Off-market buy-backs leaks revenue

The Institute of Public Accountants (IPA) has called on the Government to look at the off-market share buy-back scheme loophole as it reduces the Commonwealth revenue line.

The body said while buy-backs could be a useful tool for corporate entities in terms of capital management, they come at a cost to the taxpayer as Treasury coffers missed out on top-up tax due to the distribution of franking credits.

IPA chief executive, Andrew Conway, said off-market share buy-backs comprised "of a capital and dividend component and are offered to all shareholders on an opt-in basis. If the shares were sold on-market there would not be any dividend component and the proceeds would be generally capital gains or losses".

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"People on higher marginal tax rates receiving a dividend have to pay ‘top-up' tax and are therefore, much less likely to participate in off-market share buy-back schemes," he said.

"This creates an inequitable distribution of franking credits than would ordinarily be the case had the company paid the dividend equally amongst all shareholders. Off-market buybacks are mostly attractive to nil rate or low tax paying shareholders."

Conway said if more major listed entities engaged in off-market share buy-backs, the revenue leakage could not be ignored while the country was running historically high budget deficits for the likely short-to-medium term.




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