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

• Share capital account tainting rules