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Edited version of private advice
Authorisation Number: 1051839935848
Date of advice: 18 May 2021
Ruling
Subject: Share capital reduction
Question 1
Will the Commissioner make a determination under paragraph 45B(3)(b) of the Income Tax Assessment Act 1936 (ITAA 1936), in relation to the consideration associated withthe Share Capital Reduction (SCR) undertaken by the Target Company?
Answer
No.
Question 2
In the event that the Commissioner makes a determination under section 45B of the ITAA 1936 according to question 1 above, will the Commissioner make a determination under subparagraph 45C(3)(b)(ii) of the ITAA 1936 that would require the Target Company to record a franking debit in its franking account in relation to all (or any portion of) the SCR consideration for the cancellation of membership interests in the Target Company?
Answer
Not applicable.
Relevant facts and circumstances
A listed company (Purchaser Company) purchased a number of shares from a group of shareholders (Vendor Shareholders) who held a majority of shares in a private company (Target Company). As part of the transaction, the Purchaser Company could never hold more than X% (or more) in the Target Company. The Purchaser Company purchased less than X% of Target Company's shares from the Vendor Shareholders, and then in accordance with the Corporations Act 2001 (Cth), Target Company cancelled an inconsequential percentage of the Purchaser Company's shareholding in it (the Target Company) off-market.
The Purchaser Company then acquired the balance of the Vendor Shareholders shares which they held in the Target Company.
As a result of the transaction the Purchaser Company now holds less than a X% interest in the Target Company.
The Target Company debited the entire consideration proceeds paid to the Purchaser Company from its share capital account.
Relevant legislative provisions
Income Tax Assessment Act 1936 Subsection 44(1)
Income Tax Assessment Act 1936 Section 45B
Income Tax Assessment Act 1936 Subsection 45B(2)
Income Tax Assessment Act 1936 Paragraph 45B(2)(a)
Income Tax Assessment Act 1936 Paragraph 45B(2)(b)
Income Tax Assessment Act 1936 Paragraph 45B(2)(c)
Income Tax Assessment Act 1936 Paragraph 45B(3)(b)
Income Tax Assessment Act 1936 Subsection 45B(5)
Income Tax Assessment Act 1936 Subsection 45B(8)
Income Tax Assessment Act 1936 Paragraph 45B(8)(a)
Income Tax Assessment Act 1936 Paragraph 45B(8)(c)
Income Tax Assessment Act 1936 Paragraph 45B(8)(d)
Income Tax Assessment Act 1936 Paragraph 45B(8)(e)
Income Tax Assessment Act 1936 Paragraph 45B(8)(f)
Income Tax Assessment Act 1936 Paragraph 45B(8)(h)
Income Tax Assessment Act 1936 Paragraph 45B(8)(i)
Income Tax Assessment Act 1936 Subsection 45B(9)
Income Tax Assessment Act 1936 Section 45C
Income Tax Assessment Act 1936 Section 177D
Income Tax Assessment Act 1936 Subsection 177D(2)
Income Tax Assessment Act 1997 Division 855
Income Tax Assessment Act 1997 Subsection 995-1(1)
Reasons for decision
Question 1
The Commissioner will not make a determination under paragraph 45B(3)(b) of the Income Tax Assessment Act 1936 (ITAA 1936), in relation to the consideration associated withthe Share Capital Reduction (SCR) undertaken by the Target Company.
Question 2
As the Commissioner answered no to question 1 he did not have to consider making a determination under subparagraph 45C(3)(b)(ii) of the ITAA 1936 that would require the Target Company to record a franking debit in its franking account in relation to all (or any portion of) the SCR consideration for the cancellation of membership interests in the Target Company.