'Sanitised' tax advice sought for Rinehart trust battle

Iron ore magnate Gina Rinehart's key confidant obtained a ''sanitised version'' of financial advice to be prepared for her children to discourage them from taking their share of a $5 billion family trust, according to new evidence in the NSW Supreme Court.

Jay Newby, the chief financial officer of Hancock Prospecting, asked tax specialists PricewaterhouseCoopers to change parts of advice about whether capital gains tax would apply when the trust vested, which was due to take place on daughter Ginia's 25th birthday.

In September 2011, Mrs Rinehart wrote to her children telling them they would be bankrupted due to a massive tax liability if they allowed the trust to vest.

In the letter, she referred to PwC tax advice, which it has now emerged was a ''sanitised version''.

Tax laws state CGT applies from the date that a beneficiary's ''absolute entitlement'' to trust funds arise. But PwC documents handed over to John Hancock and Bianca Rinehart as part of the battle with their mother show the firm's international tax partner Paul Abbey made a handwritten note that he was ''not convinced that 'absolute entitlement' arises … when youngest hits 25''.

Emails show that under instruction from Mr Newby, PwC prepared an amended advice which omitted ''the discussion of [tax] treatment if shares in [Hancock Prospecting Pty Ltd] were pre-CGT''.

Ms Rinehart is battling her daughter Bianca and son John over control of the trust. The new evidence is the first glimpse of details which the two will rely on in their quest to prove their mother deliberately deceived them in her role as trustee. An email sent on August 16 showed PwC partner Paul Cooper telling colleagues that Mr Newby had asked the firm to give an opinion that the HPPL shares were post-CGT.

''I said that while we felt strongly that the shares were post, the work had never been completed and so any opinion would be heavily qualified,'' Mr Cooper wrote in the email.

After being provided with both versions of the tax advice from PwC, on September 2, four days before the trust was due to vest, Mr Newby specifically requested that Mr Cooper sign and send to him the ''sanitised version'' rather than the broader version which included the commentary on the ''pre-CGT'' treatment of the shares.

On September 3, Mrs Rinehart wrote a letter to her children, seeking additional control over the trust and warning that massive tax liabilities would arise if the trust vested on Ginia's birthday.

John Hancock questioned whether any CGT was payable on vesting, but was urged by Mr Newby to ''consider that Mrs Rinehart is advised by PwC, one of the big four firms, and within PwC by the most respected and best tax adviser in Perth. We don't take any chances with tax - the stakes are simply too high. You cannot take positions in tax based on incomplete information - the advice considers all relevant matters.''

The family's dispute will be heard in Sydney in early October.

This story 'Sanitised' tax advice sought for Rinehart trust battle first appeared on The Sydney Morning Herald.