Taxing times as Fairfax readies Domain

Usually, companies have to spin off or distribute at least 80 per cent of a portfolio company to its shareholders in order to qualify for capital gains tax rollover relief.

Anything less than 80 per cent can trigger a capital gain (or maybe loss in Fairfax's case) for shareholders at the time of the spin-off, because the ownership is deemed to have substantially changed. It means a potential tax bill, along with a few shares in the new Domain.

It's one reason why the likes of Foster's Group, Tabcorp, Brambles and Orica Ltd have pursued full-scale demergers of business units in recent years, rather than retaining stakes in their respective spin-offs.

Of course Fairfax could always apply for an individual ruling from the Australian Tax Office to skirt the laws, although dealmakers said they were rare.

Fund managers are keen to see how Fairfax, which publishes The Australian Financial Review, treats the situation. Fairfax is expected to address its plans for Domain on Wednesday, when it hands down the company's half-year results.

But whether it goes into the sort of detail fundies are after is another matter. Fairfax's top brass can expect some questions from institutional shareholders as they present the results in coming days.

Dealmakers are also keen to see the outcome - particularly those on the outside seeking a way into the Fairfax tent in time for the proposed transaction.