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".

Related News: Laggard accountants weigh on ASIC resources

"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.

Related Content

When picking stocks focus on G.I.V.E

Absolute return fund manager, Monash Investors, is encouraging investors to focus on growth, insights, value and key events when eyeing investment opp...more

Industry welcomes education bill

The Association of Financial Advisers (AFA) has welcomed the introduction of the Professional Standards Bill today, while also welcoming recent amendm...more

SuperConcepts partners with DomaCom for SMSFs

AMP-owned self-managed superannuation fund (SMSF) administration solutions provider, SuperConcepts, and investment platform administrator, DomaCom hav...more



Add new comment