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Edited version of private advice
Authorisation Number: 1051910397439
Date of advice: 20 October 2021
Ruling
Subject: Share Capital Return
Question 1
Will any part of the proposed capital returns by Company A Pty Ltd to its shareholders (that is debited against the amount standing to the credit of the share capital account of Company A Pty Ltd) be treated as a dividend within the meaning of subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Answer
No.
Question 2
Will the Commissioner seek to make a determination under section 45B of the ITAA 1936 that section 45C of the ITAA 1936 applies to deem any part of the capital return of $X million by Company A Pty Ltd to its shareholders (that is debited against the amount standing to the credit of the share capital account of Company A Pty Ltd) to be a dividend paid out of profits?
Answer
No.
This ruling applies for the following period:
1 July 20XX to 30 June 20XX
Relevant facts and circumstances
Company A is owned by Australian shareholders and non-resident shareholders.
Due to certain business events, Company A intends to return capital and pay a Special Dividend to its shareholders. The Return of Capital will be debited to Company A's untainted share capital account.
Relevant legislative provisions
Income Tax Assessment Act 1936 subsection 6(1)
Income Tax Assessment Act 1936 subsection 6(4)
Income Tax Assessment Act 1936 section 45B
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 section 45C
Income Tax Assessment Act 1936 subsection 45C(3)
Income Tax Assessment Act 1997 subsection 975-300
Income Tax Assessment Act 1997 subsection 975-300(3)
Reasons for decision
Question 1
The proposed Return of Capital does not meet the definition of 'dividend' as defined in subsection 6(1) of the ITAA 1936.
Question 2
As section 45B will not apply in this case, 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 proposed Return of Capital to deeming the amount of capital benefit to be an unfranked dividend.