Regis Healthcare Ltd wins tax ruling: What you need to know

Regis Healthcare Ltd (ASX:REG) expects a nearly $20 million boost to its net profit after tax result.

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The Supreme Court of Victoria has upheld an appeal made by a subsidiary of Regis Healthcare Ltd (ASX: REG) against the State Revenue Office Victoria (SRO) in relation to a merger transaction from July 2007 — a result which could provide a healthy boost to full-year earnings results.

So What: In 2011, Regis Healthcare, which is one of Australia's largest aged-care operators, instigated legal proceedings challenging a notice of assessment issued by the SRO in relation to an acquisition made by Regis. As noted in Regis' prospectus last year, the total payable by Regis was $15.3 million (comprising $13.3 million in stamp duty as well as tax and interest).

Although Regis challenged the order, it paid more than $14 million to avoid accruing additional interest and penalty tax, thus leaving $1.1 million unpaid.

Now What: In today's announcement however, Regis said that the court had ruled in its favour, deciding that the previously outstanding duty is not payable and that the SRO must refund the total amount paid by Regis, in addition to interest and legal costs. These alone are expected to exceed $3 million.

Although further details will be provided when Regis announces its full-year results on 28 August, it believes that the effect of the court's decision will be an increase of $19.49 million in earnings before interest, tax, depreciation and amortisation (EBITDA), and a $19.46 million increase in net profit after tax (NPAT) for the 2015 financial year.

Regis' shares rose 1.8% early in the session compared to a 1% lift for rivals Japara Healthcare Ltd (ASX: JHC) and Estia Health Ltd (ASX: EHE).

Motley Fool contributor Ryan Newman has no position in any stocks mentioned.  The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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