Toll Holdings' New Zealand unit has settled its dispute with New Zealand's Inland Revenue Department over its use of convertible notes to fund trans-Tasman transactions a decade ago, its financial statements show.
The Australian logistics group's New Zealand holding company, Toll Group (NZ), reached a settlement with the tax department over interest expenses relating to its optional convertible notes between 2003 and 2012.
And it expects the $NZ22.9 million provision it took in 2013 should cover the cost of the deal, according to statements lodged with the NZ's Companies Office.
The convertible notes were used to fund investments in New Zealand between 2002 and 2005, when such securities were in vogue by allowing firms to juggle debt and equity in their New Zealand divisions, providing a tax advantage for their Australian parents and eroding the New Zealand revenue base.
At issue was whether such structures were simply designed to minimise tax.
The New Zealand courts decided they constituted tax avoidance, leading to a string of settlements with the IRD after a test case involving Australian firm, Alesco, settled on the eve of appeal hearings in February 2014.
Following its settlement, Toll wrote down the value of its investment in subsidiary Toll Finance (NZ) by $NZ15.4m to $NZ1.5m, the net asset value.
The $NZ242.8m of notes were converted to shares in 2012, and the Toll unit had just $NZ947,000 in finance expenses in 2014 and none in 2013, compared to finance costs of $NZ25.5m in 2012 when the notes were still accruing interest.
Toll's New Zealand unit turned to profit in the 2014 year, with net earnings of $NZ3.2m in the 12 months ended June 30, compared to a loss of $NZ60.8m when it wrote down the value of goodwill by $NZ42.6m. Revenue slipped to $NZ375m from $NZ379.5m in 2013.
The Australian company bought what is now the state-owned KiwiRail from American investors who had acquired the national rail service in a privatisation deal in the mid-1990s.
Toll resold the rail part of the business back to the government in 2008, while retaining the TranzLink trucking and freight logistics operations. It remains the biggest customer of KiwiRail.
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