Combined, three of the country's big four banks book NZ$393 mln in tax credits from structured finance settlements

By Gareth Vaughan

Three of the countries big four banks, combined, booked tax credits total ling NZ$393 million in the September year stemming from last December's settlement of their long running structured finance transaction disputes with the Inland Revenue Department (IRD).

A general disclosure statement released by Westpac this week shows it recorded a tax credit, or write back, of NZ$188 million for the year to September 30. Added to BNZ's NZ$167 million and ANZ's NZ$38 million credits, already disclosed, the three have been able to write back a total of NZ$393 million.

News of the tax credits comes after the government announced this week a bigger than expected budget deficit, partly because of lower than forecast corporate tax recepits. See more here.

The banks benefited by releasing the unused part of provisions raised last year to cover the full amount of their structured finance transaction disputes with the IRD. With both BNZ and Westpac losing High Court cases against IRD, the banks provisioned in their accounts for 100% of the money in dispute before striking a deal with the IRD that saw them cough up just 80% of what IRD had been seeking.

ANZ recognised a NZ$240 million provision last year and has been able to claim back a tax credit of NZ$38 million on that. That's despite ANZ agreeing to cough up a total of NZ$413.7 million as its share of the NZ$2.2 billion total settlement.

Having bought the National Bank from Lloyds Banking Group in 2003, ANZ was able to bill the British bank for some of the money IRD demanded. A spokeswoman for ANZ confirmed to interest.co.nz in June that the money due from Lloyds, which based on the total amount ANZ agreed to pay up and the provision it booked, should have been around the NZ$170 million mark, had been received but was a "commercially sensitive" amount.

And although ANZ said last December when the settlement was announced that it was still disputing one NZ$27 million transaction, the spokeswoman said in June all amounts due to the IRD had been settled and no further money was outstanding.

The settlements mean BNZ paid just NZ$35 million of income tax in the September year on total operating profit before tax of NZ$637 million, and the Westpac group's Westpac Banking Corporation (NZ Branch) - incorporating the BT Financial, Westpac Insurance, retail, business, agri, private, head office, treasury and Westpac Institutional Bank units - just NZ$60 million on pre-tax profit of NZ$823 million. Both banks were, therefore, effectively able to pay income tax at levels well below the 30% corporate tax rate.

ANZ paid NZ$352 million of income tax on NZ$1.2 billion of pre-tax profit.

Meanwhile, ASB which agreed to pay NZ$264 million to settle its dispute, paid NZ$65 million worth of tax in the three months to September this year compared to NZ$244 million in the September quarter last year when it booked provisions total ling NZ$208 million (NZ$130 million for core tax and NZ$78 million for interest costs) for its structured finance transaction dispute. No one was available from ASB to comment on whether it was in a position to write back any money.

Separately Rabobank is continuing to fight the IRD in its own structured finance transaction dispute. Rabobank is fighting the taxman over primary tax of about NZ$14 million, plus interest capped at NZ$7 million.