Tax avoidance is simple in Australia these days, Malcolm Turnbull: all you have to do is own shares in a company doing a buyback.
The $400 million buyback that Rio Tinto announced two weeks ago is nothing more than a mass-marketed scheme in the same olive grove as tree and movie schemes.
Rio shares are selling for a bit less than $47. They have gone up 35 per cent in the past year and have tripled in the past decade. Shareholders have made a lot of money.
Yet for the $400 million or so worth of shares that will be bought by the company and cancelled, shareholders will be deemed to have sold them for about $4 a share for capital gains tax purposes. Most shareholders will be deemed to have made a loss.
The Australian Tax Office has approved this rort.
In addition, everything above $4 (around $40 a share) will be paid as a franked dividend, even though it is clearly not a dividend and will not be paid to all shareholders....
Well, in my view, if a company can buy back shares for, say, $44 and declare that the price for capital gains tax purposes is a tenth of that and pay the rest as a franked dividend, then the safeguards are not working. The company benefits because, in the case of Rio Tinto, it gets shares at an 8 percent discount to the market. Shareholders, of course, benefit enormously.
