06/01/2010 - 11:23

WestNet Rail fights $71m stamp duty bill

06/01/2010 - 11:23

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WestNet Rail Holdings will challenge a $71 million stamp duty assessment from Western Australia's Office of State Revenue, in a move that will add to industry concern over the state's controversial 'land rich' tax policy.

WestNet Rail Holdings will challenge a $71 million stamp duty assessment from Western Australia's Office of State Revenue, in a move that will add to industry concern over the state's controversial 'land rich' tax policy.

WestNet Rail, a company wholly-owned by Prime Infrastructure Group (formerly Babcock & Brown Infrastructure) received the $71.3 million stamp duty assessment in respect of the 2006 acquisition of ARG Group.

ARG was acquired by Babcock & Brown WA Rail, the immediate parent of WestNet Rail Holdings and also part of Prime Infrastructure.

Prime Infrastructure chief financial officer Jonathon Sellar told WA Business News the stamp duty assessment arose from the state government's 'land rich' policy.

He would not comment on the controversial nature of the policy, which was originally designed to stop tax evasion by companies placing land inside a company stucture to avoid stamp duty but has had a far wider impact than anticipated.

Mr Sellar explained that the assessment stemmed from the 2006 sale of Western Australia's freight rail business, trading as ARG Group, with WestNet acquiring the 'below rail' assets and Queensland Rail taking control of the 'above rail' assets.

Babcock & Brown WA Rail intends to exercise its contractual rights of indemnity against Queensland Rail, as acquirer of the above rail ARG Group business, to recover almost $25 million which will be used to partially fund the liability of WestNet under the assessment.

Prime Infrastructure said it would be required to fund the remainder, to the tune of $46.4 million, if it is ultimately determined that WestNet was liable for the stamp duty.

Prime Infrastructure said it has the capacity to fund payment of the assessment without drawing down under any debt facilties.

The state government does not disclose the amount it raises as a result of its land rich policy, but industry groups have estimated it could be in excess of $100 million per year.

Its mid-year financial projections statement released in December noted that the government had revised up taxation revenue on the back of "transfer duty (up $122 million), due to faster than expected recovery in Western Australia's housing market and revenue from a small number of large 'one-off' business transactions."

Transactions that are expected to be caught by the 'land rich' provisions include the takeovers of WMC Resources, LionOre Mining International, Jubilee Mines and Consolidated Minerals. In each case, the purchaser may be liable for stamp duty on the 'land' owned by each of the mining companies.

In 2008, industry players said the issue was set to become even more contentious when the definition of land rich companies was changed from companies with land worth more than $1 million and representing more than 60 per cent of the company's assets (a test which typically captured miners) to a simple test that included all companies with WA land worth $2 million or more.

Mr Sellar believes the stamp duty assessment to be incorrect but will ensure the assessment, required to be paid by February 5, 2010 is completed before beginning recovery of the payment.

"We need to pay that ($71.3 million assessment) within 30 days and then challenge it within the legal process," Mr Sellar told WA Business News.

"We will pay within 30 days but we will look to recover that in due course."

Mr Sellar said he was realistically confident of recovering the full amount in due course through the courts.

"We have the ability, we complied with everything in the acquisition and believed there was no stamp duty payable," he said.

"We have had our series of challenges over the last 12-18 moths, but expect smoother operations going forward."

 

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