BABCOCK & BROWN

In our opinion, the above basis for Holders returning assessable income from the BBSN should not
be disturbed by the application of the “accruals” basis of taxation of “qualifying securities”
prescribed by Division 16E of Part III.
1.2 Treatment of disposal, Repayment, Exchange or Resale of BBSN
In certain circumstances, BBSN may be Repaid for cash. The Issuer may also elect in certain cases
to procure the sale of the BBSN to a third party for an amount such that the net proceeds of sale
(together with other amounts payable by the Issuer) are at least equal to those that would have been
payable had Repayment occurred (Resale).
Alternatively, upon the receipt of an Exit Notice from the Holder, BBSN may be Exchanged for
the ordinary shares of Babcock & Brown (Ordinary Shares).
If, as expected, the BBSN are listed on the Australian Stock Exchange (ASX), Holders will be able
to freely sell their BBSN at the prevailing market price.
Sections 26BB and 70B should apply on the disposal of BBSN, as the BBSN should be regarded as
a “traditional security”.
The taxation consequences of these disposal alternatives are dealt with below.
(a)
Repayment or Resale
If the Issuer Repays the BBSN for cash or Resells BBSN, a gain will arise equal to the excess of the
Repayment Amount or sale proceeds (as applicable) over the cost of the BBSN to the Holder.
Section 26BB will apply to treat this gain as assessable income to the Holder.
Prima facie, a capital gain may also arise in the hands of the Holder. However, to the extent that any
capital gain has been included in assessable income under section 26BB, the capital gain will be
reduced by this amount. Where the amount included in assessable income exceeds the amount of
the capital gain, the capital gain will be reduced to zero.
The cost base or reduced cost base of BBSN respectively should include the Issue Price as well as
the incidental costs (eg broker fees) associated with the acquisition and disposal of BBSN.
Section 70B may apply to allow any loss incurred on the Repayment or Resale of BBSN as a
deduction from the assessable income of a Holder.
To the extent that a capital loss would also otherwise arise, the capital loss should be reduced by
this amount. Where the deductible amount exceeds the amount of the capital loss, the capital loss
should be reduced to zero.
(b)
Exchange for Ordinary Shares
Where BBSN are Exchanged for Ordinary Shares, any taxable gain that arises on disposal of the
BBSN will be disregarded.
The Holder should adopt a cost base in the Ordinary Shares equal to the cost base of the BBSN at
the time of Exchange.
For the purpose of applying the capital gains tax (CGT) discount provisions to any later sale of
Ordinary Shares, the acquisition date of the Ordinary Shares will be the date of Exchange.
(c)
Sale of BBSN on ASX
A Holder may make a gain or loss on the sale of BBSN on the ASX.
Similar to 1.2(a) above, section 26BB will apply to treat any gain as assessable income to the
Holder.
Section 70B may apply to allow any loss incurred on the disposal of BBSN as a deduction from the
assessable income of a Holder.
9 November 2005
Liability limited by the Accountants’ Scheme, approved under the Professional Standards Act 1994 (NSW)
Greenwoods & Freehills Pty Limited ABN 60 003 146 852
62 BABCOCK & BROWN SUBORDINATED NOTES