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ATO Interpretative Decision

ATO ID 2002/859

Income Tax

Proposed share capital reduction
FOI status: may be released

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Will section 160ARDM of the Income Tax Assessment Act 1936 ('ITAA 1936') apply with respect to "tainting" of a share capital account?

Decision

The share capital account, as defined in section 6D, is not considered to be a "tainted" share account in terms of Division 7B of the ITAA 1936.

Facts

The company had operated with a share capital which was increased at various intervals since 1995 by way of a debt /equity transfer. Amounts have not been transferred from any other accounts.

Reasons for Decision

"Dividend" does not include money paid or debited against the share capital account. However, an account that is "tainted" for purposes of Division 7B is excluded from the share capital account. A "tainted" share capital account does not apply if the amount credited to the account is a debt transferred under a debt/equity swap and does not exceed the lesser of the value of the shares issued by the debtor and the amount of the debt being extinguished under the debt/equity swap.

Date of decision:  29 June 2001

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1936
   section 6D
   section 160ARDM

Related ATO Interpretative Decisions
ATO ID 2002/857
ATO ID 2002/858
ATO ID 2002/860

Keywords
Share capital
Capital reductions
Tainted share capital account

Siebel/TDMS Reference Number:  DW238286

Business Line:  Public Groups and International

Date of publication:  23 August 2002

ISSN: 1445-2782


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