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:

"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

Former Future Fund boss joins HESTA board

The former head of the Future Fund, Mark Burgess will chair an investment committee newly-formed by industry fund, HESTA.The fund announced that the c...more

Defined benefit schemes in the new super world

Tim Howard looks at the changed treatment of certain contributions to defined benefit schemes.For the majority of Australians, and particularly those ...more

Satisfaction with big four up in April

Satisfaction with the big four banks was 80.1 per cent and was well above the long-term average of 74.9 per cent in the six months to April thanks to ...more

Author

Comments

Add new comment