Being Brent's Boss part II

Caveat Emptor:
CanWest linked to biggest NZ tax avoidance case
Inland Revenue estimates forestry investment scheme Trinity, which it is challenging in court, gave taxpayers an advantage of $3.2-3.7 billion over the life of the venture.

On the same day that CanWest announce a share float, they are named in this country's biggest alleged tax avoidance case. How's that for unlucky?

The NBR reported today that CanWest have been linked to a forestry scheme that allows expenses to be claimed in the first year, but involves trees that won't reach maturity until up to 35 years later, so the income won't be taxable till then.

Canadian Business Magazine describes CanWest's IPO offering as an effort to get back what it paid, while "setting itself up for an exit in stages" from the NZ media landscape. Same day. Spooky.

"While it's not named in the suit and has "absolutely no outstanding issues" with the IRD, says spokesman Geoffrey Elliot, the media giant has been mentioned in reports on Trinity, thanks to its supposed massive investment in a Douglas fir forest..."

However, the NBR's report claims that:

"investors included clients of professional services firm Ernst & Young as well as... CanWest, which tax sources said had taken up to a third of the units"

Now, that's consistent with an NBR report from 23 August, 2003 which specifically mentions that handy tax loop. Brent Impey points out that the diversification happened before his time - some six years or so. Though he had visited the Southland forest and thought "...this is a hell of a lot easier than managing TV and radio."

So I had a bit of a hunt around. A quick Google turns up something on the ever-vigilant CAFCA site, that confirms that the deal went down in 1997:

"...CanWest Global Communications Corporation of Canada, is starting up a unit trust, CWF, to invest in 952 hectares of forestry development near Te Anau, Southland. The sum given is "approximately $1.8 billion", but that represents the licence premium CWF will pay over the 50 year term. It "equates to approximately $119 million at current values." The trustee of CWF is CWF Holdings Ltd, incorporated in Aotearoa, but the units of the trust are owned by CanWest itself."

The named directors on the certificate of incorporation, which you can find here (do a current search on "CWF") are TV3 board member and International Operations Manager Tom Strike and Chief Financial Officer Peter Crossan.

However, while the trust is registered in New Zealand, according to the NBR, CanWest is no longer a New Zealand-registered company since a reorganisation of its corporate structure in 2002, and is not required to file financial statements with the Companies Office.

Last year, Impey suggested The National Business Review get in touch with Tom Strike for details about the forestry deal, but a Canada-based spokesman said the media company, which is listed in Toronto and New York, would not comment on the investment, which the NBR described as a "puzzling fit" with its other, more media-related assets in Canada, Ireland, Australia and New Zealand.

So, if you're thinking of getting into forestry instead of broadcasting, you may wish to examine Forest Enterprises Ltd's handy guide to getting your share of the tax losses. And don't fret - because as the company assured us a couple of years ago, the proposed tax changes will not affect your forestry investments!

Now, don't be confused - as I was initially. Forest Enterprises Ltd don't seem to be involved with the Trinity forestry investment scheme, even though they have a Trinity forest plot in Wairarapa. They just have what seems to be the most comprehensive site on forestry investment in New Zealand, so I've included them here for reference purposes.

Anyhow, it seems the good folk at the IRD aren't terribly happy - and I suspect those NBR reports may in fact come into play in the ensuing legal wrangle - because it's not just about CanWest and co. having invested money... There's another aspect to it as well. From the NBR again:

"Of the seven taxpayers already there, five were closely involved with the promotion of the scheme. Knowledge of the scheme may be a crucial issue in the court hearing." (my emphasis)

It'll be interesting to see if this particular forestry investment scheme has any connection with all those forestry investment radio ads and 'lifestyle hour' infomercials that were all over Radio Pacific and Solid Gold not so long ago.

You want to know what strikes me as a weird coincidence? I happened to stumble across this October 2003 document from the Ministry of Economic Development, which demonstrates (on page 4) how the low negotiated price for VHF television frequencies is directly tied to the accounting losses recorded by CanWest.

I wonder what impact an alleged one-third of an alleged $3.2-3.7 billion tax advantage would have on something like that...

Anyway, hearings on the tax case are due to start in July.

Like I said, don't take sharemarket advice from me - I know nothing about these business matters. But it just makes me glad all my money's tied up in bee pollen, so I won't be tempted by the IPO.

Incidentally, the light-handed NZPA touch-up of the CanWest press-release appears in identical form in the NZ Herald and at Stuff.co.nz, which will no doubt see it cut-and-pasted into the Waikato Times, The Daily News, Manawatu Standard, The Dominion Post, The Nelson Mail, The Marlborough Express, The Press, The Timaru Herald, and The Southland Times.

The Herald also reported, just three weeks ago, a 47% profit increase for CanWest, which Brent Impey put down to the company "enjoying a sustained period of growth". Still, at the time, nobody at CanWest had any idea that a share float was coming up. Impey dismissed it at the time as "just speculation". Gosh, I bet he feels a bit foolish now. If only someone had clued him in on that plan...

That same paper also reported, just yesterday, that CanWest were accusing TVNZ of spending excessive amounts on "unnecessary" news and current affairs programmes. There was much stamping of feet, thumping of fists and (I'm beginning to suspect) cries of "look at that molehill over there!".

Media commentator Paul Norris said TV3's criticism of TVNZ was an attempt to gain support for its own position. "They are certainly seeking to create something of a political storm."

Oddly, there hasn't been a single peep out of The NZ Herald about CanWest, Trinity and the biggest alleged tax avoidance case in New Zealand history. Perhaps they didn't get the press release from Brent's office...

I might see if I can track down this article too, which seems inaccessible online. Hell, I might have to go to a physical library:

CanWest enthusiastic about forestry potential
THE SOUTHLAND TIMES, 12 SEP 1997, Edition 1, Page 13.