Private ruling: Application of section 45B of the Income Tax Assessment Act 1936 to distribution of share capital for the redemptions of redeemable preference shares
Published: August 2014
Ruling period: Income year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the distribution of share capital paid by Company A to the taxpayer for the redemption of redeemable preference shares on the relevant date in 2012, an unfranked dividend pursuant to section 45C of the Income Tax Assessment Act 1936 ? | A1: No | Q2: Is the distribution of share capital paid by Company A to the taxpayer for the redemption of redeemable preference shares on the relevant date in 2013, an unfranked dividend pursuant to section 45C of the Income Tax Assessment Act 1936 ? | A2: No | Q3: If the distribution in question 1 and/or question 2 is an unfranked dividend pursuant to section 45C of the Income Tax Assessment Act 1936 , will the proportionate methodology apply in determining the amount of the unfranked dividend? | A3: Unnecessary to rule given the outcome in Question 1 and Question 2

Relevant facts and circumstances: The taxpayer is an Australian resident unit trust. It is not a corporate unit trust under Division 6B of the Income Tax Assessment Act 1936 (ITAA 1936) or a public trading trust under Division 6C of the ITAA 1936. The taxpayer invests in vehicles that have exposure to overseas investments. One of the investments made by the taxpayer is in the capital of Company A. Company A is a foreign resident limited liability company. It is an investment holding company investing in entities with investments in certain overseas markets. Company A holds interests in various (wholly and partly owned) subsidiary and associate entities that make the underlying investments in overseas investment projects (directly or indirectly). Company A is a closed end fund. It raised capital from investors from around the world. Company A's shareholders are predominantly foreign residents. The taxpayer entered into the Subscription Agreement with Company A at a time after 20 September 1985 and subscribed for a certain number of ordinary shares and redeemable preference shares (RPS) in Company A. The terms of the Ordinary Shares and RPS are contained in the constituent document of the Company A. Each RPS carries voting rights and dividend rights. The relevant clause of Company A's constituent document provides that dividends will be paid out of profits realised by Company A. The amount and timing of any distribution will occur at the discretion of the company directors, subject to certain limitations in specific circumstances. The RPS may be redeemed by Company A. Fully paid RPS may be redeemed at the discretion of the company's directors from time to time. RPS will be redeemed out of profits realised by the company or otherwise permitted by the applicable law. The RPS rank pari passu with the ordinary shares in the distribution of surplus net assets on the winding up of the company. The Financial Statements of Company A are prepared in accordance with local rules and regulations (including local Financial Reporting Standards) of Company A's country of residence and are audited by a local accounting firm. Company A reports on a 31 December financial year end. Company A communicated the accumulated losses or retained earnings position of the company to shareholders at various times throughout the period. Up to and including the third quarter of Company A's 2012 financial year, Company A reported an accumulated loss position whilst it reported retained earnings on a consolidated group basis, which comprised a significant proportion of unrealised profit. By the end of Company A's 2012 financial year, Company A reported retained earnings due to realised profits that arose late at the end of the financial year. The retained earnings position was subsequently confirmed after the distribution strategy for early 2013 was determined. By the end of Company A's 2013 financial year, Company A's retained earnings increased significantly whist the group's retained earnings balance remained relatively stable. Company A has a general distribution policy to pay dividend where practicable. No dividend was paid by Company A until after the 2013 income year. Company A's ability to make distributions of profit is restricted by regulatory requirements and the applicable law in Company A's country of residence. The applicable law provides that the company can only make distributions out of profits retained in the company and not based on a consolidated or group basis retained earnings. Company A has a history of making distributions by way of loans as soon as surplus funds become available pending subsequent redemption of RPS where no retained profits are available for distribution on a company basis. Company A advised that this approach simplified the process of redeeming RPS (which involved lengthy administrative procedures) to twice in the 2013 income year. In the 2013 income year, Company A made a number of distributions of share capital via loans and redemption of RPS. In respect of each distribution, Company A issued: • distribution proposal letter advising the company's distribution strategy, accumulated loss/profit position for the relevant period, source of the funds available for making the distribution and intention to make a distribution • notice of distribution notifying the amount of the distribution made • notice of redemption of RPS notifying the number and value of RPS redeemed In the 2013 income year, Company A redeemed RPS on two occasions: • relevant date in 2012 (First Redemption) • relevant date in 2013 (Second Redemption) On both occasions, the Redemption involved two components: • certain number of RPS redeemed were offset against preceding loans advanced before the relevant redemption date, and • certain number of RPS redeemed by way of cash (straight redemption). The source of the distributions were from dividends paid by Company A's subsidiaries and associates to Company A. All distributions via loan were approved by member's special resolution. The loans were unsecured, interest-free and repayable through subsequent RPS redemptions. The RPS were redeemed in accordance with the applicable law and cancelled. Both Redemptions were approved by member's special resolution. All RPS were redeemed at par value. The RPS redemption was neither a capital reduction nor share buy-back. The distributions made by Company A in the 2013 income year were debited against a share capital account of Company A. The taxpayer expects to receive dividends from Company A in future years. The taxpayer is a minority shareholder in Company A. As at 30 June 2012, the taxpayer had carried forward net capital losses. The taxpayer reports on a 30 June financial year end.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 44 | Income Tax Assessment Act 1936 section 45B | Income Tax Assessment Act 1936 subsection 45B(1) | 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 subsection 45B(3) | Income Tax Assessment Act 1936 paragraph 45B(3)(b) | Income Tax Assessment Act 1936 subsection 45B(5) | Income Tax Assessment Act 1936 paragraph 45B(5)(b) | Income Tax Assessment Act 1936 subsection 45B(8) | Income Tax Assessment Act 1936 subsection 45B(9) | Income Tax Assessment Act 1936 subsection 45B(10) | Income Tax Assessment Act 1936 section 45C | Income Tax Assessment Act 1936 subsection 177A(1) | Income Tax Assessment Act 1936 subsection 177A(3) | Income Tax Assessment Act 1936 section 177D | Income Tax Assessment Act 1936 subsection 177D(2) | Income Tax Assessment Act 1997 subsection 995-1(1) Question 1 | Section 45C of the Income Tax Assessment Act 1936 (ITAA 1936) effectively provides that if the Commissioner makes a determination under section 45B of the ITAA 1936, the amount of the capital benefit is taken to be an unfranked dividend for income tax purposes. | Section 45B of the ITAA 1936 is an anti-avoidance provision which, relevantly, ensures that certain distributions, including distributions of share capital and share premium, are treated as unfranked dividends for income tax purposes if made in substitution for dividends. | Subsection 45B(2) of the ITAA 1936 sets out the conditions under which the Commissioner will make a determination under subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies. These conditions are that: | (1) there is a scheme under which a person is provided with a capital benefit by a company (paragraph 45B(2)(a) of the ITAA 1936) | (2) under the scheme, a taxpayer (the relevant taxpayer), who may or may not be the person provided with the capital benefit, obtains a tax benefit (paragraph 45B(2)(b) of the ITAA 1936), and | (3) having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling tax payer to obtain a tax benefit (the requisite purpose) (paragraph 45B(2)(c) of the ITAA 1936). | Each of the conditions will be examined below. | First condition: provided with capital benefit under a scheme | Scheme | Scheme is defined in subsection 45B(10) of the ITAA 1936 to have the same meaning given by subsection 995-1(1) of the Income Tax Assessment Act (ITAA 1997). Subsection 995-1(1) of the ITAA 1997 provides that 'scheme' means (a) any arrangement; or (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. 'Arrangement' is defined under subsection 995-1(1) to mean any arrangement, agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable (or intended to be enforceable) by legal proceedings. | The definition of scheme is very broad. It encompasses not only a series of steps which together can be said to constitute a "scheme" or a "plan" but also the taking of one step. The definition of scheme includes a unilateral scheme and can include the failure to do something. | In this case, the arrangement by Company A of redeeming RPS by way of loans and cash constitutes a scheme for the purposes of paragraph 45B(2)(a) of the ITAA 1936. | Provided with a capital benefit | Subsection 45B(5) of the ITAA 1936 provides the meaning of 'provided with a capital benefit. Relevantly, paragraph 45B(5)(b) of the ITAA 1936 provides that a person is provided with a capital benefit if that person receives a distribution of share capital or share premium. | In this case, the provision of loans and subsequent redemption of RPS being debited against share capital account constitutes a 'capital benefit' as defined in paragraph 45B(5)(b) of the ITAA 1936. | Therefore, the first condition in paragraph 45B(2)(a) of the ITAA 1936 is satisfied. | Second condition: relevant taxpayer obtains a tax benefit | Paragraph 45B(2)(b) of the ITAA 1936 requires that the taxpayer (the relevant taxpayer), who may or may not be the person provided with the capital benefit, obtains a tax benefit. | The relevant taxpayer obtains a tax benefit, as defined in subsection 45B(9) of the ITAA 1936, where: | • the amount of tax payable, or | • any other amount payable under the ITAA 1936 or ITAA 1997, | by the taxpayer would, apart from the operation of section 45B of the ITAA 1936: | • be less than the amount that would have been payable, or | • be payable at a later time than it would have been payable, | if the capital benefit had instead been a dividend. | Ordinarily, a distribution of share capital would be subject to the CGT provisions of the ITAA 1997. Unless the amount of the distribution exceeds the cost base of the share, there will only be a cost base reduction under CGT event G1 (section 104-135 of the ITAA 1997). It is only to the extent (if any) that the distribution exceeds the cost base of the share that a capital gain is made. | Notwithstanding the occurrence of the CGT event, a tax benefit will arise as the taxpayer will generally pay less tax on the distribution of share capital than they would if the amount had instead been a 'dividend' and included in their assessable income. | Therefore, apart from the operation of section 45B of the ITAA 1936, that part of the return of share capital that is properly a dividend would retain the character as a debit to share capital and result in a tax benefit to the relevant taxpayer. | In this case, the return of RPS share capital would provide a tax benefit, for the purposes of paragraph 45B(2)(b) of the ITAA 1936, in that the taxpayer would pay less tax on the distribution than it would have paid if the distribution had instead been a dividend of a similar amount. | Accordingly, the second condition in paragraph 45B(2)(b) of the ITAA 1936 is satisfied. | Third condition: requisite purpose | Paragraph 45B(2)(c) of the ITAA 1936 requires that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling a taxpayer (the relevant taxpayer) to obtain a tax benefit (the requisite purpose). | The test of purpose under section 45B of the ITAA 1936 is an objective test. It considers whether it would be concluded that a person who entered into or carried out the scheme did so, for the purpose of enabling the relevant taxpayer to obtain a tax benefit in the form of a capital benefit. | The requisite purpose does not have to be the most influential or prevailing purpose, but it must be more than an 'incidental purpose'. A purpose is an incidental purpose when it occurs fortuitously or in subordinate conjunction with on one of the main or substantial purposes of the scheme, or merely follows that purpose as its natural incident. | In determining the requisite purpose, paragraph 45B(2)(c) of the ITAA 1936 requires the Commissioner to have regard to the relevant circumstances of the scheme. | The relevant circumstances | Subsection 45B(8) of the ITAA 1936 lists the relevant circumstances of the scheme which the Commissioner must have regard to when determining whether or not the requisite purpose exists. The list in subsection 45B(8) is not exhaustive and the Commissioner may have regard to other circumstances he regards as relevant. | Broadly, the relevant circumstances in subsection 45B(8) of the ITAA 1936 requires the Commissioner to have regard to: | • the extent to which the capital benefit is attributable to capital or profit of the company or its associate (attribution) (paragraph 45B(8)(a)) | • the pattern of distributions of dividends, bonus shares and returns of capital or share premium by the company or its associate (pattern of distributions) (paragraph 45B(8)(b)) | • certain shareholder characteristics, including unutilised capital losses, pre-CGT ownership interests, residency and cost base of ownership interests (shareholder characteristics) (paragraphs 45B(8)(c) to 45B(8)(f)) | • nature of interests after the return of share capital (paragraph 45B(8)(h)) | • whether scheme involves the provision, or increase in value, of ownership interests and the later disposal of those interests (paragraph 45B(8)(i)) | • for a demerger, whether profits or assets of demerging entity were acquired under certain transactions (paragraph 45B(8)(j)) | • any matters referred to in subsection 177D(2) of the ITAA 1936 (Part IVA matters) (paragraph 45B(8)(k)) | The relevant circumstances encompass a range of matters which, when taken individually or collectively, will reveal whether the requisite purpose exists or not. | Each of the relevant circumstances (except paragraphs 45B(8)(i) and 45B(8)(j) of the ITAA 1936, which do not apply on the facts of this case) will be examined below. | Attribution | Paragraph 45B(8)(a) of the ITAA 1936 examines whether there is a discernible connection between the amount distributed as share capital and the share capital and profits that are realistically available for distribution, including the profits of an associate of the company (within the meaning of section 318 of the ITAA 1936) of the company. The connection need not be that of a sole, dominant, direct or proximate cause and effect, a contributory causal connection is sufficient. | In determining whether the First Redemption was attributable to capital or profits of Company A, it is necessary to consider the connection between the amount of capital distributions and the sources of share capital and profits that are realistically available to Company A to make these distributions. | Although some of the distribution was sourced from profit realised by Company A's subsidiaries and associates, Company A was prevented under the applicable law from making distributions out of profit due to the absence of realised profits at the company level. | Moreover, the RPS was redeemed for the par value only and from the RPS issued share capital account without any additional return hence indicating a return of investment rather than a return on investment. | Therefore, it is reasonable to conclude on the facts of this case that the distribution of share capital by way of the First Redemption was not attributable to profit and hence this circumstance points away from the requisite purpose. | Pattern of distributions | Paragraph 45B(8)(b) of the ITAA 1936 is concerned with the pattern of distributions of dividends and return of capital by the company or by its associate (within the meaning in section 318 of the ITAA 1936). Interruption of the normal pattern of profit distribution and its replacement with a distribution of share capital would suggest dividends substitution. | In this case, having regard to the company's general distribution policy, absence of retained profit at a company level, the company's historical distribution pattern and its current and expected future distributions pattern, it is reasonable to conclude that the First Redemption does not suggest it was made in substitution of dividends. | Accordingly, this circumstance points away from the requisite purpose. | Shareholder characteristics | The next four paragraphs 45B(8)(c) to (f) of the ITAA 1936 require the consideration be given to the tax characteristic of shareholders in order to determine the tax effects of the scheme. If the tax characteristics of the shareholders of the company are such as to indicate there is a tax preference for one form of distribution over another, this may be suggestive of a more than incidental purpose of delivering a tax benefit, particularly if the composition of the distribution does not follow the substance of what was provided. The four shareholder characteristics are whether: | • the relevant taxpayer had capital losses (paragraph 45B(8)(c) of the ITAA 1936) | • some or all of the ownership interests in the company were acquired by the relevant taxpayer before 20 September 1985 (paragraph 45B(8)(d) of the ITAA 1936) | • the relevant taxpayer is a non-resident (paragraph 45B(8)(e) of the ITAA 1936) | • the cost base of the relevant ownership interests is not substantially less than the value of the capital benefit (paragraph 45B(8)(f) of the ITAA 1936) | In this case, the taxpayer is an Australian resident and had unutilised net capital losses carried forward from earlier years. These factors incline towards the requisite purpose. However, the RPS held by the taxpayer are post-CGT ownership interests and were redeemed at par value and therefore the cost base of the RPS redeemed was not substantially less than the value of the capital benefit. Accordingly, these two factors point away from the requisite purpose. | Nature of interest after return of share capital | Paragraph 45B(8)(h) of the ITAA 1936 has regard to whether the interest held by the relevant taxpayer after the share capital reduction is the same as the interest would have been if an equivalent dividend had been paid. This circumstance examines the effect of the capital reduction on the substance of the shareholder's interest in the company directly and relative to other shareholders. | Ordinarily, the equal cancellation of shares affects the shareholders in the company as they will own fewer shares. However, their proportionate interest in the company relative to the other affected shareholder remains the same. | In this case, the proportionate interest of the taxpayer in Company A remains unchanged by the fact that its ordinary shares are not affected. Nevertheless, the redemption of the RPS undertaken proportionately had the same substantive effect. Therefore, the distribution of share capital without affecting the interest of the taxpayer can be viewed in isolation as objectively being in substitution for a dividend. Accordingly, this circumstance points towards the requisite purpose. | Part IVA matters in subsection 177D(2) of the ITAA 1936 | The circumstance in paragraph 45B(8)(k) of the ITAA 1936 examines the return of capital from a broad, practical perspective in order to identify and compare its tax and non-tax objectives. | The eight matters in paragraphs 177D(2)(a) to (h) of the ITAA 1936 operate together to direct the attention to the means by which the tax benefit has been obtained, and broadly include the manner in which the scheme was entered into or carried out, the form and substance of the scheme, the timing of the scheme, the financial, tax and non-tax effects of the scheme and the nature of any connection between the taxpayer and other parties to the scheme. | In this case, the First Redemption was carried out in accordance with the applicable law. The form of the First Redemption is consistent with the underlying transaction and equates to the substance of the scheme. Apart from the operation of section 45B of the ITAA 1936, the scheme resulted in a tax saving to the taxpayer as the redemption proceeds would otherwise have been included as an unfranked dividend in the taxpayer's assessable income under section 44 of the ITAA 1936. | The scheme resulted in changes to the financial position of the taxpayer. Under the scheme, the taxpayer received an increase in available cash and a corresponding decrease in its investment in Company A. Additionally, the taxpayer derived a more favourable income tax outcome than it would have otherwise obtained if the distribution of share capital had instead been a dividend paid out of the profits of Company A. In respect of Company A, the redemption of RPS resulted in a decrease in the economic resources of Company A due to the reduction in issued share capital. | On the facts, the nature of the connection between the taxpayer and Company A is that of an arms-length investor in a company. | Overall, an objective consideration of the matters in subsection 177D(2) of the ITAA 1936 does not point towards the requisite purpose. | Having objectively considered the facts and circumstances surrounding the First Redemption against the factors in subsection 45B(8) of the ITAA 1936 (including the Part IVA matters) those factors that point towards the conclusion that the scheme involved more than incidental purpose for the taxpayer to obtain a tax benefit are balanced by factors that point against that conclusion. | Therefore, the third condition in paragraph 45B(2)(c) of the ITAA 1936 is not satisfied. | Conclusion | Despite the conditions in paragraphs 45B(2)(a) and (b) being satisfied, having objectively considered all the relevant circumstances in subsection 45B(8) of the ITAA 1936, it cannot be concluded that the First Redemption was implemented for a more than incidental purpose of enabling the taxpayer to obtain a tax benefit for the purposes of paragraph 45B(2)(c) of the ITAA 1936. | As all conditions specified in subsection 45B(2) of the ITAA 1936 are not met, section 45B of the ITAA 1936 does not apply to the First Redemption. | Therefore, on the facts, the Commissioner would not make a determination under subsection 45B(3) of the ITAA 1936 and the distribution of share capital for the First Redemption is not taken to be an unfranked dividend under section 45C of the ITAA 1936. | Question 2 | As discussed in Question 1 above, subsection 45B(2) of the ITAA 1936 sets out the conditions under which the Commissioner will make a determination under subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies to treat the amount of the capital benefit to be an unfranked dividend. | Each of the conditions in subsection 45B(2) of the ITAA 1936 will be examined below. | First condition: provided with capital benefit under a scheme | The meaning of 'scheme' and 'provided with a capital benefit' was considered in Question 1 above. | The arrangement by Company A of redeeming RPS by way of loans and cash constitutes a scheme for the purposes of paragraph 45B(2)(a) of the ITAA 1936. | Similar to Question 1 above, the provision of loan and subsequent redemption of RPS being debited against Company A's specific RPS share capital account constitutes a 'capital benefit' as defined in paragraph 45B(5)(b) of the ITAA 1936. | Therefore, the first condition in paragraph 45B(2)(a) of the ITAA 1936 is satisfied. | Second condition: relevant taxpayer obtains a tax benefit | The circumstance where the relevant taxpayer obtains a tax benefit was considered in Question 1 above. | Similarly in the case of the Second Redemption, the return of RPS issued share capital would provide a tax benefit for the purposes of paragraph 45B(5)(b) of the ITAA 1936. | Accordingly, the second condition in paragraph 45B(2)(b) of the ITAA 1936 is satisfied. | Third condition: requisite purpose | As discussed in Question 1 above, paragraph 45B(2)(c) of the ITAA 1936 requires that, having regard to the relevant circumstances in subsection 45B(8) of the ITAA 1936, the person or one of the persons who entered into or carried out the scheme, or any part of the scheme, did so for a more than incidental purpose of enabling the relevant taxpayer to obtain a tax benefit. | Each of the relevant circumstances in subsection 45B(8) of the ITAA 1936 (as discussed in Question 1 above), apart from the circumstances in paragraphs 45B(8)(i) and 45B(8)(j) of the ITAA 1936 which do not apply on the facts of this case, will be examined below. | Attribution: paragraph 45B(8)(a) | The connection between the amount distributed as share capital and the share capital and profits that are realistically available for distribution is relevant in determining whether the Second Redemption was attributable to capital or profit of Company A. | In this case, the strategy for the distribution via loan preceding the Second Redemption was determined while Company A was still in a loss position. As a result, Company A decided to proceed with a distribution via loan with the intention of redeeming RPS in the next distribution period. | By the time of Second Redemption, Company A confirmed it had retained earnings and proposed a distribution via redemption of RPS. Although Company A had retained profits, the company confirmed it had insufficient funds to allow for the full amount of the distribution to be made to its shareholders. As such, Company A decided to proceed with the distribution via redemption of RPS by offsetting the preceding loan together with the distribution the relevant period. | In contrast to the First Redemption where Company A finalised its accounts for the period with a loss position, Company A finalised its accounts with a profit position in relation to the period relevant to the Second Redemption. The distinction sought to be made was that the distribution strategy for the relevant period was determined at a point in time in which the company had not finalised its accounts. Post finalisation of the accounts, Company A was able to disclose the existence of profit and crystallise the ability to distribution profits under the applicable law. | Notwithstanding there being a connection between the distribution of share capital being connected and partly attributed to realised profits of Company A, after having regard to the underlying circumstances of Company A it is reasonable to conclude that the circumstance in paragraph 45B(8)(a) of the ITAA 1936 points away from the requisite purpose. | Pattern of distributions: paragraph 45B(8)(b) | For the periods in which Company A was in a loss position, Company A made distributions via loans which were subsequently offset against redemptions of RPS. | After returning to a retained profits position, Company A made dividend distributions. This conforms to Company A's general distribution policy. | Having regard to the pattern of Company A's distributions and specific circumstances that applied in respect of the First and Second Redemption, this circumstance points away from the requisite purpose. | Shareholder characteristics: paragraphs 45B(8)(c) to 45B(8)(f) | The circumstances in regard to the existence of unutilised capital losses, any pre-CGT ownership interests, residency of the shareholder and cost base implications of ownership interests that applied in relation to the First Redemption (Question 1 above) equally apply to the Second Redemption. | For the same reasons as concluded in Question 1 above, the circumstances in paragraphs 45B(8)(c) and 45B(8)(e) of the ITAA 1936 point towards the requisite purpose and the circumstances in paragraphs 45B(8)(d) and 45B(8)(f) of the ITAA 1936 point away from the requisite purpose with respect to the Second Redemption. | Part IVA matters: paragraph 45B(8)(k) | The eight matters in paragraphs 177D(2)(a) to 177D(2)(h) of the ITAA 1936 will be considered collectively below. | The circumstances and factors affecting the First Redemption (as discussed in Question 1 above) when considered against the eight matters in subsection 177D(2) of the ITAA 1936 apply equally to the Second Redemption. | Accordingly, having objectively considered the eight matters in paragraphs 177D(2)(a) to 177D(2)(h) of the ITAA 1936, the circumstance in paragraph 45B(8)(k) of the ITAA 1936 points away from the requisite purpose. | Having regard to the circumstances surrounding the Second Redemption and objectively considered against the factors within subsection 45B(8) of the ITAA 1936, those factors that incline towards the conclusion that the scheme involved a more than incidental purpose for the relevant taxpayer to obtain a tax benefit are balanced by factors that weigh against that conclusion. | Accordingly, the third condition in paragraph 45B(2)(c) of the ITAA 1936 is not satisfied. | Conclusion | Therefore, notwithstanding that subparagraphs 45B(2)(a) and 45B(2)(b) of the ITAA 1936 are satisfied and having regard to the relevant circumstances of the scheme as stipulated within subsection 45B(8) of the ITAA 1936 it cannot be concluded that the scheme was implemented for a more than incidental purpose of enabling the taxpayer to obtain a tax benefit for the purposes of paragraph 45B(2)(c) of the ITAA 1936. | As subsection 45B(3) of the ITAA 1936 will not apply to the provision of the capital benefit under the scheme, the Commissioner will not make a determination to treat the distribution to be an unfranked dividend pursuant to section 45C of the ITAA 1936. | Question 3 | Unnecessary to consider Question 3 given the outcome in Question 1 and Question 2.