Murdoch leaves mother up tax creek March 6, 2008
RUPERT MURDOCH short-changed his now 99-year-old mother, Elisabeth, to the tune of $273 million, and in his attempts to make it up to her left her with a tax bill that has grown to as much as $70 million.
Lawyers for Dame Elisabeth yesterday appeared in the Federal Court to appeal against the assessment ordering her to pay tax on an $85 million payout from the Murdoch family company, Cruden Investments, in November 1994.
Asked for an opinion on the legal and tax implications of the payout before it was paid, John Dyson Heydon, QC - now a High Court judge, but then a barrister - said "it may appear that Mr Murdoch is in a position of undue influence over his elderly mother", the court was told yesterday.
If she loses the case the Murdoch matriarch could be forced to pay the bill, which could have compounded to as much as $70 million over the past 13 years.
The hearing exposed rarely seen details of the Murdoch family finances - including Dame Elisabeth's fortune held in four trusts. The trusts controlled about 8 per cent of Cruden Investments, a company set up by her late husband, Keith Murdoch, in the 1940s to hold the family's shares in his company, News Corp.
In 1994, while buying out his sisters from the family shareholding in News Corp, Mr Murdoch realised his mother could have earned $273 milllion more from the four trusts in the 11 years from 1983 to 1994, had they been invested in higher yielding stocks.
Counsel for the Tax Office, Anthony Slater, QC, yesterday likened the situation to Mr Murdoch's failure to pay his mother "a big enough slice of the pie" because the trust had invested its funds in the company he controlled. To compensate her for breaking the trust law by investing in News Corp shares - known for paying paltry dividends - he agreed to pay her $85 million.
It was in Mr Murdoch's interests for the trusts to hold News Corp shares, because he would ultimately inherit them from his mother and they would deliver a large capital return to add to his $9 billion fortune. But in the short term it was in Dame Elisabeth's interest to hold higher yielding stocks, the court was told.
Of the $85 million paid from the trust, Dame Elisabeth gave about $56 million to her son, paid in US dollars.
The court was told that before the payment, Mr Murdoch's US lawyer, Ira Sheinfeld, telephoned his Australian counterpart, John Atanaskovic, and told him that the payment to Dame Elisabeth "would not be construed to be a gift by Rupert Murdoch under US law", meaning it would be tax-free in the US, where he lives.