PROMOTERS of the billion-dollar divorce and property settlement proposal for Brickworks and Washington H. Soul Pattinson seem to have missed how finicky Tax Office chief Michael D'Ascenzo is about giving investors relief from capital gains tax.

Fund manager Perpetual's push to have the two investment groups, and their coalmining associate New Hope Corporation, undo their cross-shareholdings seems to have been running longer than the Survivor television series - with none of the players managing to find immunity from the ATO.

With a few billion dollars worth of assets potentially in play, the two sides have been trading shots over the past week on the back of a break-up plan devised by Charlie Green's Brisbane-based broking house Hunter Green.

Where Green thinks the tax effect on Brickworks would be minimal if it first raises some cash by flogging some of its 42.85 per cent holding in WHSP, and then distributing the rest to Brickworks shareholders on a pro rata basis - Brickworks' advisers beg to differ.

Brickworks actually sent a letter to shareholders last week saying that work done by PricewaterhouseCoopers calculated that instead of the $46 million in tax that Green theorised would be payable, the accounting group had come up with a $277 million cost.

That figure is roughly the 30 per cent of capital gains tax payable by Brickworks on the difference (some would call it profit) between the current $13.18 market price of its WHSP shares and the $3 a share that they cost way back when.

A cautious and sensitive PwC (do not mention the costly Centro settlement) spent some time vetting the Brickworks taking of its name before allowing it to go public last week. Insider understands the whole of PwC's advice is unlikely to be made public.

Perpetual investment chief Matt Williams may, though, get a look at it as early as today because Insider hears that he is meeting with Brickworks and its advisers to see if they cannot find a way of unravelling the group cross-shareholdings to mutual benefit.

Already this week those in the Perpetual camp have been arguing that for Brickworks to distribute its WHSP shares would be like Amcom Telecommunications' pro rata distribution to its shareholders last year of its 20 per cent stake in internet provider iiNet, where it did not trigger a capital gains tax (CGT) event.

Insider understands, though, that the problem with the argument is that the ATO only grants relief from CGT when the entity distributing the shares is deemed to control them.

In this case the feeling is that WHSP's cross-holding of 44.48 per cent in Brickworks would have the ATO shaking its head and treating the handing over of the stock as a ''sale''.

If that is right, Brickworks would be up for a tax bill that far exceeds the cash it has, quite probably triggering the sale of more assets and discomforting its bankers.

Buying back one another's shareholdings would seem to create worse problems, in Insider's view, with Brickworks needing $680 million to do that and WHSP $1.3 billion. While Brickworks' cost is wiped out by virtue of the cash it would get from WHSP, assuming the deals were done simultaneously, the latter would be $680 million out of pocket. And even though WHSP's balance sheet suggests that it has $1.6 billion in cash on deposit, that is really New Hope's money that it has been saving for a rainy day - or developing its coal assets.

Robert Millner, who chairs all three companies, almost had a solution when he put New Hope on the market last year - but had to kill off the sale in February without a bid on the table.

Had someone bought out New Hope at the mooted $6 billion asking price, then 60 per cent of that money - or $3.6 billion - would have flowed to WHSP (of which Brickworks' share would have been about $1.5 billion) and everybody would have been happier, most likely including the Tax Office.

That, though, is history and the simple fact is that Perpetual is seemingly way overweight with $806 million tied up in the three companies (almost 5 per cent of its total Australian equities under management by Insider's calculation) at a time of increasingly shaky financial markets - and no easy way to quickly cash it in without depressing the share prices.

GR finally reveals hit

GR ENGINEERING Services finally revealed yesterday afternoon that it has been hit with a $25 million legal claim hanging over its head from work it did on Allied Gold Mining's Solomon Islands mine - and the result will not be known until November.

Its shares fell more than 10 per cent to 93¢ on the news, dropping the company's market worth below $140 million, compared with the $345 million peak last July.

As Insider pointed out yesterday, GR Engineering had given no previous indication of any sizeable claim against it. The claim over its work on Allied's Gold Ridge mine seems to be claiming that the GR-designed and built plant and gold recovery circuit were inefficient.

It did, though, only land on May 18 (just two days after GR Engineering issued a profit warning), but was only admitted by the arbitrator of the case yesterday - hence the announcement.

It was a counterclaim to GR Engineering's own suit against the mine over $4.5 million of unpaid work. GR Engineering tried to argue yesterday that the reason it had said nothing specific before was because the legal action was a ''confidential'' matter, and that it had made ''general references'' to claims, and that a $1.5 million doubtful debt provision in last year's results related to this.

Insider thinks the claims do not wash, and that in the context of GR Engineering's size, even the initial $4.5 million claim was a material matter. The market clearly agrees.

insider@fairfaxmedia.com.au