Toll NZ cuts deal with tax department over convertible notes

Monday 5th January 2015

Toll Holdings' New Zealand unit settled its dispute with the Inland Revenue Department last year over its use of convertible notes to fund trans-Tasman transactions a decade ago, and expects the $22.9 million provision it took in 2013 should cover the cost of the deal.

The Australian logistics group's New Zealand holding company, Toll Group (NZ), reached a settlement with the local tax department over interest expenses relating to its optional convertible notes between 2003 and 2012, according to the financial statements lodged with the Companies Office. The notes were used to fund investments in New Zealand between 2002 and 2005, when such securities were in vogue by allowing firms to juggle debt and equity in their New Zealand divisions, providing a tax advantage for their Australian parent and eroding the New Zealand revenue base.

At issue was whether such structures were simply designed to minimise tax. The New Zealand courts decided they constituted tax avoidance, leading to a string of settlements with the IRD after a test case involving Australian firm, Alesco, settled on the eve of appeal hearings in February last year.

Toll said its settlement was reached before the hearing was scheduled to take place, and that the provision taken in 2013 would be adequate to cover its costs. Following the settlement, Toll wrote down the value of its investment in subsidiary Toll Finance (NZ) by $15.4 million to $1.5 million, the net asset value.

The $242.8 million of notes were converted to shares in 2012, and the Toll unit had just $947,000 in finance expenses in 2014 and none in 2013, compared to finance costs of $25.5 million in 2012 when the notes were still accruing interest.

Toll's New Zealand unit turned to profit in the 2014 year, with net earnings of $3.2 million in the 12 months ended June 30, compared to a loss of $60.8 million when it wrote down the value of goodwill by $42.6 million. Revenue slipped to $375 million from $379.5 million in 2013.

The Australian company bought what is now the state-owned KiwiRail from American investors who had acquired the national rail service in a privatisation deal in the mid-1990s. Toll resold the rail part of the business back to the New Zealand government in 2008, while retaining the TranzLink trucking and freight logistics operations. It remains the biggest customer of state-owned KiwiRail.

The ASX-listed shares rose 0.8 percent to A$5.945.

BusinessDesk.co.nz

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