Private ruling: Return of capital
Date of advice: 13 October 2025
Published: 1 December 2025
Ruling period: For particular periods
Date scheme commenced: On a particular date

Ruling: Q1: Will any part of the Proposed Capital Return be treated as a dividend within the meaning of subsection 6(1) of the Income Tax Assessment Act 1936 ( ITAA 1936 )?? | A1: No. | Q2: Will the Commissioner seek to make a determination under section 45B of the ITAA 1936 that section 45C of the ITAA 1936 applies to the whole, or any part, of the Proposed Capital Return? | A2: No.

Relevant facts and circumstances: 1. Aus Co is an Australian resident company that conducts business in Australia and is wholly owned by Foreign Co, which resides in a foreign jurisdiction. 2. Aus Co intends to wind down its business and no new investments are currently contemplated by Aus Co in the foreseeable future. As a result, Aus Co no longer requires the amount of equity it historically maintained and proposes to return the majority of its share capital to Foreign Co. 3. Aus Co's assets on its balance sheet comprise only cash at bank and an asset. 4. As part of winding down its operations, Aus Co is proposing to undertake the following: • Step 1 - distribute profits as a fully-franked dividend to fully clear its retained earnings (Proposed Dividend). • Step 2 - distribute an amount as a return of capital (Proposed Capital Return). 5. The Proposed Dividend will be funded by cash at bank and part of the asset. 6. The Proposed Capital Return will be funded by the remaining part of the asset. 7. The Proposed Capital Return will be debited against Aus Co's share capital account. 8. Since incorporation, Aus Co has made several fully-franked dividend payments but have not undertaken any previous return of capital or share buy-backs. Other matters 9. Shares in Aus Co are not taxable Australian property as defined in section 855-15 of the Income Tax Assessment Act 1997 (ITAA 1997). Assumptions 10. Aus Co's share capital account will not be tainted for the purposes of subsection 197-50(1) of the ITAA 1997 at the time of the Proposed Capital Return. 11. Aus Co will be deregistered once the winding down of its operations is completed.

Relevant legislative provisions: Subsection 6(1) of the ITAA 1936 | Subsection 44(1) of the ITAA 1936 | Section 45B of the ITAA 1936 | Paragraph 45B(2)(a) of the ITAA 1936 | Paragraph 45B(2)(b) of the ITAA 1936 | Paragraph 45B(2)(c) of the ITAA 1936 | Subsection 45B(3) of the ITAA 1936 | Subsection 45B(8) of the ITAA 1936 | Section 45C of the ITAA 1936 | Subsection 177D(2) of the ITAA 1936 | Subsection 197-50(1) of the ITAA 1997 | Division 197 of the ITAA 1997 | Section 975-300 of the ITAA 1997 | Subsection 975-300(3) of the ITAA 1997 | Section 855-15 of the ITAA 1997 | Subsection 995-1(1) of the ITAA 1997

Reasons for decision: Detailed Reasoning - Question 1: Return of capital is not a dividend for income tax purposes 12. Subsection 44(1) includes in a shareholder's assessable income any dividends paid to the shareholder out of profits derived by the company from any source (if the shareholder is a resident of Australia) and from an Australian source (if the shareholder is a non-resident of Australia). 13. The term 'dividend' is defined in subsection 6(1) and includes any distribution made by a company to any of its shareholders. However, paragraph (d) of the definition of 'dividend' excludes a distribution from the meaning of 'dividend' if the amount of the distribution is debited against an amount standing to the credit of the company's share capital account. 14. The term 'share capital account' is defined in section 975-300 of the ITAA 1997 as an account which the company keeps of its share capital, or any other account created on or after 1 July 1998 where the first amount credited to the account was an amount of share capital. 15. Subsection 975-300(3) of the ITAA 1997 states that an account is not a share capital account, except for certain limited purposes, if it is tainted. It is assumed that Aus Co's share capital account will not be tainted within the meaning of Division 197 of the ITAA 1997 at the time of the Proposed Capital Return. 16. As the Proposed Capital Return will be recorded as a debit or against Aus Co's share capital account, paragraph (d) of the definition of 'dividend' in subsection 6(1) will apply and the Proposed Capital Return will be not treated as a dividend. | Detailed Reasoning - Question 2: Will the Commissioner seek to make a determination under section 45B that section 45C applies to the whole, or any part, of the Proposed Capital Return? 17. Section 45B applies where certain capital payments, including a capital distribution, are paid to shareholders in substitution for dividends. Specifically, the provision applies where: • there is a scheme under which a person is provided with a capital benefit by a company (paragraph 45B(2)(a)); • 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)); and • having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, entered into the scheme or carried out the scheme or any part of the scheme for a purpose, other than an incidental purpose of enabling the relevant taxpayer to obtain a tax benefit (paragraph 45B(2)(c)). 18. Having considered each of the relevant circumstances in subsection 45B(8), it cannot be concluded that any entities would enter into or carry out the Proposed Capital Return for a more than incidental purpose of enabling Foreign Co to obtain a tax benefit. 19. As such, section 45B will not apply and the Commissioner will not make a determination under subsection 45B(3) that section 45C applies to the whole or any part of the Proposed Capital Return.