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Ruling
Subject: Capital benefit - Section 45C of the ITAA 1936
Question 1
Will subsection 45C(1) of the ITAA 1936 apply in relation to the amount of the capital benefit, or the part of the benefit, such that it is taken to be an unfranked dividend that is paid by the company to the relevant taxpayer?
Answer
No
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commences on:
1 July 2011
Relevant facts and circumstances
The shareholder, as trustee for the family trust, is the sole shareholder in the company.
The beneficiary is a beneficiary of the family trust.
The proposed return of share capital to be made by the company to its sole shareholder, as trustee for the family trust, during the year ending 30 June in the recent year and the creation of a present entitlement(s) to the income of the family trust for the year ending 30 June in the recent year is the relevant 'scheme' for the purposes of paragraph 45B(2)(a) of the ITAA 1936 ("the share capital return scheme").
The Commissioner will not conclude that section 45B of the ITAA 1936 applies in respect of the share capital return scheme, therefore, no determination will be made under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies in respect of that scheme.
The beneficiary is a relevant taxpayer under the share capital return scheme for the purposes of paragraph 45B(2)(b) of the ITAA 1936.
The beneficiary is the relevant taxpayer for the purposes of subsection 45C(1) of the ITAA 1936.
Relevant legislative provisions
Income Tax Assessment Act 1936
Section 45B
Subsection 45B(1)
Subsection 45B(2)
Paragraph 45B(2)(a)
Paragraph 45B(2)(b)
Paragraph 45B(2)(c)
Subsection 45B(3)
Paragraph 45B(3)(b)
Section 45C
Subsection 45C(1)
Reasons for decision
Subsection 45C(1) of the ITAA 1936 relevantly provides that:
If the Commissioner makes a determination under subsection 45B(3), the amount of the capital benefit, or the part of the benefit, is taken, for the purposes of this Act, to be an unfranked dividend that is paid by the company to the shareholder or relevant taxpayer at the time that the shareholder or relevant taxpayer is provided with the capital benefit.
The Commissioner may make a determination under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies only if section 45B of the ITAA 1936 applies.
Subsection 45B(2) of the ITAA 1936 relevantly provides that section 45B of the ITAA 1936 applies if:
(a) there is a scheme under which a person is provided with … a capital benefit by a company; and
(b) 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; and
(c) having regard to the 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 a taxpayer (the relevant taxpayer) to obtain a tax benefit.
The facts provide that, for the purposes of paragraph 45B(2)(a) of the ITAA 1936, the relevant 'scheme' is the "share capital return scheme".
That scheme involves the proposed return of share capital to be made by the company to its sole shareholder, as trustee for the family trust, during the year ending 30 June in the recent year and the creation of a present entitlement(s) to the income of the family trust for the year ending 30 June in the recent year.
The facts also provide that the Commissioner will not conclude that section 45B of the ITAA 1936 applies in respect of the share capital return scheme and that, therefore, no determination will be made under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies in respect that scheme.
As the Commissioner will not make a determination under subsection 45B(3) of the ITAA 1936 that subsection 45C of the ITAA 1936 applies in relation to the whole, or a part, of the capital benefit to be provided under the share capital return scheme, subsection 45C(1) of the ITAA 1936 will not apply in respect of the share capital return scheme.
Therefore, no amount of the capital benefit to be provided under the share capital return scheme will be taken to be an unfranked dividend that is paid by the company to the relevant taxpayer due to the operation of subsection 45C(1) of the ITAA 1936.