Australia

Details

  • Service: Tax, Corporate Tax
  • Industry: Financial Services
  • Type: Regulatory update
  • Date: 24/03/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Brad Ivens

Brad Ivens
Director, Tax

+61 3 9288 5750

bivens@kpmg.com.au

All eyes on off-market share buybacks 

by Brad Ivens, Financial Services Specialist

On the back of improved corporate earnings and balance sheet positions, there has been increased media focus of late on capital management strategies of listed companies, including mounting speculation of possible share buybacks being undertaken in the coming months.

The taxation treatment of off-market share buybacks came under the microscope in recent years, with a Board of Taxation report in June 2008 leading to a Treasury discussion paper released in June 2009, and then Exposure Draft (ED) legislation in October 2011.

 

The proposed changes within the ED legislation included the denial of 'notional losses', by deeming an increased amount of consideration to have been received by the investor for the disposal of shares under a listed company off-market buyback. In some cases, a capital (or revenue) loss which would otherwise have been made for tax purposes would be reduced to nil.

 

It was acknowledged that this would have the effect of reducing the after-tax return for many taxpayers who participated in off-market share buybacks.

 

The status of this proposal was revisited by the current government late in 2013 as one of the 92 announced but unlegislated tax and superannuation measures that it had inherited from the previous government. The government announced that it had determined not to proceed with implementing the Board of Taxation’s recommendations, which has restored certainty for investors and listed companies.

 

Nevertheless, it remains critical for investors to carefully consider their tax profile and investment strategy in the context of specific buyback opportunities that are presented in the coming months.

 

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