ASX Announcement - National Receives Amended Tax Assessments - 26 February 2004

The National has received amended assessments from the Australian Tax Office (ATO) that seek to disallow interest deductions on the National's ExCaps securities for the tax years 1997-2000. The ATO assessments are for $157 million of primary tax and interest and penalties of $150 million (after tax) - a total of $307 million (after tax).

The ATO is also considering its position in respect of interest deductions claimed by the National on its ExCap securities for 2001-2003. The amount of primary tax relating to these interest deductions is approximately $135 million. If the ATO issues amended assessments in respect of these years it is possible that penalties and interest would also apply.

The National's Chief Financial Officer, Mr Richard McKinnon, said the National would dispute the assessments which were issued just days before the six year statutory time limit expires and lodge objections with the ATO.

"The National has, amongst other things, obtained a legal opinion from two senior Queen's Counsel," he said. "We will challenge the amended assessments and any additional assessments."

The ATO has also provided the National with a position paper in which it proposes to challenge interest deductions claimed by the National in respect of the National's TrUEPrS capital raising. The National has provided a detailed response to the ATO on this matter.  We have also, amongst other things, obtained a legal opinion from our external advisers, including senior Queen's Counsel. The ATO is considering the National's response.

The amount of primary tax which relates to interest deductions in respect of the TrUEPrS capital raising for 1999-2003 is approximately $101 million. Should the ATO issue amended assessments in respect to the TrUEPrS capital raising, it is possible that penalties and interest will apply.

Mr McKinnon said the ExCaps are similar to debt instruments issued by other financial institutions in Australia and overseas and were issued in 1997 as part of the National's capital management program. 

"The National is confident that its position in relation to the application of the taxation law is correct, and we intend to pursue all necessary avenues of objection and appeal," he said. "On this basis, no provision has been raised for the potential exposures.  However, we will continue to review future developments, and given the position currently adopted by the ATO, we will adopt a conservative approach with respect to interest deductions for future years.

"From 2004, until the dispute is resolved, we will not claim a deduction for the interest payments on the funds borrowed in connection with the ExCaps but will lodge an objection against the assessments based on our income tax return.  This will protect our rights in relation to the deductibility of future interest payments pending resolution of the dispute.  Based on an A$/US$ exchange rate of 78 cents this will reduce after tax profits by approximately $30 million per annum.

For further information:

Brandon Phillips     
Group Manager   
Group Corporate Relations    
03 8641 3857 work     
0419 369 058 mobile     

Callum Davidson
Group Manager
Investor Relations
03 8641 4964 work
0411 117 984 mobile