Private ruling: return of capital and proposed special dividend
Date of advice: 24 March 2020
Published: May 2020
Ruling period: 1/7/20XX to 30/6/20XX
Date scheme commenced: XX/XX/20XX

Ruling: Q1: Will the proposed Return of Capital constitute a dividend as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) and the exclusion under section 6(4) of theITAA 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 proposed Return of Capital? | A2: No | Q3: Will the Commissioner make a determination under subsection 45B(3) of the ITAA 1936 and subsection 45C(3) of the ITAA 1936 in relation to the whole, or a part, of the proposed Return of Capital? | A3: No | Q4: Will the proposed Special Dividend constitute a 'dividend' as defined in subsection 6(1) of the ITAA 1936? | A4: Yes. | Q5: Will the proposed Special Dividend constitute a frankable distribution under section 202-40 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A5: Yes. | Q6: Will the Commissioner make a determination under subsection 177EA(5) of the ITAA 1936 to deny the whole, or a part, of the imputation benefit received in relation to the proposed Special Dividend or that a franking debit or exempting debit arises for Company A in respect of proposed Special Dividend? | A6: No | Q7: Will the Commissioner make a determination under subsection 204-30(3) of the ITAA 1997 to deny the whole, or a part, of the imputation benefit received in relation to the proposed Special Dividend or that a franking debit or exempting debit arises for Company A in respect of the proposed Special Dividend? | A7: No

Relevant facts and circumstances: Company A is owned by Australian shareholders and non-resident shareholders. Due to certain business events, Company A intends a Return of Capital and Special Dividend to its shareholders. The Return of Capital will be debited to Company's A 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 | Income Tax Assessment Act 1936 Subsection 177EA(5) | Income Tax Assessment Act 1997 Section 202-40 | Income Tax Assessment Act 1997 Subsection 204-30(3)

Reasons for decision: Summary: The proposed 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. The proposed Special Dividend will constitute a dividend as defined in subsection 6(1) of the ITAA 1936. The proposed Special Dividend will constitute a frankable distribution under section 202-40 of the ITAA 1997. The Commissioner will not make a determination under paragraph 177EA(5)(b) of the ITAA 1936 to deny the whole, or a part, of the imputation benefit received in relation to the proposed Special Dividend or that a franking debit or exempting debit arises for Company A in respect of the proposed Special Dividend. The Commissioner will not make a determination under subsection 204-30(3) of the ITAA 1936 to deny the whole, or a part, of the imputation benefit received in relation to the proposed Special Dividend or that a franking debit or exempting debit arises for Company A in respect of proposed Special Dividend or that a franking debit or exempting debit arises for Company A in respect of the proposed Special Dividend.