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Edited version of your private ruling
Authorisation Number: 1012542124361
Ruling
Subject: Return of capital
Question 1
Will any part of the distribution made by the entity to shareholders (where the distribution is debited against the share capital account of the entity) be treated as a dividend within the meaning of subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936 )?
Answer
No
Question 2
Will the Commissioner seek to make a determination under section 45B of ITAA 1936 that section 45C of the 1936 Act applies to deem any part of the distribution made by the entity to shareholders (which is debited against the share capital account of the entity) to be a dividend paid out of profits?
Answer
No
This ruling applies for the following periods:
1 July 2013 to 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
(a) Private Binding Ruling application with attachments.
(b) Amendment to Private Binding Ruling application
(c) Response to the information request received by the office
(d) Loan Note Deed Poll
(e) Terms of the convertible redeemable preference shares
(f) Response to the second further information request received
(g) Board Minutes received with the response to the second information request
The entity is part of a consolidated group. It issued ordinary shares, preference shares, and raised debt in order to purchase a business. It now proposes to return some part of its capital to its shareholders.
Relevant legislative provisions
Income Tax Assessment Act 1936, subsection 6(1)
Income Tax Assessment Act 1936, paragraph 6(1)(d)
Income Tax Assessment Act 1936, section 45B
Income Tax Assessment Act 1936, section 45C
Income Tax Assessment Act 1936, paragraphs 177D(2)(a) to (h).
Income Tax Assessment Act 1997, section 197-50
Income Tax Assessment Act 1997, section 975-300
Income Tax Assessment Act 1997, subsection 975-300(3)
Reasons for decision
Section 45B of the ITAA 1936 applies where certain capital payments, including a return of capital, are paid to shareholders in substitution for dividends. It allows the Commissioner to make a determination that section 45C of the ITAA 1936 applies to a capital benefit. Specifically, the provision applies where:
· there is a scheme under which a person is provided with a capital benefit by a company (paragraph 45B(2)(a) of the ITAA 1936);
· under the scheme a taxpayer (the relevant taxpayer), who may or may not be the person provided with the capital benefit, obtains a tax benefit (paragraph 45B(2)(b) of the ITAA 1936); and
· having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, entered into the scheme or carried out the scheme or any part of the scheme for a purpose, other than an incidental purpose, of enabling the relevant taxpayer to obtain a tax benefit (paragraph 45B(2)(c) of the ITAA 1936).
· 2. Where the requirements of subsection 45B(2) of the ITAA 1936 are met, subsection 45B(3) of the ITAA 1936 empowers the Commissioner to make a determination that section 45C of the ITAA 1936 applies in relation to a capital benefit.
Based on the information provided and having regard to the relevant circumstances and criteria in section 45B(8) of the ITAA 1936, the Commissioner will not make a determination under subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies in relation to the whole, or a part, of the proposed return of capital amount.
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