Grain Coop CBH is at odds with the tax office.
A DECISION by the Australian Tax Office could cost grain storage, handling and marketing giant CBH Group around $13 million a year due to the potential loss of its tax-exempt status.
CBH, which is a cooperative with 5,500 members, is preparing to mount a Federal Court challenge to the ATO ruling that its storage and handling operations should pay tax.
The business already pays tax on its other operations, including grain marketing via its Grain Pool subsidiary, but the organisation has been exempt from tax on its original business under a clause in the Income Tax Assessment Act because it was established for the purpose of promoting the development of agricultural resources.
Based in the cooperative's West Perth headquarters (pictured right), CBH company secretary David Woolfe said the level of tax payable was dependent on wildly fluctuating seasonal production. Had it been in place for the past decade it would have cost the group an average of $13 million a year.
From the recently published CBH accounts, the group was liable for $17.1 million in tax on a pre-tax profit of $57.3 million. The tax was determined after lowering the profit by more than $10 million relating to the pre-tax profit of the parent entity and applying the group's statutory income tax rate of 30 per cent.
Mr Woolfe said the ATO's ruling applied to the current financial year but would not be retrospective.
He said CBH had employed a legal team including Queen's Counsel to fight the ATO ruling.
Mr Woolfe said he was uncertain as to why the ATO had changed its mind about CBH's tax-exempt status.
However, he confirmed the ruling had come after CBH had sought advice from the tax office regarding the tax-exempt status of the parent entity in the event of a restructuring, of which several potential scenarios were considered.
"It is hard to know what motivates the tax office," Mr Woolfe said. "This could have happened anyway."
Tax industry experts have no knowledge of any policy change or special targeting of not-for-profit businesses in recent times.
The ATO also confirmed there had not been a change in policy in terms of dealing with the sector.
The 2007-08 financial year was a relatively weak one for CBH due to a disappointing crop, though it was financially more lucrative than 2006-07.
For the year ending October 31 2008, CBH made a profit of $40.1 million compared to $27.7 million the previous year. Storage and handling would typically contribute about $30 million in profitability, compared to the $10 million this past year and a $47,000 loss the previous corresponding period.
Revenue was $1.1 billion in 2007-08, up from $581.4 million and net assets rose to $976.6 million from $948.6 million.
In other recent news, the Western Australian Electoral Commission advised that CBH's 2009 director elections for the Esperance and Kwinana zones have been finalised.
Current director and chairman Neil Wandel was re-elected in the Esperance zone and John Hassell has been elected to replace former director Mick McGinniss in the Kwinana Zone.
Geraldton director Rod Madden was re-elected unopposed following closure of nominations in early February.