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  • Share capital account tainting

    The share capital account tainting rules are designed to prevent a company from transferring profits into a share capital account and then distributing these amounts to shareholders disguised as a non-assessable capital distribution.

    If a company's share capital account is tainted:

    • a franking debit arises in the company's franking account at the end of the franking period in which the transfer occurs
    • any distribution from the account is taxed as an unfranked dividend in the hands of the shareholder
    • the account is generally not taken to be a share capital account for the purposes of the Income Tax Assessment Act 1936 and Income Tax Assessment Act 1997.

    A company's share capital account remains tainted until the company chooses to untaint the account. The choice to untaint a company's share capital account can be made at any time, but once the choice is made it cannot be revoked.

    See also:

    Last modified: 01 Dec 2016QC 47316