News to pick up tab for PBL tax bill

THE Tax Office has secured a victory against James Packer's former company Publishing and Broadcasting Ltd, which later became Consolidated Media Holdings.

By InvestSMART · 6 Dec 2012

By InvestSMART ·
6 Dec 2012

Comments

THE Tax Office has secured a victory against James Packer's former company Publishing and Broadcasting Ltd, which later became Consolidated Media Holdings.

This will mean its new owner, News Limited, will pick up the tab on a $400 million capital gain.

The tax bill is not expected to be material to News, which was aware of the court case when it bought ConsMedia last month for $1.94 billion.

"We were aware of the issue during due diligence," a News spokesman said. "The amount concerned is not material and News will pay what we owe."

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

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

The tax dispute dates back to when Crown Limited, which was owned by PBL, bought back 840 million of its own shares from PBL.

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, which ruled the transaction was a capital gain.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What did the High Court rule in the PBL / Consolidated Media Holdings tax case?

The High Court found the Commissioner of Taxation correctly assessed the 2002 transaction as a capital gain. That ruling supports the Tax Office’s position that the transaction should be treated as a capital gain rather than a dividend.

Which companies and transactions are at the centre of this tax dispute?

The dispute involves Publishing and Broadcasting Ltd (PBL), which later became Consolidated Media Holdings (ConsMedia), Crown Limited (which bought back shares), and News Limited (the buyer of ConsMedia). The issue traces to a 2002 transaction in which Crown bought back 840 million shares from PBL.

How big was the original transaction that triggered the tax assessment?

The Commissioner assessed a roughly $1 billion transaction carried out in 2002 as a capital gain.

How much tax and interest does the Tax Office expect to recover from the assessment?

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

Will News Limited have to pay the tax bill after buying ConsMedia?

Yes. The High Court outcome means News Limited, which bought ConsMedia last month for $1.94 billion, will effectively pick up the tab on the capital gain (reported as about $400 million). News has said it was aware of the issue during due diligence and that the amount is not material to the company and that it will pay what it owes.

What did the Federal Court decide earlier in this case, and how does that differ from the High Court ruling?

Earlier, the full Federal Court held the share buyback was a dividend, which allowed ConsMedia to use a rebate and franking credits to reduce its tax bill by about $4.2 million. The High Court has now overturned that position for this transaction by ruling it was a capital gain.

What triggered the tax assessment originally — was it a buyback or a sale?

The tax dispute dates to when Crown Limited (owned by PBL at the time) bought back 840 million of its own shares from PBL. The Tax Office assessed that PBL made a capital gain when it sold those shares to Crown.

What are the key figures investors should note from this story?

Key numbers in the article are: a roughly $1 billion 2002 transaction, a reported $400 million capital gain that News Limited will pick up, a tax assessment of about $4.2 million plus over $1 million in interest, and News Limited’s $1.94 billion purchase price for ConsMedia.