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Tax Office caves in to CBA over ruling on insurance company sale

Commonwealth Bank has won a $120-million battle with the Tax Office over its sale of a Bermuda-based insurance company nearly a decade ago.

The bank took Federal Court action in late March after the ATO threw out its objection to a tax assessment issued in November 2012.

At the centre of the stoush is the sale of CMG Asia Life, an insurer the CBA acquired as part of its 2000 takeover of Colonial. CMG Asia, which provided insurance in the Asian market, was part of a group of Hong Kong-based businesses CBA sold in 2005 for about $600 million.

As part of the deal, in December 2005 CMG Asia paid the CBA $235 million. In return, CMG Asia received all the shares in it held by the CBA. In an appeal notice filed with the Federal Court, the CBA said it made a capital loss of $251 million on the share buy-back. It said the ATO was wrong to assess its loss as only $131 million. As a result, the CBA argued that its income for 2008 should be reduced by $120 million.

The Federal Court case had been set down for a scheduling conference on June 19.

However, two weeks ago the ATO caved to the bank. It agreed to orders by consent setting aside its January 21 decision to disallow CBA's objection.