Private ruling: Return of capital
Date of advice: 9 October 2025
Published: 24 November 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will any part of the Return of Capital satisfy the ordinary definition of 'dividend' in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: No. | Q2: Will the Commissioner make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies in relation to any part of the Return of Capital? | A2: No. | Q3: Will the Commissioner make a determination under subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies in relation to any part of the Return of Capital? | A3: No.

Relevant facts and circumstances: Background facts about Company A • Company A is a company incorporated in Australia and is a resident for Australian tax purposes. • Company A has only ordinary shares on issue that carry equal voting, dividend and capital rights and has not issued further shares since 20XX. All shares in Company A are held by Company B which is a company incorporated in, and tax resident of, a foreign jurisdiction. • Company B group provides global logistics services to retail and wholesale customers. • Company A is the head entity of the Australian economic and tax consolidated group. • Since incorporation, Company A has paid fully franked dividends to Company B every financial year. • Company A (through its wholly owned subsidiary Company C) sold its interests in xx foreign subsidiaries. The total received for the sales (Disposal Proceeds), at market values, was $X. The proposed transaction • Company A will make a distribution of $X (Distribution) to Company B sourced from the Disposal Proceeds. • The Distribution from Company A will consist of a return of capital (the Return of Capital) and a dividend. Company A proposes to adopt the 'slice approach' to determine the split between the Return of Capital and dividend payment (consistent with paragraph 73 of PS LA 2008/10 Application of section 45B of the Income Tax Assessment Act 1936 to share capital reductions ). • Company A has not undertaken a return of capital previously and its share capital account (as defined in section 975-300 of the ITAA 1997) is not tainted (within the meaning of Division 197 of the ITAA 1997).

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1936 paragraph 6(1)(a) | Income Tax Assessment Act 1936 paragraph 6(1)(d) | Income Tax Assessment Act 1936 subsection 6(4) | Income Tax Assessment Act 1936 section 45A | Income Tax Assessment Act 1936 subsection 45A(2) | Income Tax Assessment Act 1936 paragraph 45A(3)(b) | 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(5)(b) | Income Tax Assessment Act 1936 subsection 45B(8) | Income Tax Assessment Act 1936 subsection 45B(9) | Income Tax Assessment Act 1936 section 45C | Income Tax Assessment Act 1936 subsection 177D(2) | Income Tax Assessment Act 1936 Part III Division 16K | Income Tax Assessment Act 1997 Division 197 | Income Tax Assessment Act 1997 section 975-300 | Income Tax Assessment Act 1997 subsection 975-300(3) | Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision: Detailed Reasoning - Detailed reasoning: Subsection 6(1) of the ITAA 1936 provides the definition of a dividend includes: (a) any distribution made by a company to any of its shareholders, whether in money or other property; and ... but does not include: (d) moneys paid or credited by a company to a shareholder or any other property distributed by a company to shareholders (not being moneys or other property to which this paragraph, by reason of subsection (4), does not apply or moneys paid or credited, or property distributed for the redemption or cancellation of a redeemable preference share), where the amount of the moneys paid or credited, or the amount of the value of the property, is debited against an amount standing to the credit of the share capital account of the company; or ... The Return of Capital will be a distribution of money to Company B which satisfies paragraph 6(1)(a) of the ITAA 1936. However, paragraph 6(1)(d) excludes the distribution, subject to an exception in subsection 6(4), as this amount of money will be debited against an amount standing to the credit of the share capital account of Company A. The term 'share capital account' is defined in section 975-300 of the ITAA 1997 broadly as an account which the company keeps of its share capital. Subsection 975-300(3) provides that an account is generally not taken to be a share capital account if it is tainted. Company A has confirmed that its share capital account is not tainted within the meaning of Division 197. Subsection 6(4) of the ITAA 1936 provides that the exclusion in paragraph 6(1)(d) does not apply if: ... under an arrangement: (a) a person pays or credits any money or gives property to the company and the company credits its share capital account with the amount of the money or the value of the property; and (b) the company pays or credits any money, or distributes property to another person, and debits its share capital account with the amount of the money or the value of the property so paid, credited or distributed. Noting Company A has not previously undertaken a return of capital, it remains wholly owned by Company B since incorporation and there has been no additional capital raised, there is no arrangement to which subsection 6(4) of the ITAA 1936 would apply. As such, paragraph (d) of the definition of dividend in subsection 6(1) applies and no part of the Return of Capital is a dividend. | Detailed Reasoning - Question 2: The Commissioner will not make a determination in relation to the Return of Capital under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies. | Detailed Reasoning - Detailed reasoning: Section 45A states: (1) This section applies in respect of a company that, whether in the same year of income or in different years of income, streams the provision of capital benefits and the payment of dividends to its shareholders in such a way that: (a) The capital benefits are, or apart from this section would be, received by shareholders (the advantaged shareholders) who would, in the year of income in which the capital benefits are provided, derive a greater benefit from the capital benefits than other shareholders; and (b) It is reasonable to assume that the other shareholders (the disadvantaged shareholders) have received, or will receive, dividends. A reference to the 'provision of a capital benefit to a shareholder in a company' is defined in paragraph 45A(3)(b) to include the distribution to shareholders of share capital. Although a capital benefit will be provided to Company B, there is no streaming of capital benefits as Company A only has one shareholder, and will continue to pay dividends to that shareholder into the future. Accordingly, the Commissioner will not make a determination under subsection 45A(2) that section 45C applies in relation to the Return of Capital. | Detailed Reasoning - Question 3: The Commissioner will not make a determination in relation to the Return of Capital under subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies. | Detailed Reasoning - Detailed reasoning: Section 45B of the ITAA 1936 applies where certain capital payments are paid to shareholders in substitution for dividends. Under subsection 45B(2), section 45B applies when: (a) there is a scheme under which a person is provided with a... capital benefit by a company; and (b) 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; and (c) 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 a taxpayer (the relevant taxpayer) to obtain a tax benefit. The payment made under the Return of Capital forms part of a 'scheme' within the meaning given by subsection 995-1(1) of the ITAA 1997. Company B will be 'provided with a capital benefit' under the Return of Capital as share capital will be distributed (paragraph 45B(5)(b) of the ITAA 1936). Therefore, paragraph 45B(2)(a) will be satisfied. Under paragraph 45B(2)(b) and subsection 45B(9) of the ITAA 1936, a taxpayer will obtain a tax benefit under the scheme if the amount of tax payable by the taxpayer in respect of the scheme would be less than the amount of tax that would have been payable if the payment under the Return of Capital had instead been an assessable dividend. The payment of capital preserves franking credits for use in the future, which itself can mean that a tax benefit is obtained within the meaning of subsection 45B(9). As such, paragraph 45B(2)(b) will be satisfied. Paragraph 45B(2)(c) of the ITAA 1936 provides that it is necessary to have regard to the 'relevant circumstances' of the scheme to determine whether Company A or Company B entered into or carried out the scheme for a more than incidental purpose of enabling Company B to obtain a tax benefit. This purpose does not have to be the most influential or prevailing purpose, but it must be more than an incidental purpose. The test is objective and based on the facts of each case. The relevant circumstances to be considered include the non-exhaustive factors set out in subsection 45B(8) of the ITAA 1936 and include any of the matters listed in subsection 177D(2) of the ITAA 1936. The Commissioner accepts that the apportionment used to determine the amount of the Return of Capital and the dividend, using the 'slice approach' as outlined in paragraph 73 of PS LA 2008/10, is reasonable. On balance of the relevant circumstances to the scheme, it is considered that neither Company A or Company B entered into or carried out the scheme for a more than incidental purpose of enabling a taxpayer to obtain a tax benefit. The requirement of paragraph 45B(2)(c) of the ITAA 1936 will not be satisfied in respect of the scheme. The Commissioner will not make a determination under subsection 45B(3) that section 45C applies to treat the Return of Capitalas an unfranked dividend

Question 1: No part of the Return of Capital satisfies the ordinary definition of 'dividend' in subsection 6(1) of the ITAA 1936.