The Australian tax office appears to have dealt a fatal blow to a proposal to disentangle the decades old cross-ownership of Brickworks and Washington H Soul Pattinson.
Venture capitalist Mark Carnegie and fund manager Perpetual had proposed ending the ownership structure through an arrangement that would see Soul Pattinson's lucrative stake in telco TPG distributed directly to shareholders, including Brickworks.
Soul Pattinson, a listed investment company, owns a 27 per cent stake in TPG. That would be worth more than $1.1 billion at its current market value.
But Soul Pattinson and Brickworks on Monday announced they had received an ATO ruling that indicated the disposal of the shares would incur a capital tax bill of around $311 million and would significantly boost the amount of income tax Brickworks has to pay.
In addition, the shares would have been treated as an unfranked dividend to individual shareholders, meaning they would have to pay tax on the gain.
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Following the ruling, Mr Carnegie and Perpetual have withdrawn their request for a shareholder meeting to vote on the demerger proposal.
Washington H Soul Pattinson chairman Robert Millner said the company's decision to seek a ruling from the tax office had spared shareholders an unexpected tax bill.
"Had we not engaged early with the ATO, shareholders may have voted on a transaction without fully understanding the potential consequences of the proposal," he said in a statement on Monday.
"Significant time and money has been spent analysing this proposal which is incapable of implementation as envisaged by Carnegie and Perpetual."
Under a structure put in place in the late 1960s, Brickworks owns 42.7 per cent of Soul Pattinson, while Soul Pattinson owns 44.3 per cent of Brickworks.
The arrangement allows the Millner family, the descendants of the original founders of Soul Pattinson, effective control of both companies, despite owning only 15 per cent of Soul Pattinson.
