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Last-chance tax move makes instant millions

By Nicholas Bryant

Friday 24th March 2000

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The Warehouse founder Stephen Tindall will save almost $1 million as a result of the listed retailer's move to hand out dividends before tax hikes take effect next month.

The Warehouse brought its 17c dividend forward from July to March 31 and paid a special 18c dividend on top of it. The company used up imputation credits built up over a number of years; the credits are accrued every time a company pays tax before paying dividends.

Mr Tindall has just over 40 million shares in the company he started, so his 35c combined dividends earn him about $14 million. Paying an extra 6c tax in the dollar would increase Mr Tindall's tax bill by almost $1 million.

While beating the tax hike appears a benevolent move as "old economy" stocks such as Contact Energy try to ride out an e-commerce-provoked trough, it is doubly pleasing for investors. "What we're seeing is good cashflow businesses managing their balance sheets aggressively and making sure shareholders are looked after," Ord Minett institutional dealer Ian Waddell said.

The new personal tax rate, 39% of income over $60,000 a year, will hit a majority of sharemarket investors when it bites on April 1.

While companies are distributing surplus retained earnings back to shareholders to take advantage of imputation credits, their generosity has led to questions over priorities and whether the dividends are wise. Some say a focus on growth would be desirable but most analysts agree the payments represent a "must-do" situation.

"While it has a short-term cash impact on the company it puts more money in the hands of individuals, hopefully for re-investment," Mr Waddell said.

Other companies to go ex-dividend and briefly beat the new tax are: Fisher & Paykel, 30c; Baycorp, 9c; Air New Zealand, 6c; Restaurant Brands, 5.5c; and Infratil, with a 3c a share early dividend.

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