St George faces $200ml tax bill over hybrid capital

St George Bank said it received a tax bill of $40 million from the Australian Taxation Office issued for the 1998 tax year relating to deductions claimed for interest on subordinated debentures issued by the bank. The bank said that if the ATO adopted the same approach for deductions claimed in the seven years to 2004 the tax bill would be $206 million after tax, comprising $114 million of primary tax and interest and penalties of $92 million. St George went on to say it was confident over its position; has legal advice that it’s approach was correct; that it wouldn’t be taking any charge to the profit and loss; and that its auditor, KPMG, agreed with this approach. St George will contest the tax assessment in the courts. However, St George also said it would cease claiming tax deductions on the subordinated debt from the 2005 financial year.