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Edited version of your written advice
Authorisation Number: 1012872937374
Date of advice: 3 September 2015
Ruling
Subject: Share buy-back
Question 1
Will the first tranche of the proposed share buy-back by Coy D constitute a buy-back which is an 'off-market purchase' for the purposes of Division 16K of the Income Tax Assessment Act 1936 (ITAA 1936)?
Answer
Yes
Question 2
Will the Selling Shareholders be taken, for the purposes of subsection 159GZZZP(1) of the ITAA 1936, to have been paid a dividend equal to the difference between the proposed purchase price for each buy-back share (as determined under the share buy-back agreement) and the amount debited against amounts standing to the credit of Coy D's share capital account for the first tranche of the share buy-back?
Answer
Yes
Question 3
Will the Commissioner make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies to treat the buy-back value, or any part of it received by the Selling Shareholders from Coy D under the first tranche of the share buy-back, as an unfranked dividend?
Answer
No
Question 4
Will the Commissioner make a determination under subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the whole, or any part, of the dividend component of the first tranche of the share buy-back received by the Selling Shareholders, to classify the payment as an unfranked dividend?
Answer
No
Question 5
Will the Commissioner make a determination under section 204-30 of the Income Tax Assessment Act 1997 (ITAA 1997) to deny the Selling Shareholders any part of the imputation benefits received in relation to the dividend taken to be paid under the share buy-back?
Answer
No
Question 6
Will the Commissioner make a determination under paragraphs 177EA(5)(a) to debit Coy D's franking account or 5(b) to deny the Selling Shareholders imputation benefits in respect of the share buy-back?
Answer
Yes, under paragraph 177EA(5)(a) of the ITAA 1936
Question 7
Will the Commissioner accept the methodology adopted in question 2 if the second tranche buy-back were executed in the same manner as the first tranche buy-back?
Answer
Yes
This ruling applies for the following periods
1 July 2013 to 30 June 2017
The scheme commences on
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.
Coy D has undertaken an off-market share buy-back. The shareholders participating in the share buy-back are the Selling Shareholders.
Relevant legislative provisions
Income Tax Assessment Act 1936 Division 16K
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 177D
Income Tax Assessment Act 1936 section 177EA
Income Tax Assessment Act 1997 section 204-30
Income Tax Assessment Act 1997 Division 207
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
Question 1
The first tranche of the proposed share buy-back by Coy D will constitute a buy-back which is an 'off-market purchase' for the purposes of Division 16K of the ITAA 1936.
Question 2
The Selling Shareholders will be taken, for the purposes of subsection 159GZZZP(1) of the ITAA 1936, to have been paid a dividend equal to the difference between the proposed purchase price for each buy-back share (as determined under the share buy-back agreement) and the amount debited against amounts standing to the credit of Coy D's share capital account for the first tranche of the share buy-back.
Question 3
The Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies to treat the buy-back value, or any part of it received by the Selling Shareholders from Coy D under the first tranche of the share buy-back, as an unfranked dividend.
Question 4
The Commissioner will not make a determination under subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the whole, or any part, of the dividend component of the first tranche of the share buy-back received by the Selling Shareholders, to classify the payment as an unfranked dividend.
Question 5
The Commissioner will not make a determination under section 204-30 of the ITAA 1997 to deny the Selling Shareholders any part of the imputation benefits received in relation to the dividend taken to be paid under the share buy-back determination pursuant to subsection 204-30(3) of the ITAA 1997, because he will exercise his discretion under section 177EA of the ITAA 1936 to make a determination under that section.
Question 6
Taking into account the circumstances of the participants in the buy-back, the Commissioner will make a determination under paragraph 177EA(5)(a) of the ITAA 1936 to debit Coy D's franking account but will not deny the Selling Shareholders imputation benefits in respect of the share buy-back under paragraph 177EA(5)(b).
Question 7
The Commissioner will accept the methodology adopted in question 2 if the second tranche buy-back were executed in the same manner as the first tranche buy-back.