THE Australian Tax Office ruling that the James Hardie Special Purpose Fund, set up to pay compensation to asbestos victims, is not a charity displays ruling inconsistencies.


The attitude of the ATO to these compensation victims is in stark contrast to the charity it bestows on investors in the tax on off-market share buybacks.
For the uninitiated, such a buyback allows a shareholder to sell shares at a price comprising a large franked dividend and a small sale-price component.

If you bought BHP shares a few years ago at $10 a share you could have sold them this year at $23.45 each in the buyback. This amount was made up of a franked dividend of $21.35 a share and a $2.10 sale price. This enables the shareholder to claim a capital loss.


So how can you pay $10 for BHP shares and then sell them for $23.45 and claim a capital loss? You can do this with the blessing of an ATO ruling.


This is nothing more than a tax rort. More than $500 million has been lost this year in Commonwealth revenue because of these schemes.


The ATO and the Howard Government are conspicuously silent on this. Whatever strange process the ATO uses to produce rulings, equity does not get a hearing.


Source: The Age