The Tax Office has secured a victory against James Packer's former company Publishing and Broadcasting Ltd – which later became Consolidated Media Holdings – that will see its new owners, News Limited, picking up the tab on a $400 million capital gain.
However, the tax bill is not expected to be material to News Ltd, which was aware of the risks when it purchased ConsMedia last month for $1.94 billion.
“We were aware of the issue during due diligence. The amount concerned is not material and News will pay what we owe,’’ a News Ltd spokesman said.
The tax assessment is expected to be about $4.2 million plus more than $1 million in interest.
The High Court on Wednesday morning found the Commissioner of Taxation correctly assessed a $1 billion transaction done in 2002 as a capital gain.
The tax dispute dates back to when Crown Ltd – which was owned by PBL – bought back 840 million of its own shares from PBL. The off-market deal was part of a debt repayment with Crown Ltd returning $1 billion to PBL.
(PBL separated into two companies in 2007 with Crown Limited taking all the gambling assets and ConsMedia the media assets.)
The Tax Office assessed the deal and found PBL made a capital gain when it sold the shares to Crown. PBL disputed this, but lost its first court case. However, in March this year the full Federal Court held that the buyback was a dividend, allowing ConsMedia to use a rebate and franking credits to slash its tax bill by $4.2 million.
The Tax Office took the case to the High Court, where judges held that the transaction was a capital gain.