ATO has a win over capital gain

THE Tax Office has won against James Packer's former company, Publishing and Broadcasting Ltd, which later became Consolidated Media Holdings, that will see its new owners, News Ltd, picking up the tab on a $400 million capital gain.

By InvestSMART · 6 Dec 2012

By InvestSMART ·
6 Dec 2012

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News Ltd was aware of the court case when it bought ConsMedia last month for $1.94 billion.

"The amount concerned is not material and News will pay what we owe," a News Ltd spokesman said.

The tax assessment is expected to be about $4.2 million, plus more than $1 million in interest.

The High Court on Wednesday found the Commissioner of Taxation correctly assessed a $1 billion transaction in 2002 as a capital gain.

The tax dispute dates back to when Crown Ltd, which was owned by PBL, bought back 840 million of its own shares from PBL. The off-market deal was part of a debt repayment with Crown Ltd returning $1 billion to PBL.

(PBL separated into two companies in 2007 with Crown Ltd taking all the gambling assets and ConsMedia the media assets.)

The Tax Office assessed the deal and found PBL made a capital gain when it sold the shares to Crown. PBL disputed this, but lost its first court case. In March this year the full Federal Court held that the buyback was a dividend, allowing ConsMedia to use a rebate and franking credits to slash its tax bill by $4.2 million.

The Tax Office took the case to the High Court, where judges held that the transaction was a capital gain.

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Frequently Asked Questions about this Article…

What did the High Court rule in the ATO case involving Publishing and Broadcasting Ltd (PBL)?

The High Court found the Commissioner of Taxation correctly assessed a 2002 $1 billion transaction as a capital gain, meaning the Tax Office won its challenge against PBL’s former company.

Which companies are directly involved in this tax dispute?

The dispute involves Publishing and Broadcasting Ltd (PBL) and its media successor Consolidated Media Holdings (ConsMedia), Crown Ltd (which bought back shares), and News Ltd, which recently bought ConsMedia.

What transaction triggered the ATO’s capital gains assessment?

The dispute dates to when Crown Ltd bought back 80 million of its own shares from PBL as part of a debt repayment, with Crown returning $1 billion to PBL; the ATO assessed that PBL made a capital gain on the sale of those shares.

How much tax is expected to be paid after News Ltd’s acquisition of ConsMedia?

The tax assessment related to the ruling is expected to be about $4.2 million, plus more than $1 million in interest, and News Ltd said it was aware of the case when it bought ConsMedia.

Did any earlier court rule differently about the buyback?

Yes — the full Federal Court earlier held the buyback was a dividend, which allowed ConsMedia to use a rebate and franking credits to reduce its tax bill by about $4.2 million, but the ATO appealed and the High Court later disagreed.

Will News Ltd be responsible for the capital gains tax liability?

According to the article, News Ltd, as the new owner of ConsMedia, will pick up the tax liability; a News Ltd spokesman said the amount was not material and News would pay what it owes.

What does this case show everyday investors about buybacks and tax treatment?

The case shows that off‑market share buybacks can be treated differently for tax purposes — either as capital gains or as dividends — and that court rulings can materially change the tax outcome and the use of rebates or franking credits.

Was News Ltd aware of the tax case when it bought Consolidated Media Holdings?

Yes. The article states News Ltd was aware of the court case when it bought ConsMedia for $1.94 billion and commented it would pay what was owed.