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Edited version of private advice

Authorisation Number: 1052379625488

Date of advice: 14 April 2025

Ruling

Subject: Redeemable preference shares

Question 1

Will the redeemable preference shares (RPS) be equity interests under subdivision 974-C of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Will section 725-90 of the ITAA 1997 apply to prevent any consequences under Division 725 of the ITAA 1997 for any direct value shift that happens upon the variation of rights to dividends attached to the RPS where those rights cease within four years, and no realisation event has happened to an affected interest in Company A before that cessation?

Answer

Not applicable because there is no direct value shift

Question 3

Will section 725-90 of the ITAA 1997 apply to prevent any consequences under Division 725 of the ITAA 1997 for any direct value shift that happens upon the declaration and payment of a dividend to the holder of the RPS?

Answer

Not applicable because there is no direct value shift

Question 4

Will payments of future dividends on the RPS be frankable distributions as defined in section 202-40 of the ITAA 1997?

Answer

Yes.

Question 5

Will Company B be entitled to a tax offset equal to the franking credits on the future dividends under subsection 207-20(2) of the ITAA 1997?

Answer

Yes.

Question 6

Will the dividend streaming provisions in Subdivision 204-D of the ITAA 1997 apply to the payment of future dividends on the RPS?

Answer

No.

Question 7

Will the dividend stripping rule in Subdivision 207-F of the ITAA 1997 and section 177E of the Income Tax Assessment Act 1936 (ITAA 1936) apply to the payment of future dividends on the RPS?

Answer

No.

Question 8

Will the franking credit benefit trading rules in section 177EA of the ITAA 1936 apply to the payment of future dividends on the RPS?

Answer

No.

Relevant facts and circumstances

Company A was incorporated in Australia and is a tax resident of Australia.

Company C was incorporated in Australia and is a tax resident of Australia. Company C is 100% owned by Company A.

Company C operates a business that helps large corporations manage their XXX. Company C has appropriate insurance policies in place to cover the risk associated with its business operations.

Company A also owns subsidiary companies in Country A and Country B that operate the business in those countries.

Company A has two shareholders:

• 50% shareholding by Person A

• 50% shareholding by Company D as trustee for the Trust.

Person C and Person D are beneficiaries of the Trust.

Company B is a company 100% owned by Person A. It does not have any assets or liabilities.

Person C and Person A are the founders of the Company C business and are actively engaged in the operation of the business. They are both directors of Company A and Company C.

The Proposed Transactions

1. XX redeemable preference shares (RPS) are issued by Company A for $X per share to each of Company B and Company D.

2. The RPS will carry no rights to dividends, votes, or any surplus of capital on winding up.

3. The directors of Company A will resolve to grant a discretionary dividend right to each RPS. The dividend right will cease at the earlier of a director decision to remove the right or within three years of that right being granted.

4. Fully franked dividends of funds in excess of the normal operating profits of the business will be paid to the RPS shareholders over the following three years.

Reasoning

Company A is holding retained earnings that are surplus to working capital requirements. Company A, Company C, Person A, Company B, Person B, Person C and the Trust (the applicants) have become concerned about the potential liability of the group and the two directors arising out of the business operations due to the increasingly litigious business environment.

Risks are associated with trade service work on projects performed by the company's employees and subcontractors. There is an ongoing risk of potential claims that could exceed existing insurance cover and could arise from significant property damage, business losses and loss of human life.

The directors plan to prepare the group for transfer to their children to operate. In order to facilitate this a reduction in value is required to provide the children the ability to purchase the business.

The company group owns assets that it will sell. These sales will be the source of funds for payment of the dividends declared on the RPS.

Assumptions

1.There will be no further steps in the proposed arrangement and no further rollovers or transactions that would change the actual or beneficial interests in either Company B or the Trust.

2.Company A and Company C will have a distributable surplus under section 109Y of the ITAA 1936 sufficient to fully cover any loans made by them and any such loans will be on terms that comply with the requirements of section 109N of the ITAA 1936.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 45

Income Tax Assessment Act 1936 section 45A

Income Tax Assessment Act 1936 section 45B

Income Tax Assessment Act 1936 section 45C

Income Tax Assessment Act 1936 section 47A

Income Tax Assessment Act 1936 section 109N

Income Tax Assessment Act 1936 section 109Y

Income Tax Assessment Act 1936 section 177D

Income Tax Assessment Act 1936section 177EA

Income Tax Assessment Act 1936section 177E

Income Tax Assessment Act 1997 section 104-250

Income Tax Assessment Act 1997 section 202-40

Income Tax Assessment Act 1997 section 202-45

Income Tax Assessment Act 1997 subdivision 204-D

Income Tax Assessment Act 1997 section 204-30

Income Tax Assessment Act 1997 Division 207

Income Tax Assessment Act 1997 subdivision 207-F

Income Tax Assessment Act 1997 section 207-20

Income Tax Assessment Act 1997 section 207-145

Income Tax Assessment Act 1997 section 207-155

Income Tax Assessment Act 1997 Division 725

Income Tax Assessment Act 1997 section 725-90

Income Tax Assessment Act 1997 section 725-145

Income Tax Assessment Act 1997 section 725-365

Income Tax Assessment Act 1997 subdivision 974-C

Income Tax Assessment Act 1997 subsection 974-20

Income Tax Assessment Act 1997 subsection 974-70

Income Tax Assessment Act 1997 subsection 974-75

Income Tax Assessment Act 1997 subsection 974-135

Does Part IVA apply to this private ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement.

If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidancerule for income tax'.

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997 unless otherwise specified.

Question 1

Will the redeemable preference shares (RPS) be classified as equity interests under subdivision 974-C?

Summary

Yes, the RPS will be classified as equity interest under subdivision 974-C.

Detailed reasoning

Equity Interest

Subsection 974-70(1) says a scheme gives rise to an equity interest in a company if the scheme satisfies the equity test and the interest is not characterised as a debt interest.

The equity test is met if a scheme gives rise to an interest set out in the table in subsection 974-75(1). Item 1 in the table provides interest is 'an interest in the company as a member or stockholder of the company'. This is satisfied because Company B is wholly owned by Person A who is a shareholder of the company and Company D as trustee for the Trust is a shareholder of the company, and the scheme will meet the equity test. The RPS will be classified as equity interests unless they are also classified as debt interests.

Debt Interest

Section 974-15 says a scheme gives rise to a debt interest if the scheme, or the combined effect of two or more related schemes together, would pass the debt test.

Section 974-20(1) sets out the debt test. First and foremost, there must be a scheme under subsection 974-20(1). The Proposed Transaction satisfies the definition of a scheme under section 995-1, meaning any arrangement or proposal.

The conditions that must all be met for a scheme to satisfy the debt test are listed in the table below.

Table 1: Conditions for a scheme to satisfy the debt test

Conditions in subsection 974-20(1)	Application
a) the scheme must be a financing arrangement. However, this condition is not required to be met where the interest is as a member or stockholder of a company.	N/A - the interest is covered by item 1 in section 974-75.
b) the entity or a connected entity of the entity receives or will receive a financial benefit or benefits under the scheme.	Company A will receive the subscription amount ($10) for the RPS under the scheme.
c) the entity has or the entity and a connected entity of the entity each has an "effectively non-contingent obligation" to provide a financial benefit or benefits to one or more entities after the time; when (i) the financial benefit referred to in paragraph (b) is received if there is only one or (ii) the first of the financial benefits referred to in paragraph (b) is received if there are more than one.	This requirement is not met. Company A has no effectively non-contingent obligation to either return the subscription amount to Company B or to pay it a dividend. Therefore, Company A does not have an effectively non-contingent obligation to provide a financial benefit under the scheme.
d) it is substantially more likely than not that the value of the financial benefit to be provided will be at least equal to the value received.	For the return of the subscription amount this would be satisfied if the company would be wound up in 10 years, but not if paid later than 10 years (because the present value would be less than $10). For the dividend, satisfied because the value of the expected dividend will be greater than the share subscription funds.
e) the value provided and the value received are not both nil.	Satisfied.

There is no effectively non-contingent obligation under the scheme and therefore the debt test is not satisfied.

The scheme satisfies the equity test and does not pass the debt test, so the RPS will be classified as equity interests under Subdivision 974-C.

Question 2

Will section 725-90 apply to prevent any consequences under Division 725 for any direct value shift that happens upon the variation of rights to dividends attached to the RPS where those rights cease within four years, and no realisation event has happened to an affected interest in Company A before that cessation?

Summary

Not applicable because there is no direct value shift.

Detailed reasoning

A direct value shift will arise under a scheme involving equity or loan interests in a target entity, if it meets the conditions set by section 725-145.

These conditions are:

• there is a decrease in the market value of equity interests in the target entity: paragraph 725-145(1)(a), and

• the decrease is reasonably attributable to the things done under the scheme: paragraph 725-154(1)(b), and

• under paragraph 725-145(1)(c) either:

- equity/loan interests in the target entity are issued at a discount: subsection 725-145(2), or

- there must be an increase in the market value of equity/loan interests in the target entity: subsection 725-145(3).

Since the market value is nil, we cannot conclude that they have been issued at a discount. Therefore, subsection 725-145(2) is not satisfied.

Even if the scheme did cause a direct value shift under section 725-145, the discretionary dividend rights granted to the RPS will be cancelled within three years. Therefore, to the extent of any value shift, the relevant state of affairs would be reversed within three years and section 725-90 would apply so that there were no capital gains tax (CGT) consequences under Division 725.

Question 3

Will section 725-90 apply to prevent any consequences under Division 725 for any direct value shift that happens upon the declaration and payment of a dividend to the holder of the RPS?

Summary

Not applicable because there is no direct value shift.

Detailed reasoning

Our answer to Question 2 concluded that the relevant scheme (including issuing the RPS, granting discretionary dividend rights on those shares, declaring and paying the dividend, and cancelling the discretionary dividend rights) will not cause a direct value shift. Therefore, it is unnecessary to consider whether section 725-90 would apply.

Question 4

Will payments of future dividends on the RPS be frankable distributions as defined in section 202-40?

Summary

Yes, the payments of future dividends on the RPS will be frankable distributions because they don't fall under the types of unfrankable distributions listed in section 202-45.

Detailed reasoning

Payments of future dividends on the RPS will be frankable distributions under section 202-40, because they will not be made 'unfrankable' under section 202-45.

Section 202-40 says a distribution is a frankable distribution to the extent that it is not unfrankable under section 202-45. Section 202-45 sets out the types of distributions that are unfrankable and we list and apply the types of unfrankable distributions below:

Table 2: Unfrankable distributions

Type of unfrankable distribution listed in section 202-45	Application
c) where the purchase price on the buy-back of a share by a company from one of its members is taken to be a dividend under section 159GZZZP of the ITAA 1936.	N/A - The scheme does not include a share buy-back
d) a distribution in respect of a non-equity share.	N/A - In question 1, we concluded that the RPS would be classified as equity interests under Division 974. Therefore, the payments made on the RPS cannot be distributions in respect of a 'non-equity share'.
e) a distribution that is sourced, directly or indirectly from a company's share capital account.	N/A - the distribution is sourced from Company A's retained earnings. There is nothing in the facts to suggest it has been sourced from share capital
f) an amount that is taken to be an unfrankable distribution under section 215-10 or 215-15.	N/A - the RPS are shares, so dividends won't be non-share dividends. Sections 215-10 and 215-15 will not apply.
g) an amount that is taken to be dividend for any purpose under any of the following provisions:
(i) unless subsection 109RB(6) or 109RC(2) applies in relation to the amount - Division 7A or Part III of the ITAA 1936.	N/A - The dividend will not be a deemed dividend under Division 7A of the ITAA 1936.
(iii) section 109 of the ITAA 1936.	N/A - The dividend is not remuneration for services.
(iv) section 47A of the ITAA 1936.	N/A - Company A is not a CFC.
h) An amount that is taken to be an unfranked dividend for any purpose:
(i) under section 45 of the ITAA 1936.	N/A. The scheme does not involve paying unfranked dividends.
(ii) because of a determination of the Commissioner under section 45C of the ITAA 1936.	N/A. We conclude that sections 45A and 45B of the ITAA 1936 will not apply to the scheme.
i) A demerger dividend.	N/A. The scheme does not involve a demerger.
j) A distribution that section 152-125 or 220-105 says is unfrankable. Note: section 152-125 is about payments out of disregarded capital gains (under Division 152 small business concessions) from a company or trust to its CGT concession stakeholder. Note: section 220-105 is about certain distributions by NZ franking companies (conduit tax relief or supplementary dividends)	N/A there is nothing in the facts to suggest that the dividends to Company B are made out of discount capital gains or in any event Company B is not a CGT concession stakeholder in Company A. Company A is an Australian resident for tax purposes.

The distributions paid on the RPS do not fall within any of the categories of unfrankable distributions in section 202-45 above. Therefore, the future dividends on the RPS will be frankable distributions under section 202-40.

Question 5

Will Company B be entitled to a tax offset equal to the franking credits on the future dividends under subsection 207-20(2)?

Summary

Yes, Company B will be entitled to a tax offset equal to the franking credits on future dividends paid on the RPS, under subsection 207-20(2).

Detailed reasoning

Section 207-20 says that if an entity makes a franked distribution to another entity, the receiving entity:

• includes the franking credit in its assessable income, and

• is entitled to a tax offset equal to the franking credit.

Other provisions in Division 207 modify and/or override the general rule. They are:

• subdivision 207-B applies to franked distributions received through trusts and partnerships

• subdivision 207-C says that for the gross-up and tax offset treatment to apply for an individual or company recipient, the recipient must be an Australian resident

• subdivision 207-D denies the gross-up and tax offset where the distribution would be exempt income or NANE to the recipient, unless exceptions in subdivision 207-E apply

• provisions in subdivision 207-F deny the gross-up and tax offset in specified situations.

However, none of these other provisions in Division 207 will apply to deny the imputation gross-up and offset treatment on dividends paid to Company B on the RPS. Therefore, Company B will be entitled to offsets equal to the imputation credits that attach to those dividends.

Question 6

Will the dividend streaming provisions contained in Subdivision 204-D apply to the payment of future dividends on the RPS?

Summary

No, the dividend streaming provisions in subdivision 204-D will not apply to dividends paid on the RPS under the scheme.

Detailed reasoning

Section 204-30(1) gives the Commissioner the power to make determinations where the entity 'streams' distributions, in such as a way that:

a) an imputation benefit is, or apart from this section would be, received by a member of the entity as a result of the distribution or distribution and

b) the member would derive a greater benefit from franking credits than another member of the entity and

c) the other member of the entity will receive lesser imputation benefits, or will not receive any imputation benefits, whether or not the other member receives other benefits.

Imputation benefit is defined in paragraph 204-30(6)(a) to include a tax offset under Division 207.

Subsections 204-30(8), (9) and (10) provides a non-exhaustive case of where a member derives a greater benefit from franking credits than another member:

• the other member is a foreign resident, paragraph 204-30(8)(a),

• the other member would not be entitled to a tax offset under Division 207, paragraph 204-30(8)(b)

• the amount of tax payable would be less than the offset, paragraph 204-30(8)(c)

• the other member is a corporate tax entity, but can't receive a franking credit or pass on the franking credits to its own members, paragraph 204-30(8)(d) and 204-30(8)(e)

• either member is an exempting entity, paragraphs 204-30(8)(f), 204-30(9)(a), 204-30(9)(b) and 204-30(9)(c)

• it is entitled to a tax offset, and the other member is not, subsection 204-30(10).

Paragraphs 204-30(1)(a) and 204-30(1)(c) are met when dividends are paid only on the direct asset shares. However, paragraph 204-30(1)(b) is not met because all members of Company A are Australian residents, and the facts do not suggest that Company B would derive a greater benefit from franking credits than the other members. Therefore section 204-30 will not apply.

Question 7

Will the dividend stripping rule contained in Subdivision 207-F of the ITAA 1997 and section 177E of the ITAA 1936 apply to the payment of future dividends on the RPS?

Summary

No, the dividend stripping rule contained in subdivision 207-F of the ITAA 1997 and section 177E of the ITAA 1936 will not apply to the payment of future dividends on the RPS. Whilst the scheme contains some characteristics of dividend stripping, we conclude that it was not entered into for a non-incidental purpose of tax avoidance.

Detailed reasoning

Section 207-155 defines the circumstances where a distribution is taken to be made as part of a 'dividend stripping operation'. A distribution made to a member of a corporate tax entity is taken to be made as part of a dividend stripping operation if the making of the distribution arose out of or was made in the course of a scheme that was by way of or in the nature of dividend stripping or had substantially the effect of a scheme by way of or in the nature of dividend stripping.

Section 177E of the ITAA 1936 is included within Part IVA of the ITAA 1936 and applies to dividend stripping schemes.

The ATO view on how section 177E of the ITAA 1936 applies to 'dividend access share' arrangements are explained in Taxation Determination TD 2014/1 Income tax: is the 'dividend access share' arrangement of the type described in this Taxation Determination a scheme 'by way of or in the nature of dividend stripping' within the meaning of section 177E of Part IVA of the Income Tax Assessment Act 1936?

Paragraph 17 of TD 2014/1 restates characteristics of a 'dividend stripping' scheme, taken from discussions in Federal Commissioner of Taxation v Consolidated Press Holdings [2001] HCA 32 and Lawrence v Commissioner of Taxation [2009] FCAFC 29. We consider these principles below:

Table 3: Principles of Dividend Stripping

Characteristic	Application
First, a target company with substantial undistributed profits creating a potential tax liability, either for the company or its shareholders.	This feature is present. Company A has retained earnings.
Second, the sale of allotment of shares in the target company to another party.	This feature is present. Company A will issue RPS to Company B.
Third, the payment of a dividend to the purchaser or allottee of the shares out of the target company's profits.	This feature is present. Company A will declare and pay the dividend to Company B out of retained earnings.
Fourth, the purchaser or allottee escaping Australian income tax on the dividend so declared.	This feature is present. Company B will reduce Australian income tax on the dividend declared to it because it will be entitled to franking credits equal to the corporate rate paid by Company A.
Fifth, the vendor shareholders receiving a capital sum for the shares in amount the same as or very close to the dividends paid to the purchasers (there being no capital gains tax at the relevant times).	This feature is not present.
Sixth, the scheme being carefully planned, with all parties acting in concern, for the predominant if not the sole purpose of the vendor shareholders, in particular, avoiding tax on a distribution of dividends by the target company.	Not met. We conclude that the predominant purpose of the scheme is not avoiding tax on dividends.

The applicants has submitted that the scheme is motivated by asset protection and succession planning rather than avoiding tax on a potential dividend. There is concern that Company A's retained earnings could be at risk from potential claims and also that claims could also be made against its directors.

One of the characteristics of dividend stripping that is a tax avoidance purpose is absent. We conclude that the scheme cannot be described as an arrangement by way of or in the nature of or having substantially the effect of dividend striping. Therefore, neither section 207-155 of the ITAA 1997 nor section 177E of the ITAA 1936 will apply. The scheme will not be taken to result in a tax benefit to Person A for the purposes of Part IVA and the dividend paid on the RPS to Company B will be not denied gross-up and tax offset treatment under paragraph 207-145(1)(d) on the grounds that it was made as part of a dividend stripping operation.

Question 8

Will the franking credit benefit trading rules in section 177EA of the ITAA 1936 apply to the payment of future dividends on the RPS?

Summary

No, the franking benefit trading rules in section 177EA of the ITAA 1936 will not apply to the payment of future dividends on the RPS. Whilst the scheme meets some of the conditions required for this provision to operate, it does not have the effect of streaming imputation benefits to entities who gain a greater benefit than other potential recipients.

Detailed reasoning

Section 177EA of the ITAA 1936 applies to schemes for disposing of membership interest in a company for the purpose of obtaining imputation benefits. Where this section applies, the Commissioner may make a determination to debit the company's franking account or to cancel imputation benefits flowing to the relevant taxpayers.

Section 177EA of the ITAA 1936 will apply where the conditions in subsection 177EA(3) of the ITAA 1936 are met. We describe and apply these requirements below.

Table 4: Requirements to meet Section 177EA

Requirement in subsection 177EA(3)	Application
a) there is a scheme for a disposition of membership interests or an interest in membership interests in a corporate tax entity.	Company A will issue RPS therefore met.
b) either: (i) a frankable distribution has been paid or is payable or expected to be payable in respect of the membership interests (ii) a frankable distribution has flowed indirectly, or flows indirectly or is expected to flow indirectly, to a person in respect of the interest in membership interests as the case may be.	Company A will pay frankable distributions to Company B therefore met.
c) the distribution was, or is expected to be, a franked distribution or a distribution franked with an exempting credit.	The dividend will be franked distribution therefore met.
d) except for this section, the person would receive or could reasonably be expected to receive imputation benefits as result of the distribution.	Company B will receive imputation benefits therefor this is met.
e) having regard to relevant circumstances of the scheme, it would be concluded that the person, or one of the persons who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling the relevant taxpayer to obtain an imputation benefit.	The scheme is designed in a way that Company B will receive imputation benefits so that would be a purpose of the scheme. There is no need for it to be a dominant purpose. However, we conclude that the imputation benefits are merely incidental to other objects - asset protection and succession planning. This requirement is not met.

Subsection 177EA(17) of the ITAA 1936 says the relevant circumstance of a scheme include factors outlined in paragraph (a) through (j). Paragraph 177EA(17)(j) of the ITAA 1936 incorporates the matters referred to in subsection 177D(2) of the ITAA 1936. We summarise and apply the factors listed below.

Table 5: Summary and application of factors

Factor in subsection 177EA(17)	Application
a) the extent and duration of the risks of loss and opportunities for profit or gain, from holding membership interests, including changes in those risks/opportunities for the relevant taxpayer or other parties.	Company B is not exposed to any risk of loss other than the nominated subscription amount. It will receive dividends plus franking credits. The opportunities for gain are disproportionate to the risks.
b) whether, apart from the scheme, a relevant taxpayer would derive a greater benefit from franking credits than other entities.	Company B won't derive a greater benefit than other shareholders.
c) whether, apart from the scheme, the corporate tax entity would have otherwise retained the franking credits or used them to pay franked distributions to other entities.	It's reasonable to assume that, absent the scheme, Company A would have paid dividends to Person A or retained franking credits.
d) whether, apart from the scheme a franked distribution would have flowed indirectly to a relevant taxpayer or other entities holding membership interests.	It's not clear that a similar amount to what will be paid to Company B would have been instead paid to Person A.
e) if the scheme involved issuing a non-share equity interest, whether the corporate tax entity has issued similar interest.	N/A. The scheme involves shares.
f) whether any consideration paid or given by the relevant taxpayer was calculated by reference to the imputation benefits to be received by the taxpayer.	N/A. No consideration has been paid under the scheme, other than the nominal subscription sum for the RPS paid to Company A.
g) whether a deduction is allowable or capital loss is incurred.	N/A. No parties are claiming a deduction or incurring a capital loss under the scheme.
ga) whether a distribution that is made or that flows indirectly to the relevant taxpayer is equivalent to the receipt of interest or an amount in the nature of interest.	The distribution is made out of Company A's retained earnings that represent profits taxed at the relevant company tax rate.
h) whether a distribution that is made or that flows indirectly to the relevant taxpayer is equivalent to the receipt of interest or an amount in the nature of interest.	The dividend is not equivalent to interest, or an amount in the nature of interest.
i) the period for which the relevant taxpayer held membership interests.	Company A RPS membership interest will be held indefinitely, but the dividend rights only last up to three years.
j) any of the matters referred to in this subsection 177D(2). These include: a) Manner in which the scheme was entered into or carried out; b) Form and substance of the scheme; c) Timing of the scheme; d) Results but for the scheme; e) Any change in the taxpayer's financial position; f) Any change in another person's financial position; g) Any other consequences; h) Connections between the parties.	We apply these factors in the context of section 177EA of the ITAA 1936. Manner entered into/carried out; timing. We consider that the scheme has been carried out and timed a carefully planned and arguable contrived way. Worthless RPS are issued without dividend rights, then varied to grant them temporary dividend rights to allow a once-off dividend to be paid before those rights are removed. Form and substance; result; change in financial position; connections between the parties. The form and substance, and result, of the scheme is that Company A pays a dividend with franking credits/offset to Company B, a company controlled by the existing shareholder. Company B and Person A are both Australian residents and therefore entitled to franking credits/offsets and have no tax or capital losses. There is nothing to suggest the scheme is aimed at directing imputation benefits to tax advantaged entities who can make better use of them.

On balance, we conclude that the scheme was not entered into for a non-incidental purpose of enabling Company B to obtain an imputation benefit. Therefore, section 177EA of the ITAA 1936 will not apply.

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