Fosters In Line For Tax Windfall

by Mary Swire, Tax-News.com, Hong Kong

22 July 2011

Following the recent announcement from the Australian-based Fosters Group that it had successfully concluded its long-running 'Ashwick' tax litigation, the company is now considering the implications and looking at reviewing its dividend options.

The litigation dates back more than 10 years, and relates to deductions claimed by the company in respect of debts written off by the Elders Finance Group. The total cash refund and interest now anticipated to be received from the Tax Commissioner in relation to Ashwick is approximately AUD390m (USD418m).

The cash comprises the refund of amounts previously paid to the Commissioner and interest on that amount of approximately AUD136m, all of which is expected to be received before the end of August 2011. To date Fosters has received progress payments of AUD317m.

The notes to Fosters most recent financial statements disclosed accumulated tax losses of almost AUD1.5bn (AUD447.5m potential tax benefit) that have not been brought to account relating to the litigation. Fosters anticipates that, subject to ongoing compliance with conditions for deductibility under Australian tax law, the Ashwick tax losses will be available to offset its Australian taxable income.

Ashwick tax losses are expected to be utilized to reduce tax payable in the 2012 financial year and subsequent years until the losses are fully utilized. Fosters expects to book a deferred tax asset of AUD447.5m in relation to the carried forward losses as a material item in its financial statements for the year ended June 30, 2011.

The combination of reduced income tax payments in future years, in addition to the cash received and receivable from the Commissioner in relation to Ashwick, will result in a total cash benefit to Foster's of in excess of AUD835m.

A company statement said: “The Fosters Board is currently reviewing its dividend policy and capital management options in light of the successful Ashwick outcome. In line with its normal course of business Fosters will provide a further update on these matters at the release of its 2011 full year result on 23 August 2011.”

Fosters last month rejected a AUD9.5bn takeover offer from London-based brewing company SABMiller.

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