that the characterisation of the plant and equipment was to be approached with regard to the source of the rights to bring it onto and affix it to the land, rather than whether they were general law fixtures, Colvin J held that the reasoning in TEC Desert did not, as a matter of analysis, preclude the possibility that mining plant and equipment brought onto the land by a miner exercising mining rights could become general law fixtures. As a refresher, the law of fixtures considers when items placed on or annexed to the land, although themselves chattels, can merge with and become part of the underlying freehold.

His Honour reiterated that neither the permanence of the fixture nor the degree of annexation was determinative of whether a chattel had become a fixture, and regard must be had to all other circumstances, including the intention with which the chattel was brought onto or affixed to the land. Colvin J did consider that some of the plant and equipment at the largest mine (Boddington, where Newmont held the underlying freehold) were general law fixtures, having regard to matters including the cost, permanence and bespoke nature of the structures, finding (at [696]) that:

"[H]ad I concluded that plant and equipment at the Boddington mine could form part of an interest in land if it was a fixture at common law then, taking account of the matters to which I have referred, I would have concluded that the plant and equipment at the Boddington mine had the necessary characteristics as fixtures."

Duty implications

Although TEC Desert definitively considered the nature of interests in mining tenements and associated plant and equipment for duties purposes, the law has moved on since TEC Desert to overcome the outcome in that decision and others where technical arguments were made regarding the nature of various property interests. The Duties Act 2008 (WA) now provides in section 3A that the definition of 'land' for duties purposes includes a 'mining tenement' and 'an estate or interest in a mining tenement' (section 3A(1)(b)-(c)) as well as "anything fixed to land (including land the subject of a mining tenement ..." There are also detailed rules concerning 'fixed infrastructure' which deem certain access and control rights in respect of items fixed to land to be dutiable property or landholdings for transfer and landholder duty purposes, respectively.

Accordingly, regardless of the technical position of whether the relevant mining plant and equipment constituted 'real property', they would, under the existing Western Australian duty rules, have constituted dutiable property or landholdings.

Valuation under the principal asset test

The valuation task generally

Apart from the dispute over the meaning of TARP, a number of issues in the proceedings concerned the correct approach to valuation of an entity's underlying assets under the principal asset test.

In the introductory section of the judgment, Colvin J observed (at [64]-[65], citing Federal Commissioner of Taxation v Resource Capital Fund III LP (2014) 225 FCR 290 and Federal Commissioner of Taxation v Resource Capital Fund IV LP (2019) 266 FCR 1) that, in undertaking the market valuation of assets for the purposes of section 855-30, assets should be valued on the basis of an assumed simultaneous sale to the same hypothetical purchaser, not as standalone separate sales. Further, to the extent that those assets comprise interests in mining operations, it is necessary to consider the market value of the whole of the assets on the basis that they are deployed in those mining operations (if that is the highest and best use of those assets).

However, as Colvin J observed (at [66]), it is then necessary to allocate the overall market value between TARP and non-TARP assets for the purposes of determining the relative value derived from TARP assets.

Noting the "conceptual difficulties" attending both aspects of this valuation task, Colvin J stated (at [66]-[69]) the following principles in relation to valuing assets used in mining operations:

1. In valuing assets and allocating value between them, regard must be had to the objective of undertaking the statutory valuation task, being the making of a determination as to whether the relevant entity's underlying value is principally derived from Australian real property.
2. When determining the total market value of TARP and non-TARP assets, due regard must be had to the fact that a bundle of assets has value because they can be deployed to earn income in a particular way (in this case, as part of a mining operation). As such, there is "a kind of symbiotic or synergistic value" between the mining assets deployed together at their highest and best use, and any allocation must be undertaken from the perspective of the holder of all those assets and must reflect the fact that control of all the assets is needed to obtain that synergistic value.
3. To determine the market value of deploying a group of assets in their highest and best use as part of a mining operation, it is appropriate to conduct the valuation by reference to the net present value of the revenues expected to be earned from those operations. However, it is not possible to use that same approach for allocating the overall pool of value to inpidual assets, as no part of the total revenue from the operations is identifiably produced from particular assets.

His Honour noted (at [70]) that each of the experts in the proceedings identified three categories of assets which contributed to Newmont's synergistic value (i.e., onsite plant and equipment, site-specific mining information, and mining tenements), with the crux of the dispute being differing opinions as to the appropriate allocation of synergistic value as between the different categories of assets. However, the parties were broadly in agreement that the valuation exercise required:

1. determining the net present values of the future cash flows from each of the four mining operations using a discounted cashflow (DCF) analysis;
2. potentially applying a net asset valuation (NAV) multiple to increase the results of the DCF analysis, to account for the premium at which listed shares in gold mining companies tended to trade;
3. determining how much of the net present value of the future cashflows from each of the four mining operations could be attributed to (a) mining plant and equipment, (b) mining information, and (c) mining tenements, with the value of the plant and equipment and mining information determined first, with any residue allocated to the mining tenements;
4. determining the value of other assets of Newmont and its subsidiaries that were not part of the DCF analysis (e.g. intercompany loans and receivables and other mining interests);
5. identifying which of the assets of Newmont and its subsidiaries were TARP and which were non-TARP; and
6. ascertaining whether the sum of the market values of the TARP assets exceeded that of the non-TARP assets.

Discounted cashflow analysis

All the experts agreed that the appropriate discount to be used in the DCF analysis was the weighted average cost of capital for investments in gold mining assets in Australia, with separate analysis to be undertaken in respect of the four main Newmont mines. However, the experts disagreed as to the value of certain integers to be inputted into this analysis, being the relevant price of gold and appropriate 'beta value' in the discount rate (i.e., a measure of the quantifiable risk associated with a particular investment).

As to the price of gold as an input into the DCF analysis, each expert gave evidence as to the views that would likely be formed as at 30 June 2011 by hypothetical purchasers of the gold mines as to the future spot price for gold (for the purposes of assessing the price that those purchasers would be willing to pay for the underlying assets).

Colvin J considered in detail the evidence of the various experts, preferring the evidence of Dr Brady, an expert in mineral economics who served as Chief Economist for the ultimate parent of the Newmont group from 2013-2019. Dr Brady's approach for determining the future spot price of gold as at 30 June 2011 involved both a short-term and long-term analysis. The short-term analysis identified a median based on price estimates from banking analysts and other subscription-based forecasts, as well as gold futures and forwards prices determined by Bloomberg, whereas the long-term analysis featured a qualitative analysis of the features likely to affect the gold price over the long term (e.g. trends in global consumer demand) and an econometric gold price forecast model adapted from Oxford Economics and the World Gold Council.

Notably, Colvin J was critical of the Commissioner's expert, Mr Lonergan. His Honour criticised Mr Lonergan in particular for seeking to justify his evidence as to the market views of the future spot price of gold as at 30 June 2011 by reference to the actual, subsequent movements in the price of gold. His Honour ultimately concluded (at [277]):

It matters not that in the peculiarities of unfolding events the prevailing views as to likely future [gold] prices were well short of the mark. The market valuation task to be undertaken for the purposes of pision 855 requires regard to market values as at 30 June 2011. It is those circumstances that informed the market value of Newmont Australia's shares at the time and hence the extent of any capital gain. Those values are a function of the views of market participants at that time. In my assessment, the approach of Dr Brady best reflects the way in which relevant market participants at the time would have undertaken the required evaluation of likely future spot prices for gold for the purpose of determining the price to pay for shares in a gold mining company with the characteristics of Newmont Australia.

His Honour was also critical of Mr Lonergan's evidence as to the appropriate 'beta value' to be applied in the DCF analysis and the appropriateness of including a NAV multiple to reflect the 'gold premium', finding that (at [391]) it was appropriate to include a levered beta value of 0.7 and (at [438]) to include a NAV multiple (with the exact multiple to be determined by the referee).

Mining information and plant and equipment

In relation to valuing the mining information (i.e. geological and site-specific information which could be exploited through mining operations in a particular area), Colvin J again reiterated the conceptual difficulties attended by the allocation of synergistic value as between different classes of assets for the purposes of the principal asset test. In particular, his Honour noted that, in the case of a mining operation, the hypothetical purchaser of existing mining operations will attribute value to the assets required to conduct those operations. However, the market value of those assets may not equal their replacement cost, as a hypothetical purchaser will not attribute more value to inpidual assets than it would take to replace or reproduce them. As such, there may be a scenario where the replacement cost of each asset required to conduct mining operations will be more than the overall pool of market value determined by a DCF analysis. However, his Honour considered (at [453]) that the market value of the assets:

"... still has a considerable value over and above its separate sale value. That additional value reflects what I have referred to as the synergistic value available to a single owner of all the existing plant and equipment, and the mining information and the mining tenements. Put another way, the market value of the membership interest that confers control over the relevant interest in the four mining operations will reflect the synergistic value that can be obtained from deploying all three categories of assets in each of those mining operations."

The DCF analysis of one the experts, Mr Wilson, produced a pool of overall value lower than the market values he was asked to assume for the mining information and plant and equipment, leading to a situation where a residual value of nil was attributed to the mining tenements. Colvin J considered that, if the outcome of the DCF analysis resulted in a pool of overall value large enough to allocate the replacement or reproduction costs to the mining information and plant and equipment, with a reasonable surplus left to be allocated to the mining tenements, this would be an appropriate method of allocation for the purposes of the principal asset test. However, this method would not be suitable where the overall pool of value was such that a nil or negligible value was residually allocated to the mining tenements, even though these were "required in order to produce a large overall pool of value" (at [456]).

Colvin J noted that this issue could not be resolved for present purposes, as the overall pool of value arising from the DCF analysis would not be known until after the findings of the referee were made. However, his Honour considered (at [459]) that a plausible alternative would be to use the written down book values of the assets as shown in the consolidated accounts of Newmont and its subsidiaries:

Those values would provide a measure of the extent to which past expenditure has contributed to the generation of the synergistic value. The three historical values for (a) plant and equipment that will be deployed in the future mining operations; (b) the mining information that has future relevance for mining operations; and (c) the mining tenements that confer the rights to undertake the mining activities including mine processing, could be used. That would ensure that redundant assets are not included. The historical values could then be used to determine relative proportions of contribution through past expenditure to the present pool of value. It may be an appropriate way of allocating the overall pool of value for the statutory purpose of determining the market value of assets to the holder of the membership interest which confers the right to a pool of value that the assets would not generate inpidually.

In determining the market value of the mining information, the valuation expert, an experienced geologist, pided the information into three categories:

1. Mined Information: information that relates to previously reported mineral resources and ore reserves that have since been mined;
2. Mining Information: information required to recreate and report mineral resources and ore reserves that were current at the relevant date; and
3. Extra Information: information and studies for previous and prospective exploration targets, sterilisation, drilling, geotechnical assessments and the like.

Colvin J, having regard to the evidence of the valuation expert, accepted (at [489]) a submission by the Commissioner that the Mined Information and Extra Information had no material value. However, his Honour rejected a submission to the effect that the Mining Information had no value to a hypothetical purchaser as it would have been disclosed as part of due diligence in a pre-sale process. As his Honour noted (at [497]), any information disclosed in a pre-sale process would be subject to restrictions on its use – in other words, "[a]n asset does not have a market value of nil because it can be used unlawfully." His Honour also rejected two further submissions made by the Commissioner (at [499]-[506]).

In relation to valuing the plant and equipment, Colvin J also considered that, assuming the overall pool of value determined by the DCF analysis was sufficient to leave a non-negligible value for the mining tenements (which would not be known until after the referee's findings were made), replacement or reproduction cost was an appropriate allocation method.

Other assets

Colvin J also considered the expert evidence as to the valuation of other Newmont assets, including intercompany loans and receivables, derivatives and interests in other mining projects. Notably, Colvin J agreed with the Commissioner (at [518]-[519]) that intercompany loans and receivables should be allocated a nil value for the purposes of valuation under the principal asset test, as a "buyer of the whole enterprise would not place any value on the intercompany loan because it is not going to contribute to the underlying value of the shareholding in the test entity."

Submissions as to Newmont's onus

Colvin J also rejected (at [548]) a submission by the Commissioner to the effect that the Taxpayers could not discharge their onus as to the overall valuation of the assets of Newmont by relying upon values for the key integers in the DCF analysis that were supported by different experts. The onus was to demonstrate that the relevant assessments were excessive, per section 14ZZO(b)(i) of the Taxation Administration Act 1953 (Cth).

His Honour noted (at [549]-[552]) that the submission, which was made in closing, was a departure from the way the proceedings had been conducted, and in any event, it had not been demonstrated as a matter of analysis that there was any interdependence between the three integers in the experts' approach to the DCF analysis.

Other issues relating to capital gain not disregarded

Colvin J also considered a number of other issues which would arise in the event that, contrary to his Honour's primary findings, the capital gain made by the Taxpayers could not be disregarded under pision 855.

As to whether the market value substitution rule applied because the Taxpayers did not deal at arm's length in relation to the share sale, Colvin J noted (at [768]) that, "[p]arties who are not in an arm's length relationship may still deal at arm's length. Whether they have done so in a particular case depends upon the circumstances." In this case, the fact that the share sale agreements contained a clause which provided for a price adjustment based on a third party valuation suggested that the parties were not dealing at arm's length. As such, his Honour concluded (at [770]):

The [Taxpayers] and Newmont Australia Holdings are related entities. That fact alone is a sufficient foundation from which to draw an inference that they were not dealing at arm's length. The fact that they took steps to support the price to be paid by reference to a third-party valuation is equivocal. If indeed they were dealing at arm's length a term of that kind would be most unusual. It strikes me as a mechanism that is designed to address the fact that there has been no arm's length negotiation of the price to be paid.

Colvin J also considered that it was appropriate, in determining the capital proceeds under the sale, to apply a discount for lack of control and marketability.

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