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Edited version of private advice
Authorisation Number: 1051675370832
Date of advice: 26 May 2020
Ruling
Subject: Payments for shares - special dividend - dividend - return of capital
Question
Will the special dividend paid to you in by anoverseas company as part of an amalgamation be subject to Australian tax?
Answer
Yes. The dividend component is included in your assessable income (section 44 of the Income Tax Assessment Act 1936). You are entitled to a foreign income tax offset for the withholding tax that was deducted (section 770-10 of the Income Tax Assessment Act 1997 (ITAA 1997)).
The return of capital component is not included in your assessable income as a dividend; rather, it is taken into account in working out any capital gain you made from CGT event G1. GGT event G1 happened when you were paid the special dividend (section 104-135 of the ITAA 1997). You will make a capital gain if this component is more than the cost base of the shares. As you owned the shares for more than 12 monthsyou can apply the general 50% to any capital gain. The net capital gain is included in your assessable income.
If you make a capital gain, the share's cost base and reduced cost base are reduced to nil. You cannot make a capital loss. If the return on capital component is equal to or less than the cost base of your shares at the time of payment, the cost base and reduced cost base of the shares will be reduced (but not below nil) by the amount of this component.
This ruling applies for the following period
Year ended 30 June 2019
The scheme commenced on
1 July 2018
Relevant facts and circumstances
Two overseas companies merged.
You have owned shares in one of those companies for more than 12 months.
The company paid you a special dividend which consisted of two components:
· a dividend component (withholding tax was deducted), and
· a return of capital.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 44
Income Tax Assessment Act 1997 section 104-135
Income Tax Assessment Act 1997 section 770-10