Tax office takes joy out of buybacks
Share buybacks are likely to become more complex and less attractive to investors after the ATO's final determination on the assessment of the market value of shares repurchased under such schemes. The final share price for taxation purposes won't be known until after the buyback has been completed, so investors will have more difficulty in deciding whether it's worthwhile participating. The determination was applied recently in the case of Insurance Australia Group. Although the buyback was structured so that it appeared shareholders wouldn't incur capital gains tax, the ATO's adjustment of the final price meant investors did in fact have to pay CGT. Deloittes said because the investor doesn't know the final price until the offer closes, it's then too late to do anything about the tax consequences.