Shares of Spark Infrastructure Group [ASX:SKI] gained more than 3% Thursday, closing at the highest level since March 2007 after the company received a favourable ruling on an outstanding tax decision.
A subsidiary of Spark Infrastructure, Victoria Power Networks (VPN), was in dispute with the Australian Taxation Office over the interpretation of Division 974 of the Income Tax Assessment Act 1997.
The ATO’s interpretation of the Act had denied VPN the right to claim interest charges on a number of loans. The decision means that VPN can claim the interest charges for the year in question and all other years too. This should result in a beneficial change to the company’s financial position. Spark Infrastructure hasn’t disclosed the full financial significance of this ruling.
You’ll need a doctorate in financial engineering to understand the full extent of the spat between Victoria Power Networks and the ATO. But the gist of the story was that the initial tax ruling meant that VPN owed the ATO an extra $296 million. Due to the ATO backdown, the final number should be much less than this. Although there are still open disputes between the ATO and VPN.
All this tells you that infrastructure stocks like Spark are complicated beasts. They need to borrow a lot of money in order to build and maintain infrastructure. This invariably means creating complex business structures in order to reap the benefit of tax offsets.
The dividend yield on stocks like this can be attractive. Spark currently trades with a dividend yield of 6.2%. But due to the complex nature and the close relationship these businesses need with state governments and regulators, they really can become more trouble for the average investor than they’re worth.
Cheers,
Kris+