Private ruling: Return of share capital
Date of advice: 5 July 2016
Published: August 2016
Ruling period: 1 January 2016 to 31 December 2016

Ruling: Q1: Will the proposed return of capital constitute a dividend as defined in subsection 6(1) of the ITAA 1936 for income tax purposes and be subject to dividend withholding tax pursuant to section 128B of the 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 whole, or a part, of the capital benefit under the proposed return of capital? | A3: No

Relevant facts and circumstances: Company A is an Australian tax resident and an eligible tier 1 member of a MEC group. It is wholly owned by Company B which is a non-resident. Company A proposes to conduct a return of capital to Company B. The return of capital will be sourced from the Company A’s surplus share capital released from various transactions. The proposed return of capital will be debited to Company A’s untainted share capital account.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 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 section 128B

Reasons for decision: Summary: The proposed return of capital will not constitute a dividend as defined in subsection 6(1) of the ITAA 1936. Therefore, it will not be subject to dividend withholding tax pursuant to section 128B of the ITAA 1936. As section 45A will not apply to the proposed return of capital, the Commissioner will not 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. As section 45B will not apply to the proposed return of capital, the Commissioner will not make a determination under subsection 45B(3) 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.