Private ruling: Share buy-back
Date of advice: 26 June 2025
Published: 22 September 2025
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: XX 20XX

Ruling: Q1: Will section 159GZZZN of the Income Tax Assessment Act 1936 (ITAA 1936) apply to the proposed share buy-back of Public Preference Shares issued to Eligible Investors under the Prospectus such that no capital gain or loss, nor any assessable income or deduction will arise for Company A? | A1: Yes. | Q2: In relation to the proposed share buy-back of Public Preference Shares, will the Commissioner confirm that it is appropriate for Company A to determine the 'split' between the return of capital and any dividend component in respect of the buy-back purchase price on an average capital per share basis for the purposes of subsection 159GZZZP(1) of the ITAA 1936? | A2: Not applicable - no part of the purchase price in respect of the proposed share buy-back of Public Preference Shares will be taken to be a dividend paid by Company A for the purposes of subsection 159GZZZP(1) of the ITAA 1936. | Q3: Will the Commissioner confirm that there will be no tainting of Company A's share capital account as defined in Division 197 of the Income Tax Assessment Act 1997 ( ITAA 1997 ) as a result of the proposed share buy-back of Public Preference Shares? | A3: Yes.

Relevant facts and circumstances: Company A Company A is an unlisted public company incorporated in Australia. Company A is a resident of Australia under subsection 6(1) of the ITAA 1936. Company A and its subsidiaries are not part of an Australian income tax consolidated group. Company A raises capital to fund the businesses operated through its subsidiaries. As at 30 June 20YY, all of Company A's ordinary shares each issued at $X were owned by one shareholder. Company A recorded its ordinary shares in its 'Contributed equity' account for accounting purposes. In addition to ordinary shares, Company A had XXX redeemable preference shares on issue at face value of $X each as at XX 20XX. Although the redeemable preference shares are legal form shares, Company A recorded them in its 'Borrowing - Redeemable Preference Shares' account, a liability account for accounting purposes. As at XX 20XX, the redeemable preference shares were owned by XX holders, of which: • XX% have Australian addresses and it is assumed that all are Australian residents for income tax purposes, and • the remaining XX% have overseas addresses and are assumed to be foreign residents for income tax purposes. Public Preference Shares On XX, Company A offered to issue two new classes of Preference Shares, being Public Preference Shares and Employee Preference Shares, at $X.00 each under a prospectus dated XX ( the Prospectus ). The offer closed on XX 20XX. Under the Prospectus, the offers comprised of the issue of: a) Public Preference Shares via a Public Offer (made to Eligible Investors) and a Public Rollover Offer (made to Initial Preference Shareholders who are re-investing their Maturing Money in new Public Preference Shares); and b) Employee Preference Shares (collectively known as New Preference Shares ). For the purposes of this ruling, references to Public Preference Shares hereinafter are limited to redeemable preference shares issued under the Public Offer to Eligible Investors in the share capital of Company A under the Prospectus. For completeness, the scope of this ruling does not include consideration of Public Preference Shares issued to Eligible Employees prior to the date of the Prospectus (i.e. XX 20XX), or Employee Preference Shares issued to Eligible Employees on and after XX 20XX. An application for the issue of New Preference Shares was to be made by completing an application form attached to the Prospectus. The purposes of the offers were to: • fund Company A's subsidiaries' businesses, • provide working capital, • fund the redemption of New Preference Shares and maturing Initial Preference Shares; • provide a liquidity buffer; and • fund costs associated with the Prospectus. The majority of the Public Preference Shares on issue are owned by third party investors. Related parties may choose to invest in Public Preference Shares but such participation would be on the same terms as unrelated third parties. X X records the Public Preference Shares in 'unsecured borrowings - Public Preference Shares', which is a sub-category of the redeemable preference shares. The same treatment applies to the Initial Preference Shares. Terms of the Public Preference Shares The key terms of the Public Preference Shares are set out in the Prospectus: a) Interest - The interest rate applicable to the Public Preference Shares depend on the Principal Investment Amount and the term (with a maximum term of 60 months). The rate is fixed from the Issue Date till the Maturity Date. The interest rates may vary throughout the term of the Prospectus. b) Interest payment - Interest is calculated on the Principal Investment Amount daily from the Issue Date until the Maturity Date and is payable monthly on each payment period in arrears. c) Dividends: Public Preference Shareholders receive interest but do not participate in dividends. d) Preferential payment - Dividends may not be paid to ordinary shareholders in Company A unless all money owing has been paid to Preference Shareholders. e) Maturity - Maturity Date is defined to be the earlier of (i) the Recorded Maturity Date, (ii) the date on which an order is made or an effective resolution is passed for the winding up of Company A in accordance with the Corporations Act 2001 ( Corporations Act ) or (iii) the date Company A determines to redeem early. f) Early redemption by preference shareholders: Company A will consider early redemption at the request of a Preference Shareholder under certain circumstances and may, in its absolute discretion, redeem the shares prior to the Recorded Maturity Date. If Company A permits early redemption, and the Preference Shareholder is not reinvesting, the Preference Shareholder must pay a fee equal to 2% of the Principal Investment Amount. g) Early redemption by Company A: Company A may, in its absolute discretion, unilaterally redeem any Preference Shares prior to the Recorded Maturity Date by providing notice and paying to the Principal Investment Amount and interest accrued up until redemption. h) Priority of payment and wind up rights : In the ordinary course of business, Initial Preference Shares and Public Preference Shares rank equally and will be repaid in priority to Employee Preference Shares. If Company A is wound up, Initial Preference Shareholders and Public Preference Shareholders will be paid before Employee Preference Shareholders, however in any event, Initial Preference Shareholders, Public Preference Shareholders and Employee Preference Shareholders will be paid after creditors, but before Ordinary Shareholders. i) Voting rights: Preference Shareholders are entitled to vote in the following circumstances: • on a proposal to affect the rights attached to the Initial Preference Share, Public Preference Share or Employee Preference Share (as applicable), to wind up Company A or for the disposal of the whole of the property, business and undertaking of CompanyA, • during a period in which a dividend or part of a dividend on the Public Preference Share or Employee Preference Share (as applicable) is in arrears, • during the winding up of CompanyA, or • in any other circumstances in which the ASX Listing Rules require holders of Public Preference Shares or Employee Preference Shares to be entitled to vote. Unlike the Initial Preference Shareholders, New Preference Shareholders (including Public Preference Shareholders) are not entitled to vote on a resolution to approve the terms of a buy-back agreement. The Public Preference Shares are not convertible into ordinary shares in Company A. Pursuant to section 254K of the Corporations Act , Company A may only redeem the Preference Shares if the shares are fully paid-up, and redeemed out of profits or the proceeds of a new issue of shares in Company A made for the purpose of redemption. Company A may also buy-back and cancel the Preference Shares under a capital reduction which complies with the requirements of the Corporations Act and Company A's Constitution. The Public Preference Shares are 'debt interests' for the purposes of Division 974 of the ITAA 1997 and constitute 'non-equity shares' as defined under subsection 995-1(1) of the ITAA 1997. Proposed selective buy-back and cancellation of Public Preference Shares issued under Public Offer Company A proposes to undertake selective buy-backs (as opposed to redemption) and cancel part or all of the New Preference Shares on issue (including Public Preference Shares) before they are due to be redeemed. The buy-back of the Public Preference Shares can occur at any time, but it is generally expected to be in accordance with the maturity date applicable in relation to each tranche of Public Preference Shares that are issued at different times. To facilitate the proposed buy-back, Company A will enter into a buy-back agreement with each Public Preference Shareholder to buy back and cancel the Public Preference Shares held. By signing the application form for the issue of Public Preference Shares, the Public Preference Shareholders provided an express power of attorney to have unconditionally and irrevocably appointed each director of Company A to execute a Buy-Back Agreement on their behalf. Under the draft Share Buy-Back Deed, Company A agrees to buy back the Public Preference Shares for the Purchase Price, which equals to: • the Principal Investment Amount (being the Offer Price of $X each), plus • any interest accrued up until Completion Date. Notwithstanding, the proposed buy-back of the Public Preference Shares will take place only on the last day of the month after the payment of the monthly accrued interest. As the proposed buy-back is to occur on the last day of the month after the payment of accrued interest is settled, the Purchase Price shall only consist of the Principal Investment Amount. It is assumed there is no accrued interest outstanding at the time of the Buy-Back. Further, under section 257A of the Corporations Act , a company may buy back its own shares if: a) the buy-back does not materially prejudice the company's ability to pay its creditors, and b) the company follows the procedures laid down in Division 2 of Part 2J.1 of the Corporations Act. Under section 257H of the Corporations Act , all the Public Preference Shares bought back by Company A will be cancelled immediately after the registration of the transfer to Company A of the shares bought back. Company A intends to fund the proposed buy-back by way of existing cash reserves or by loan. At the time of the proposed buy-back, the market value of the Public Preference Shares is assumed to equal its issue price of $X. Accounting treatment of the proposed buy-back Company A, will debit the Principal Investment Amount of $X per Public Preference Share against the 'Borrowing - Redeemable Preference Shares' account, which is treated as part of Company A's share capital account for income tax purposes. The accounting treatment of the proposed buy-back of the Public Preference Shares is as follows: Principal component DR - Preference Shares (Borrowings) CR - Cash Other Company A had no carried forward tax losses or capital losses as at 30 June 20YY. Company A is subject to the Taxation of Financial Arrangements rules in Division 230 of the ITAA 1997 but has not made any elections under that regime. Company A's share capital account comprises of 'Contributed equity' account (in relation to its ordinary shares), and 'Borrowing - Redeemable Preference Shares' account, which is a liability account and it includes, inter alia, the Public Preference Shares. Since incorporation, Company A only recorded amounts of share capital subscribed on the issue of ordinary and public preference shares as credits to their respective sub-accounts i.e. 'Contributed equity' account and 'Public Preference Share' account. There have been no previous transfers of amounts other than subscribed share capital to Company A's share capital account. Assumptions The purchase price in respect of the proposed buy back of Public Preference Shares equals the issue price of the Public Preference Shares and there is no accrued interest outstanding at the time of the buy-back. At the time of the proposed buy-back of Public Preference Shares, the market value of the Public Preference Shares equals its issue price of $X each.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 159GZZZK | Income Tax Assessment Act 1936 section 159GZZZN | Income Tax Assessment Act 1936 section 159GZZZP | Income Tax Assessment Act 1936 subsection 159GZZZQ(2) | Income Tax Assessment Act 1997 section 197-5 | Income Tax Assessment Act 1997 section 197-45 | Income Tax Assessment Act 1997 section 197-50 | Income Tax Assessment Act 1997 section 197-10 | Income Tax Assessment Act 1997 subsection 975-300(1) | Income Tax Assessment Act 1997 subsection 975-300(2)

Reasons for decision: Summary: Section 159GZZZN will apply to disregard proposed buy-backs of the Public Preference Shares and any subsequent cancellation of the Public Preference Shares issued under the Public Offer, such that no capital gain or loss, nor any assessable income or deduction will arise for Company A. | Detailed Reasoning - Detailed reasoning: Division 16K sets out the income tax consequences of share buy-backs. Under section 159GZZZN, if a company buys-back a share, then the buy-back, and any subsequent cancellation of the share, are disregarded in: (a) determining for the purposes of the ITAA 1936 or the ITAA 1997: (i) whether an amount is included in the assessable income of the company under a provision of the ITAA 1936 or the ITAA 1997 (other than a provision of Part 3-1 or 3-3 of the ITAA 1997 (about CGT)); or (ii) whether an amount is allowable as a deduction to the company; (b) determining whether the company makes a capital gain or capital loss. For the purposes of Division 16K, where a company buys a share in itself from a shareholder in the company, the purchase is a 'buy-back' (paragraph 159GZZZK(a)). Division 16K categorises a buy-back as either an 'on-market purchase' or an 'off-market purchase'. As the Public Preference Shares are not listed on any stock exchange, the proposed buy-back will be an 'off-market purchase' (paragraph 159GZZZK(d)). Company A will buy back part or all of the Public Preference Shares issued under the Public Offer within the meaning of paragraph 159GZZZK(a). Accordingly, section 159GZZZN will apply to disregard the proposed buy-back of Public Preference Shares and any subsequent cancellation of the shares for the purposes listed in section 159GZZZN, such that no capital gain or loss, nor any assessable income or deduction will arise for Company A. | Summary: Not applicable - Based on the facts and circumstances of this case, no part of the purchase price in respect of the proposed share buy-back of the Public Preference Shares will be taken to be a dividend under subsection 159GZZZP(1) because Company A will debit the entirety of the purchase price against its share capital account. Consequently, it is not necessary to consider whether it is appropriate for Company A to determine the 'split' between the return of capital and any dividend component in respect of the buy-back purchase price on an average capital per share basis. | Detailed Reasoning - Detailed reasoning: Subsection 159GZZZP(1) provides that where the buy-back of a share is an off-market purchase, the difference between the purchase price and the part (if any) of the purchase price which is debited against the share capital account, is taken to be a dividend paid by the company to the seller on the day the buy-back occurs. Company A will buy-back the Public Preference Shares at the face value of the shares i.e. $X per Public Preference Share. Therefore, the purchase price for the purposes of section 159GZZZP will be the price paid at face value of the Public Preference Shares. Further, subsection 159GZZZQ(2) does not apply in this case on the basis the purchase price represents an amount that would have been the market value of the shares at the time of the buy-back if the buy-back did not occur and was never proposed to occur. As the entire 'purchase price' of a Public Preference Share will be debited against amounts standing to the credit of the 'Borrowings - Redeemable Preference Shares' liability account (being part of the share capital account of Company A as defined in section 975-300 of the ITAA 1997 and discussed below), subsection 159GZZZP(1) results in no part of the purchase price being treated as a dividend. Therefore, it is not necessary to determine the capital/dividend split using the average capital per share methodology as per Law Administration Practice Statement PS LA 2007/9 Share buy-backs. | Summary: There will be no tainting of Company A's share capital account as defined in Division 197 of the ITAA 1997 as a result of the proposed buy-back of Public Preference Shares. | Detailed Reasoning - Detailed reasoning: The share capital tainting rules contained in Division 197 of the ITAA 1997 will apply to an amount (the transferred amount ) that is transferred to a company's share capital account from another of the company's accounts, if the company was an Australian resident immediately before the time of the transfer (section 197-5 of the ITAA 1997). If the transferred amount is transferred to the company's share capital account, a franking debit arises in the company's franking account (section 197-45 of the ITAA 1997) and the share capital account will become tainted (section 197-50 of the ITAA 1997). Section 197-10 of the ITAA 1997 provides an exclusion for the transferred amount if it could, at all times before the transfer, be identified as an amount of share capital. | Detailed Reasoning - Share capital account and share capital: Share capital account is defined under subsection 975-300(1) of the ITAA 1997. 975-300(1) A company's share capital account is: (a) an account that the company keeps of its share capital; or (b) any other account (whether or not called a share capital account) that satisfies the following conditions: (i) the account was created on or after 1 July 1998; (ii) the first amount credited to the account was an amount of share capital. 975-300(2) If a company has more than one account covered by subsection (1), the accounts are taken, for the purposes of this Act, to be a single account. Note: Because the accounts are taken to be a single account (the combined share capital account), tainting of any of the accounts has the effect of tainting the combined share capital account. Company A 's 'Borrowings - Public Preference Shares' account is a subset account of the 'Borrowing - Redeemable Preference Shares" account and it consists of subscription funds for Public Preference Shares. The Commissioner accepts that Company A's 'Borrowings - Redeemable Preference Shares' account forms part of Company A 's share capital account under paragraph 975-300(1)(b) of the ITAA 1997 because: • the account was created after 1 July 1998, and • the first amount credited to the account was the subscription funds for the redeemable preference shares. Notwithstanding the redeemable preference shares (including the Public Preference Shares) are classified as borrowings (a financial liability) for accounting purposes and constitute 'debt interests' for Australian income tax purposes, the redeemable preference shares are legal form shares and the subscription funds are share capital. Company A's 'Contributed equity - ordinary share capital' account is also a share capital account for the purpose of paragraph 975-300(1)(a) of the ITAA 1997 as it is an account that Company A keeps its fully paid ordinary shares which are share capital. Company A confirmed the 'Borrowing - Redeemable Preference Shares" account, including other subset accounts (e.g. the Public Preference Shares account) is a share capital account. Subsection 975-300(2) of the ITAA 1997 provides that where a company has more than one share capital account, the accounts are taken to be a single account (the combined share capital account ) and tainting of any of the accounts has the effect of tainting the combined share capital account. In this case, the 'Borrowings - Redeemable Preference Shares' account and the 'Contributed equity - ordinary share capital' account are taken to be one combined share capital account. There have been no changes to the accounting treatment of the redeemable preference shares on issue and no amounts have been previously transferred from any other account to the 'Borrowings - Redeemable Preference Shares' account or the 'Contributed equity - ordinary share capital' account which would otherwise have triggered the share capital tainting rules under Division 197 of the ITAA 1997. The Commissioner accepts that Company A's combined share capital account is untainted. To implement the proposed buy-back of Public Preference Shares, Company A will debit the Principal Investment Amount to the 'Borrowings - Public Preference Shares' account. The debit to Company A 's share capital account will not constitute a transfer which causes the combined share capital account to be tainted. Therefore, there will be no tainting of Company A's share capital account as defined in Division 197 of the ITAA 1997 as a result of the proposed buy-back of Public Preference Shares.

Does IVA apply to this private ruling?: Part IVA was not considered as part of this private ruling. | Reasons for decision: Unless otherwise stated, all legislative references are to the provisions of the Income Tax Assessment Act 1936 (ITAA 1936).