Private ruling: Return of capital
Date of advice: 8 July 2016
Published: August 2016

Ruling: Q1: Does the return of capital constitute a dividend as defined 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 the whole, or a part, of the capital benefit under the proposed 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 the proposed return of capital to the non-resident shareholder such that Company A is required to withhold an amount from the return of capital pursuant to section 12-210 of Schedule 1 of the Tax Administration Act 1953 (TAA 1953)? | A3: No.

Relevant facts and circumstances: Company A is equally owned by two shareholders. One of the shareholders is a non-resident. Due to certain business events, Company A conducted a return of capital to its shareholders. The return of capital was debited to Company A’s untainted share capital account.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1936 section 45A | Income Tax Assessment Act 1936 section 45B | Income Tax Assessment Act 1936 section 45C

Reasons for decision: Summary: The return of capital does not meet the definition of ‘dividend’ as defined in subsection 6(1) of the ITAA 1936. As section 45A will not apply in this case, the Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the proposed return of capital, deeming the capital benefits to be a dividend and hence assessable for income tax purposes. As section 45B will not apply in this case, the Commissioner will not make a determination under subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the proposed return of capital to deeming the amount of capital benefit to be an unfranked dividend. Therefore, Company A is not required to withhold an amount from the return of capital to the non-resident shareholder pursuant to section 12-210 of Schedule 1 of the TAA 1953.