NAB takes Taxation Dispute Hit from ATO

Submitted by Jim Thesiger on 3 September, 2009 - 06:47

One of the major banking and financial product providers of Australia- National Australia Bank (NAB) took a hit of $309 million from the Australian Tax Office. The figures were based upon the tax deductibility of interest on capital instruments. NAB practiced its usual approach by paying $618 million- half of the amount under the assessments of amended tax after an adverse tax ruling hit St Georgia Bank that also had implications for NAB’s exchangeable capital units (ExCaps) dispute. The $309 million was treated as asset by NAB as it expected that from the St George case, the ExCaps could be distinguished. But on Wednesday it declared that the receivable was written down to zero.

According to NAB, the objections regarding the ExCaps taxation assessments were wedged with Australian Tax Office is yet to be determined. The ExCaps securities were issued by NAB in 1997 which paid around 8 percent to the investors at an annual basis. ATO came up with a decision to prohibit all interest deductions in the six years up to 2003 despite the interest were considered as tax-deductible. According to Brian Johnson, who is a CLSA tax analyst, the fresh capital worth of $2.75 million which was raised by NAB in July was spent on a variety of provisions and acquisitions that includes the Aviva buying which cost $825 million.

In a previous analysis, Mr. Johnson stated both ANZ Bank and NAB to be the riskier investment plays as far as the big banking sector is concerned. National Australia Bank was not able to deal with its conduit assets, which was not marked to their market price, like the credit intermediation trades of ANZ Bank's, he added. Mr. Johnson also stated that additional capital is needed for Future meaningful acquisitions. It is to be mentioned that NAB’s UK business came under pressure with commercial property exposure, which was worth of $16.8 billion or 8.8 billion pound stg.