MEDIA RELEASE

13 February 2011
Inland Revenue clarifies Hanover debt-for-equity swaps

Inland Revenue has clarified that some investors are able to deduct losses incurred from selling shares which they acquired as part of the Hanover Finance and United Finance/Allied Farmers debt-for-equity swap in December 2009.

Group Tax Counsel Graham Tubb said that Inland Revenue will consider cases whereby a taxpayer can demonstrate that their main purpose in acquiring the Allied Farmers shares was to resell them.

“This has been a slightly unusual situation and the same outcome would not apply for people who had lost money in other finance company collapses. However, we accept that in the case of people who participated in this debt-for-equity swap, that purpose or intention can best be demonstrated by the steps put in place to sell the shares as soon as they were issued,” Mr Tubb said.

“For example, this could involve a taxpayer showing us that they had sell instructions with their stockbroker at the time of the share issue or that they sold the shares within a very short time (a few days) of them being issued.

“We acknowledge that taxpayers’ circumstances are different. Not every sale of the shares at a loss will be deductible and people should consider talking to us about it. The Commissioner has the discretion to amend a taxpayer’s assessment where it is necessary to ensure the correct amount of tax is paid.”

Mr Tubb said that in order to determine the amount of any loss, the cost of the shares must first be established.

“The amount of the deduction that may be claimed is likely to be less than the amount that investors may have invested with Hanover and/or United. The loss will be calculated based on the price for which the shares were issued, which we believe was 20.69c less the amount received from the sale, and any fees or commissions incurred.

“However, our message is that people should contact us to discuss their situation.”

For taxpayers with a 31 March balance date, the deduction is available in their 2010 income year.

ENDS

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