Elders wins latest round of tax battle in Federal Court

ELDERS expects a substantial injection of cash if it emerges the winner in a long-running dispute with the Tax Office.

By InvestSMART · 20 Mar 2012

By InvestSMART ·
20 Mar 2012

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ELDERS expects a substantial injection of cash if it emerges the winner in a long-running dispute with the Tax Office.

The Commissioner of Taxation yesterday failed to overturn a court decision in favour of Futuris Corporation, now known as Elders.

The full court of the Federal Court of Australia dismissed an appeal by the commissioner against an earlier decision by a single judge in August 2010.

The commissioner has 28 days to decide whether to appeal to the High Court.

The case involves an amended tax assessment issued by the ATO in 2004 over the sale of Futuris' building products division in October 1997. The amended assessment added $82.95 million to Futuris' assessable income, to which the company objected.

The single judge of the Federal Court allowed the objection and excluded the $82.95 million from taxable income, prompting the appeal to the full court.

Elders said in a statement yesterday that the decision upheld its objections against the amended assessments.

"Should the ATO not appeal or special leave is not granted by the High Court, Elders anticipates receipt of cash of $38.5 million by way of refund of prepaid tax, penalties and interest of $27.6 million and interest on that prepayment currently estimated to be $10.9 million," Elders said. The company said it would receive a $65 million profit and loss benefit after tax.

If the ATO applies for leave to appeal to the High Court, Elders said it would continue its policy of making provision for a liability while defending its position.

After a trading halt was lifted, Elders shares closed up 3?, or 14.29 per cent, at 24?.

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Frequently Asked Questions about this Article…

What was the Federal Court outcome in Elders’ tax dispute with the ATO?

The full bench of the Federal Court dismissed the Commissioner of Taxation’s appeal against an earlier single-judge decision (August 2010) that sided with Futuris Corporation (now Elders). That earlier ruling excluded an $82.95 million amount from Futuris/Elders’ taxable income. The Commissioner has 28 days to decide whether to seek leave to appeal to the High Court.

How much money could Elders receive if the ATO does not appeal?

Elders said it anticipates receipt of specific cash items if the ATO does not appeal: a refund of prepaid tax of $38.5 million, penalties and interest of $27.6 million, and interest on that prepayment currently estimated at $10.9 million. The company also said it would record a roughly $65 million profit-and-loss benefit after tax.

What transaction triggered the ATO’s amended tax assessment against Futuris/Elders?

The dispute relates to the sale of Futuris’ building products division in October 1997. In 2004 the ATO issued an amended assessment that added $82.95 million to Futuris’ assessable income, which the company objected to and the courts later addressed.

What does the possibility of a High Court appeal mean for investors in Elders?

If the ATO seeks special leave to appeal to the High Court, the legal matter would remain unresolved at the highest level. Elders has said it would continue its policy of making a provision for any potential liability while it defends the position. The Commissioner has 28 days from the Federal Court decision to decide whether to apply for leave.

How did Elders’ share price react after the Federal Court decision?

Following the lifting of a trading halt, Elders shares rose strongly: the article reports a gain of about 14.29% after the court ruling.

How large was the amended assessment the ATO tried to add to Futuris’ income?

The ATO’s amended assessment added $82.95 million to Futuris’ assessable income. A single judge of the Federal Court allowed Futuris’ objection and excluded that $82.95 million from taxable income; the full court later dismissed the Commissioner’s appeal against that ruling.

Who are the main parties and courts involved in this tax battle?

The dispute is between the Commissioner of Taxation (the ATO) and Futuris Corporation (now Elders). It was decided first by a single judge of the Federal Court (August 2010), then by the full bench of the Federal Court which dismissed the Commissioner’s appeal. The Commissioner has the option to seek special leave to appeal to the High Court.

What should everyday investors take away from how Elders is handling the tax dispute?

From the company’s statements: Elders is treating the Federal Court win as potentially material (identifying specific refundable amounts and an after-tax P&L benefit) but will continue to provision for a potential liability if the ATO seeks a High Court appeal. For investors, that means the company is both recognizing potential upside from the court win and preparing for continued legal uncertainty.