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Edited version of your written advice
Authorisation Number: 1012802888542
Ruling
Subject: Deemed dividends
Question and answer
Will the commissioner deem a distribution from a share capital account as an unfranked dividend?
No.
This ruling applies for the following periods:
Year ending 30 June 2015
The scheme commenced on:
1 July 2014
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
Company A is a private Australian company.
Company A has one share holder who is an Australian resident for taxation purposes.
Company A intends to make a distribution of excess capital to the shareholder.
The distribution will be made from the share capital account.
Company A has not transferred any amount to its share capital account that could constitute the tainting of the share capital account.
Relevant legislative provisions
Income tax Assessment Act 1936 subsection 6(1).
Income tax Assessment Act 1936 subsection 6(4).
Reasons for decision
The definition of a 'dividend' contained in subsection 6(1) of the ITAA 1936 includes any distribution made by a company to any of its shareholders but excludes moneys debited against an amount standing to the credit of the share capital account.
By virtue of paragraph (d) of the definition of a dividend contained in subsection 6(1) of the ITAA 1936, moneys debited against an amount standing to the credit of the share capital account are not defined as dividends except to the extent that subsection 6(4) of the ITAA excludes those monies from this definition.
The paragraph (d) exclusion does not apply as the arrangement is not one that triggers the operation of subsection 6(4) of the ITAA 1936, that is, the capital reduction is not part of an arrangement where:
• a person pays or credits any money or gives property to the company and the company credits its share capital account with the amount of the money or the value of the property; and
• the company pays or credits any money, or distributes property to another person, and debits its share capital account with the amount of the money or the value of the property so paid, credited or distributed.
As subsection 6(4) of the ITAA 1936 does not apply to negate the effect of paragraph (d) of the definition of 'dividend' in subsection 6(1) of the ITAA 1936, the moneys paid by Company A to its shareholder as a capital return do not constitute a dividend under subsection 6(1) of the ITAA 1936.
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