Class ruling applications - share buy-backs

Class rulings for share buy-backs and capital reductions

A request for a class ruling for share buy-backs/capital reductions must be made in writing and include:

• a detailed description of all facts relevant to the scheme, including details about the principals carrying out the scheme and any documents mentioned
• the title given to the scheme (if relevant)
• a clear and accurate description of the number and class of entities subject to the scheme
• clear questions about provisions to be ruled on, making sure any issues are included together with a detailed review of the provisions as well as the results of any research
• a reason why the buy-back/capital reduction is being undertaken and what commercial advantages will be gained and for how long
• the sources of capital used to fund either the capital return or the non-dividend component of the buy-back consideration
• the latest set of financial accounts no more than six months old
• the balance of the franking account and projected movements up to the time of the buy-back/capital reduction
• dividend history for the last few years
• details about shareholder profile including:
  • a breakdown between residents and non-residents
  • the proportion of pre-CGT and post-CGT shares
  • an analysis of cost bases.
   
• a guarantee the share capital account is untainted (within the meaning of section 197-50 of the Income Tax Assessment Act 1997 (ITAA 1997)) and details of any amounts that have been transferred to the share capital account from other accounts after 30 June 2002
• journal entries related to the capital reduction.

Other things to consider

• If you want to request a different methodology to what's in Taxation Determination TD 2004/22, you should provide reasons why and how any alternative index proposed is more appropriate.
• If shares disposed into the buy-back will pass the principle asset test to find out if they are an indirect Australian real property interest and are taxable Australian property within the meaning of section 855-15 of the ITAA 1997.
• If the company proposing the buy-back is unlisted, you might need a market valuation of the shares – see Market valuation for tax purposes. This value will generally be reviewed by a valuer. Note: for private ruling applications for unlisted companies a market valuation will also be required – see Market valuation for tax purposes - Part F.

What we look at with share buy-backs

Some other things we will look at include:

• we will examine the buy-back timetable in relation to applying the 45-day rule
• for off-market share buy-backs, we will need to know the maximum level of discount the company intends buying back its shares for.

The issue of a class ruling with a particular scheme depends on the requesting entity:

• acknowledging that we will reveal in the ruling  
  • the name of the entities involved as principals in the carrying out of the scheme
  • the name and description of the scheme
  • a description of the agreements, deeds and transactions to which the participants are parties.
   
• obtaining express consent to be named from all parties named in the ruling
• that the description of the scheme contained in the proposed ruling is accurate.

See also  

• Class rulings
• PS LA 2007/9 Share buy-backs
• PS LA 2008/10 Application of section 45B of the Income Tax Assessment Act 1936 to share capital reductions
• TD 2004/22 Income tax: for Off-Market Share Buy-Backs of listed shares.