Primary Health Care Limited (ASX: PRY) could be the beneficiary of up to $190 million in cash refunds from the Australian Taxation Office (ATO) which said that the payments Primary Health Care made for medical practices are tax deductible.
The taxation authority advised the healthcare business that payments it made during the 2010 financial year for medical and healthcare practices (which were treated by Primary Health Care as being capital in nature for taxation purposes) were in fact tax deductible which should result in a refund of $18 million.
The company said that it is now finalising applications for similar deductions for the 2010-2014 financial years which it believes could yield a $130 million refund. Should it be eligible for refunds dating back to 2003, that figure could balloon out to a massive $190 million, although the ATO would need to allow the objections to be lodged 'out-of-time'.
It is likely that $130 million in refunds will be accounted for in Primary Health Care's 2015 financial statements and be included as a credit to income tax expense, and will be separately identified so as to not obscure the company's underlying performance. Any other refunds that Primary Health Care may be eligible for will not be included in the 2015 financial statements given the high level of uncertainty surrounding these payments.
Primary Health Care, whose shares have risen 15% over the last 12 months, handily outperforming the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) in that time, said that the proceeds would be used to pay down the group's net debt, which stood at $1.133 billion as at 31 December 2014.
