Capital allowances: mining, quarrying or prospecting right - interest in a licence

If the taxpayer is the registered holder of a 40 per cent share in a licence for the recovery and exploration of petroleum from two separate oil fields, are there two corresponding 'interests' in the licence for the purpose of paragraph (c) of the definition of 'mining, quarrying or prospecting right' in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The taxpayer's 'interest' in the licence for the purpose of paragraph (c) of the definition of 'mining, quarrying or prospecting right' in subsection 995-1(1) of the ITAA 1997 is the 40 per cent share in the licence. The taxpayer has no separate equitable interest in relation to the licence or in relation to the oil fields for the purpose of paragraph (c) of the definition.

The relevant Government authority approved the transfer to the taxpayer of a 40 per cent share in a licence to recover and explore for petroleum from two separate oil fields. The taxpayer is registered as the legal owner of the share in the licence. The taxpayer had no other registered dealings in relation to the licence.

The licence is a licence under an Australian law to mine, quarry or prospect for minerals, petroleum or quarry materials for the purpose of the definition of 'mining, quarrying or prospecting right' in subsection 995-1(1) of the ITAA 1997.

All legislative references are to the ITAA 1997.

Subsection 995-1(1) relevantly defines a mining, quarrying or prospecting right as follows: (a) an authority, licence, permit or right under an *Australian law to mine, quarry or prospect for minerals, *petroleum or quarry materials; or (b) a lease of land that allows the lessee to mine, quarry or prospect for minerals, petroleum or quarry materials on the land; or (c) an interest in such an authority, licence, permit, right or lease; ...

The word 'interest' in paragraph (c) is not defined for the purposes of the ITAA 1997 and takes its ordinary meaning in the context in which it appears in the legislation.

The Macquarie Dictionary relevantly defines 'interest' as: a share in the ownership of property, in a commercial or financial undertaking, or the like; any right of ownership in property, commercial undertakings, etc.

Therefore, in the context of paragraph (c) of the definition of 'mining, quarrying or prospecting right' in subsection 995-1(1) of the ITAA 1997, an 'interest' in a licence is a share in the ownership of, or any right of ownership in, the licence.

Ownership of property may be legal or equitable. Judicial authority establishes that the legal owner of property has the whole right of property but has no separate equitable interest in it as the equitable interest is absorbed in the legal ownership. Where the legal and equitable ownership of property is severed so that it does not vest in only one person, the equitable interest is separately recognised to confer on the equitable owner the protection of equitable principles.

The principle that there is no separate existence of the legal and equitable interest in property where one person holds both interests was applied by the Privy Council in Commissioner of Stamp Duties (Qld) v. Livingston (1964) 112 CLR 12; [1964] 3 All ER 692 where Viscount Radcliffe at CLR 22; All ER 699 denied that: for all purposes and at every moment of time the law requires the separate existence of two different kinds of estate or interest in property, the legal and the equitable....When the whole right of property is in a person, as it is in an executor, there is no need to distinguish between the legal and equitable interest in that property, any more than there is for the property of a full beneficial owner...... Equity in fact calls into existence and protects equitable rights and interests in property only where their recognition has been found to be required in order to give effect to its doctrines.

In DKLR Holding Co (No 2) Pty Ltd v. Commissioner of Stamp Duties (NSW ) (1982) 149 CLR 431; 40 ALR 1, the High Court also considered whether there is a dualism of legal and equitable estates where there is one absolute owner of land. Gibbs CJ observed at CLR 442; ALR 9 that: the legal owner of the land...had the whole right of property in the land, but had no separate equitable estate in it, for its equitable estate was absorbed in the legal estate...

Aicken J at CLR 463; ALR 27 expressed the principle as follows: If one person has both the legal estate and the entire beneficial interest in the land he holds an entire and unqualified legal interest and not two separate interests, one legal and the other equitable.

In this case, the taxpayer has a single entire interest as legal owner of the percentage share in the licence. Therefore, the taxpayer has no separate equitable interest in relation to the licence. There have been no dealings in relation to the licence that require the creation of an equitable interest to be separately recognised. Accordingly, the taxpayer has no separate equitable interest in the licence that corresponds with the separate oil fields within the meaning of paragraph (c) of the definition.

The taxpayer's 'interest' in the licence for the purpose of paragraph (c) of the definition of 'mining, quarrying or prospecting right' in subsection 995-1(1) of the ITAA 1997 is its legal ownership of the percentage share in the licence.