“The days of the lazy balance sheet are numbered,” Vella said.

“It is imperative that corporates re-examine their capital management strategies today rather than putting it on the ‘to do’ list.”

Vella said companies with capital expenditure pressures and active shareholders face critical capital management choices, as a result of “unprecedented growth” in the Australian equity market, along with increased private equity activity, interest rate uncertainty, inflationary pressures and the growing “weight of super fund money”.

According to KPMG’s Mergers and Acquisitions department, more than $10 billion was returned to shareholders through buybacks, special dividends and capital returns in 2005-06. Listed companies also declared or paid $39 billion in dividends.

“Off-market buybacks are still a popular form of returning capital and value to some investors,” M&A national head Robert Bazzani said.

“There is a continued focus by boards in managing capital and their balance sheet structure. In recent times, a number of major corporates have engaged in off-market buybacks, which have been achieved at a discount to the market price and utilised franking credits as a means to generate value for shareholders.”

However, KPMG tax partner David Linke – a specialist in capital management – warned that off-market buybacks were coming under greater scrutiny from the Australian Tax Office and directors need to be cognisant of the potential pitfalls in such transactions.

“The Treasurer’s referral of the matter to the Board of Taxation is long overdue. Any recommendations that come from that process, to reduce complexity, provide clear and unambiguous guidelines and reduce delays in obtaining tax clearance on such transactions, would be a major improvement,” Linke said.

“The tax characterisation of structures used to fund capital management initiatives is becoming more complex. Directors need to be across the complex interaction of International Financial Reporting Standards (IFRS), the requirements of rating agencies and the critical elements for debt or equity characterisation for tax purposes.

“The ATO has been meaning to issue clarification on certain debt/equity issues for some time and the sooner this is done, the better for companies seeking to raise capital.”