ATO ID 2002/859: Proposed share capital reduction
Date of decision: 29 June 2001
Year of income: Year ended 30 June 2001
Business line: Public Groups and International

Issue
Will section 160ARDM of the Income Tax Assessment Act 1936 ('ITAA 1936') apply with respect to "tainting" of a share capital account?

Decision
The share capital account, as defined in section 6D, is not considered to be a "tainted" share account in terms of Division 7B of the ITAA 1936.

Facts
The company had operated with a share capital which was increased at various intervals since 1995 by way of a debt /equity transfer. Amounts have not been transferred from any other accounts.

Reasons for decision
Summary: "Dividend" does not include money paid or debited against the share capital account. However, an account that is "tainted" for purposes of Division 7B is excluded from the share capital account. A "tainted" share capital account does not apply if the amount credited to the account is a debt transferred under a debt/equity swap and does not exceed the lesser of the value of the shares issued by the debtor and the amount of the debt being extinguished under the debt/equity swap.

Legislative references: Income Tax Assessment Act 1936 section 6D section 160ARDM
Related ATO interpretative decisions: ATO ID 2002/857 | ATO ID 2002/858 | ATO ID 2002/860
Subject references: Share capital Capital reductions Tainted share capital account