Two Caymans investment LPs (“RCF IV” and RCF V”) whose limited partners were mostly U.S. residents, realized gains from the disposal of shares of significant shareholdings in a TSX-listed Australian corporation (Talison Lithium) which, through a grandchild corporation, held mining leases in Australia and carried out an operation there of mining lithium ores and processing them. The significant gains realized by RCF IV and RCF V in disposing of these investments consistently with their modus operandi which was (per the oral evidence) to “go in, make the investment, improve the performance of the company concerned and then seek to exit within three to six years after that time, having made a profit” (para. 32) were realized on income account. In further finding that such gains were income derived from an Australian source, Pagone J first noted (at para. 52) the RCF LPs’ submissions that significant decisions were made outside Australia by the general partner’s investment committee and that the manager was outside Australia, and then stated (at para. 53):
The fact that the business and assets were in Australia might not of itself be sufficient to make Australia the ultimate source of the gain derived upon the disposal of the shares, but the location in Australia of the business and assets, and the nature and extent of the business and assets, occasioned substantial activities in Australia that were an integral part of the investment, its management, and its ultimate profitable disposal. …
An element of the investment strategy of the RCF IV and RCF V partnerships was for members of the RCF Management team to occupy positions on boards of the companies in which RCF invested to guide management and to contribute to an increase in the value of the investments which were intended to be sold at a profit. That function was performed by employees in the Perth office … .
Respecting the statutory reference to income derived “directly or indirectly,” he stated (at para. 51):
The Commissioner submitted that the phrase directs attention “not merely to the proximate origin of the income, but also to those acts or matters which constitute contributory causes to the generation of income”, however, the adverbial phrase quantifies the word “derived” in the section rather than the word “source”. It can be accepted that non-proximate contributory causes may be relevant to ascertain the source of derivation but the adverbial phrase does not lessen or reduce the need to find that that which was derived was from an Australian source.