Private ruling: Return of capital
Date of advice: 27 August 2025
Published: 27 October 2025
Ruling period: Year ending DD MM YYYY
Date scheme commenced: DD MM YYYY

Ruling: Q1: Will the Commissioner make a determination under section 45A of the Income Tax Assessment Act 1936 (ITAA 1936) that section 45C of the ITAA 1936 applies to deem any part of the Capital Return made by Company A to its shareholders (that is debited against the share capital account of Company A) to be a dividend paid out of profits? | A1: No. | Q2: Will the Commissioner make a determination under section 45B of the ITAA 1936 that section 45C of the ITAA 1936 applies to deem any part of the Capital Return made by Company A to its shareholders (that is debited against the share capital account of Company A) to be a dividend paid out of profits? | A2: No.

Relevant facts and circumstances: 1. Company A Pty Ltd ( Company A ) is the head entity of an Australian tax consolidated group ( TCG ). 2. Company A and a number of other entities within the TCG were incorporated to facilitate investments in Company B Pty Ltd ( Company B ) and its subsidiaries in MM YYYY. This investment was funded through a combination of debt and equity. 3. Company A has two classes of shares on issue, ordinary shares and management shares. 4. xx% of ordinary shares are held by non-residents for Australian tax purposes. 5. The debt equity funding mix of the TCG was considered to be inefficient by way of being capital heavy, but this over-capitalisation was necessary as a result of financiers' outlook of the market at the time, and their consequential benchmarking utilising cash EBITDA rather than accounting EBITDA. 6. After subsequent years of business operations and maturity, this attitude has changed and Company A wishes to obtain further debt financing to be applied to: • refinancing existing debt facilities • repaying vendor debt • making a return of capital. 7. The debt financing compromises: • a securitisation facility drawn down by a newly established unit trust ( Unit Trust ) of $xx mil • a corporate facility drawn down by Company B Holdings of $xx mil. 8. The Unit Trust is a subsidiary member of the TCG. The Unit Trust has the rights to receive future trail commission amounts (recognised as an asset on the TCG's consolidated balance sheet) which will be used as security for the securitisation facility. Capital return 9. The Company A Board came to the conclusion that a return of capital was prudent because: • the TCG is over-capitalised as a result of initial financier requirements, and consequently is not at the optimal debt/equity funding mix • the scheme as a whole is projected to result in weighted average cost of capital reducing from xx% to xx%. 10. Company A will make a distribution of $xx mil to its ordinary shareholders on a pro-rata basis. 11. Of this, $xx mil will be characterised as a return of capital, and the remaining $xx mil will be a fully franked dividend. 12. The return of capital will be debited against an amount standing to the credit of Company A's share capital account. Company A's share capital account is not tainted for the purposes of Division 197 of the Income Tax Assessment Act 1997 . 13. The determination of this split was based on the ratio of share capital to retained earnings, approximately $xx to $xx. 14. The proposed capital return will need to be approved by the Company A Board, as well as shareholders in accordance with section 256C of the Corporations Act 2001 . Dividend decisions 15. In MM YYYY, Company B Holdings' previous owners declared a dividend prior to acquisition. 16. Apart from the fully franked dividend of $xx mil to be paid as part of the capital return process, no subsequent dividend has been paid.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 45A(1) | Income Tax Assessment Act 1936 Subsection 45A(2) | Income Tax Assessment Act 1936 Subsection 45B(2) | Income Tax Assessment Act 1936 Subsection 45B(3) | Income Tax Assessment Act 1936 Subsection 45B(5) | Income Tax Assessment Act 1936 Subsection 45B(8) | Income Tax Assessment Act 1936 Subsection 177D(2) | Income Tax Assessment Act 1997 Division 197 | Corporations Act 2001 Section 256C

Reasons for decision: Summary: The Commissioner will not make a determination under section 45A. | Detailed Reasoning - Detailed reasoning: 17. Subsection 45A(1) provides: 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. 18. As part of the scheme, ordinary shareholders will receive a capital benefit in the form of the return of capital. No dividends will be paid to any other class of shareholder so this section will not apply. 19. Therefore, the Commissioner will not make a determination under subsection 45A(2) that section 45C will apply. | Detailed Reasoning - Question 2: Will the Commissioner make a determination under section 45B of the ITAA 1936 that section 45C of the ITAA 1936 applies to deem any part of the Capital Return made by Company A to its shareholders (that is debited against the share capital account of Company A) to be a dividend paid out of profits? | Summary: The Commissioner will not make a determination under section 45B. | Detailed Reasoning - Detailed reasoning: 20. Subsection 45B(2) provides: This section applies if: (a) there is a scheme under which a person is provided with a demerger benefit or 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 demerger benefit or 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. 21. Subsection 45B(5) provides: A reference to a person being provided with a capital benefit is a reference to any of the following: (a) the provision of ownership interests in a company to the person; (b) the distribution to the person of share capital or share premium; (c) something that is done in relation to an ownership interest that has the effect of increasing the value of an ownership interest (which may or may not be the same interest) that is held by the person. 22. Subsection 45B(8) provides: The relevant circumstances of a scheme include the following: (a) the extent to which the demerger benefit or capital benefit is attributable to capital or the extent to which the demerger benefit or capital benefit is attributable to profits (realised and unrealised) of the company or of an associate (within the meaning in section 318) of the company; (b) the pattern of distributions of dividends, bonus shares and returns of capital or share premium by the company or by an associate (within the meaning in section 318) of the company; (c) whether the relevant taxpayer has capital losses that, apart from the scheme, would be unutilised (within the meaning of the Income Tax Assessment Act 1997 ) at the end of the relevant year of income; (d) whether some or all of the ownership interests in the company or in an associate (within the meaning in section 318) of the company held by the relevant taxpayer were acquired, or are taken to have been acquired, by the relevant taxpayer before 20 September 1985; (e) whether the relevant taxpayer is a non-resident; (f) whether the cost base (for the purposes of the Income Tax Assessment Act 1997 ) of the relevant ownership interest is not substantially less than the value of the applicable demerger benefit or capital benefit; (h) if the scheme involves the distribution of share capital or share premium-whether the interest held by the relevant taxpayer after the distribution is the same as the interest would have been if an equivalent dividend had been paid instead of the distribution of share capital or share premium; (i) if the scheme involves the provision of ownership interests and the later disposal of those interests, or an increase in the value of ownership interests and the later disposal of those interests: (i) the period for which the ownership interests are held by the holder of the interests; and (ii) when the arrangement for the disposal of the ownership interests was entered into; (j) for a demerger only; (i) whether the profits of the demerging entity and demerged entity are attributable to transactions between the entity and an associate (within the meaning in section 318) of the entity; and (ii) whether the assets of the demerging entity and demerged entity were acquired under transactions between the entity and an associate (within the meaning in section 318) of the entity; (k) any of the matters referred to in subsection 177D(2). 23. Subsection 177D(2) provides: For the purpose of subsection (1), have regard to the following matters: (a) the manner in which the scheme was entered into or carried out; (b) the form and substance of the scheme; (c) the time at which the scheme was entered into and the length of the period during which the scheme was carried out; (d) the result in relation to the operation of this Act that, but for this Part, would be achieved by the scheme; (e) any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme; (f) any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the scheme; (g) any other consequence for the relevant taxpayer, or for any person referred to in paragraph (f), of the scheme having been entered into or carried out; (h) the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in paragraph (f). 24. Here, the ordinary shareholders will receive a capital benefit as a result of the return of capital. It is therefore necessary to consider the proposed scheme as against the prescribed relevant circumstances. 25. Having considered the relevant circumstances, the Commissioner has determined that the scheme will not be entered into or caried out for a more than incidental purpose of enabling Company A shareholders to obtain a tax benefit. 26. Therefore, section 45B does not apply to the proposed scheme, and the Commissioner will not make a determination under subsection 45B(3) that section 45C will apply.

Question 1: Will the Commissioner make a determination under section 45A of the ITAA 1936 that section 45C of the ITAA 1936 applies to deem any part of the Capital Return made by Company A to its shareholders (that is debited against the share capital account of Company A) to be a dividend paid out of profits?