Class Ruling CR 2011/20
Date of effect: 1 July 2010

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates. Relevant provision(s) 2. The relevant provisions dealt with in this Ruling are: All subsequent legislative references in this Ruling are to the ITAA 1936 unless otherwise stated. Class of entities 3. The class of entities to which this Ruling applies are the shareholders of CSR Limited (CSR) who: Qualifications 4. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 9 to 22 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 7. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:

Class of entities or scheme: 3. The class of entities to which this Ruling applies are the shareholders of CSR Limited (CSR) who: | Qualifications: 4. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 9 to 22 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 7. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: 8. This Ruling applies from 1 July 2010 to 30 June 2011. The Ruling continues to apply after 30 June 2011 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). 9. The following description of the scheme is based on documents and information provided by the applicant. Note : certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. 10. CSR, an Australian resident public company, was a diversified entity with three distinct operating businesses: sugar, building products and aluminium. 11. The financial statements of the CSR group of companies, as at 31 March 2010, disclose $1,700.9 million in share capital and $49.8 million in accumulated losses. As at 30 September 2010, CSR had 1,517,907,314 ordinary shares on issue. | Business disposals and former demerger proposal: 12. In 2009, CSR proposed a demerger of its sugar and renewable energy business, Sucrogen Limited (Sucrogen) (formerly known as CSR Sugar Limited). As part of the demerger proposal, CSR raised a net amount of $366.8 million of new capital pursuant to a rights issue for the specific purpose of recapitalising the various entities involved in the demerger proposal. 13. On 5 July 2010, CSR announced that it had entered into an agreement with Wilmar International Limited for the direct acquisition of Sucrogen for approximately $1.75 billion. The effect of the sale agreement was to terminate the demerger proposal, and to make the capital raised under the rights issue no longer needed for its intended purpose. 14. On 6 July 2010, CSR also announced that it had entered into an agreement with the Rockwool Group to sell the Asian arm of its building products business (Asian Business Segment) for $128 million. | Return of capital: 15. On 7 January 2011, CSR announced the proposal to return capital to its shareholders in order to achieve the following commercial objectives: 16. The return of capital includes $366.8 million that was raised as part of the demerger proposal, and an additional amount of $294.6 million from the sale of the businesses that CSR considered to be excess to current requirements. The total return of capital amounts to $661.4 million ($0.4357 per share). 17. The return of capital was authorised by shareholders at a General Meeting held on 8 February 2011. The Record Date for the return of capital of 16 February 2011 and the Payment Date of 3 March 2011 were confirmed at this meeting. 18. The return of capital will be applied equally to each holder of a CSR share who is registered on the CSR share register on the Record Date and will be debited to the share capital account. 19. As a result of the return of capital there will be no change in either the number of CSR shares on issue held by each CSR shareholder or the proportionate interest of each shareholder in CSR. | Other aspects: 20. CSR has a history of paying annual dividends. That policy is intended to be sustained following the disposal of Sucrogen and the Asian Business Segment. 21. In addition to the return of capital, CSR paid a fully franked Special Dividend of $138.6 million ($0.0913 per share) on 2 February 2011. The Special Dividend amount has been debited to CSR's Retained Earnings account. 22. CSR also has previously paid a fully franked interim dividend of $0.03 cents per share on 10 December 2010. 23. CSR has confirmed that its share capital account (as defined in section 975-300 of the ITAA 1997) is not tainted (within the meaning of Division 197 of the ITAA 1997). 24. This Ruling is made on the basis that: | Distribution is not a dividend: 25. The return of capital to CSR shareholders will not be a dividend as defined in subsection 6(1). | The application of sections 45A, 45B and 45C to the return of capital: 26. The Commissioner will not make a determination under either subsection 45A(2) or subsection 45B(3) that section 45C applies to the return of capital. | Capital gains tax consequences: 27. CGT event G1 (section 104-135 of the ITAA 1997) will happen when CSR pays the return of capital to a CSR shareholder in respect of a CSR share that they own at the Record Date and continue to own at the Payment Date. 28. CGT event C2 (section 104-25 of the ITAA 1997) will happen when CSR pays the return of capital to a CSR shareholder in respect of a CSR share that they own at the Record Date but cease to own before the Payment Date. | Foreign resident shareholders: 29. A foreign resident CSR shareholder who is paid the return of capital disregards any capital gain made when CGT event G1 happens if their CSR share is not 'taxable Australian property' (section 855-10 of the ITAA 1997). 30. A foreign resident CSR shareholder who is paid the return of capital disregards any capital gain or capital loss made when CGT event C2 happens if their right to receive the return of capital is not 'taxable Australian property' (section 855-10 of the ITAA 1997). Commissioner of Taxation 16 February 2011 | Distribution is not a dividend: 31. Subsection 44(1) includes in a shareholder's assessable income any dividends, as defined in subsection 6(1), paid to the shareholders 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). 32. The term 'dividend' in subsection 6(1) includes any distribution made by a company to any of its shareholders. However, paragraph (d) specifically excludes a distribution from the definition of 'dividend' if the amount of the distribution is debited against an amount standing to the credit of the share capital account of the company. 33. '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 after 1 July 1998 where the first amount credited to the account was an amount of share capital. 34. Subsection 975-300(3) of the ITAA 1997 states that an account is generally taken not to be a share capital account if it is tainted. Section 197-50 of the ITAA 1997 states that a share capital account is tainted if an amount to which Division 197 of the ITAA 1997 applies is transferred to the account, and the account is not already tainted. 35. As the return of capital will be wholly debited against CSR's untainted share capital account, it will not constitute a dividend because of the exclusion in paragraph (d) of the definition of 'dividend' in subsection 6(1). | Subsection 6(4): 36. The exclusion in paragraph (d) of the definition of dividend in subsection 6(1) is limited by subsection 6(4) which applies in circumstances where, under an arrangement: 37. In the present case, there is no arrangement under which CSR raised share capital from certain shareholders and then distributes the capital raised to other shareholders. Accordingly, subsection 6(4) will have no application in respect of the return of capital. | Anti-avoidance provisions: 38. Sections 45A and 45B are two anti-avoidance provisions, which, if they apply, allow the Commissioner to determine that all or part of a distribution is treated as an unfranked dividend. | Section 45A - streaming of dividends and capital benefits: 39. Section 45A applies in circumstances where capital benefits are streamed to certain shareholders (the advantaged shareholders) who derive a greater benefit from the receipt of capital and it is reasonable to assume that the other shareholders (the disadvantaged shareholders) have received or will receive dividends. 40. CSR will provide its shareholders with a 'capital benefit' (as defined in paragraph 45A(3)(b)) and the capital benefit will be provided to all CSR shareholders in direct proportion to their individual share holding. As all shareholders benefit equally from the proposed return of capital there is no 'streaming' of capital benefits to some shareholders and not to others. 41. Accordingly, section 45A will not apply to the return of capital and the Commissioner will not make a determination under subsection 45A(2) that section 45C applies in relation to the return of capital to the shareholders of CSR. | Section 45B - schemes to provide capital benefits in substitution for dividends: 42. Section 45B applies where certain payments are made to shareholders in substitution for dividends. 43. Subsection 45B(2) sets out the conditions under which the Commissioner may make a determination under subsection 45B(3) that section 45C applies. These conditions are that: Each of these conditions is considered in paragraphs 44 to 57 of this Ruling. | Scheme: 44. A 'scheme' for the purposes of section 45B is taken to have the same meaning as provided in subsection 177A(1) of Part IVA. That definition is widely drawn and includes any agreement, arrangement, understanding, promise, undertaking, scheme, plan or proposal. 45. A return of share capital would constitute a scheme for the purposes of paragraph 45B(2)(a), because the return of capital will provide shareholders with a capital benefit. | Tax benefit: 46. A taxpayer 'obtains a tax benefit', as defined in subsection 45B(9), if: would, apart from the operation of section 45B, if the capital benefit had instead been a dividend. 47. Ordinarily, a return of capital would be subject to the CGT provisions of the income tax law. Unless the amount of the distribution exceeds the cost base of the shares, there will only be a cost base reduction under CGT event G1 (section 104-135 of the ITAA 1997). It is only to the extent (if any) that the distribution exceeds the cost base of the shares that a capital gain arises. A capital gain may not arise at all for certain foreign resident shareholders. By contrast, a dividend would generally be included in the assessable income of a resident shareholder or, in the case of a foreign resident, be subject to dividend withholding tax under section 128B. Therefore, CSR shareholders will obtain tax benefits from the return of capital. | Relevant circumstances: 48. Under paragraph 45B(2)(c) the Commissioner is required to consider the 'relevant circumstances' set out under subsection 45B(8) to determine whether any part of the scheme would be entered into for a purpose, other than an incidental purpose, of enabling a relevant taxpayer to obtain a tax benefit. However, the list of relevant circumstances in subsection 45B(8) is not exhaustive and regard may be had to other circumstances on the basis of their relevance. 49. The test of purpose is an objective one. The question is whether it would be concluded that a person who entered into or carried out the scheme did so for the purpose of obtaining a tax benefit for the relevant taxpayer. This requisite purpose does not have to be the most influential or prevailing purpose but it must be more than an incidental purpose. 50. The purpose which causes section 45B to apply may be the purpose of any party to the scheme. In this case, however, the Commissioner is only concerned with the purpose of CSR. The Commissioner cannot at this stage ascertain the purposes of CSR's numerous shareholders, all of whom were eligible to vote on the return of capital under section 256C of the Corporations Act 2001 and all of whom will participate in the return of capital. Nevertheless, in a case such as this, an objective conclusion as to the purpose of the company should, generally speaking, not be inconsistent with an objective conclusion as to the purpose of the shareholders, in particular those shareholders who voted in favour of the proposal. 51. The relevant circumstances under subsection 45B(8) cover the circumstances of the company and the tax profile of the shareholders. In this instance, because the return of capital will be made to all CSR shareholders holding ordinary shares, regardless of individual circumstances, paragraphs 45B(8)(c) to (h) do not incline towards or against a conclusion as to purpose. The circumstances covered by paragraphs 45B(8)(i) and (j), pertaining to the provision of ownership interests and demerger respectively, are not relevant. The relevant matters are those covered by the circumstances described in paragraphs 45B(8)(a), (b) and (k). 52. Paragraph 45B(8)(a) refers to the extent to which the capital benefit is attributable to capital and profits (realised or unrealised) of the company or an associate (within the meaning of section 318) of the company. In this case, the return is of capital in excess of CSR's requirements obtained from both the pursuit of the demerger proposal and the sales of Sucrogen and the Asian Business Segment. 53. The capital obtained from the rights issue pursuant to the demerger proposal is clearly attributable to the capital of CSR. That part of the return of capital obtained from the proceeds of the sales of Sucrogen and the Asian Business Segment is reflective of the capital released on disposal of the businesses and is not attributable to any realised or unrealised profits of CSR. Accordingly, the return of capital is attributable to capital only. 54. Paragraph 45B(8)(b) refers to the pattern of distributions made by a company or an associate (within the meaning of section 318) of the company. CSR has a consistent history of making regular fully franked dividend distributions and expects this dividend distribution policy to continue. Accordingly, CSR's pattern of distributions does not suggest that the proposed return of capital will be made in substitution for a dividend. 55. Paragraph 45B(8)(k) refers to the matters in subparagraphs 177D(b)(i) to (viii). These are matters by reference to which a scheme is able to be examined from a practical perspective in order to identify and compare its tax and non-tax objectives. The matters include the manner in which the scheme is carried out, the timing of the scheme, its form and substance, and its financial and other implications for the parties involved. 56. CSR has demonstrated that the scheme seeks to return an amount of capital raised during the pursuit of a proposed demerger and from the disposal of segments of its business. The return will release capital which CSR has stated is in excess of its current requirements. The practical implications of the scheme are consistent with it being, in form and substance, a return of capital. 57. Accordingly, the Commissioner will not make a determination under subsection 45B(3), that section 45C applies to the whole, or any part, of the return of capital. | Section 45C: 58. As the Commissioner will not make a determination under subsection 45A(2) or subsection 45B(3) in relation to the scheme as described, section 45C will not deem any part of the return of capital to be an unfranked dividend for the purposes of the ITAA 1936 or the ITAA 1997. | CGT event G1 - section 104-135: 59. CGT event G1 will happen when CSR pays the return of capital amount to a CSR shareholder in respect of a share that they own at the Record Date and continues to own at the Payment Date (section 104-135 of the ITAA 1997). 60. If the return of capital ($0.4357 per share) is equal to or less than the cost base of the CSR share at the Payment Date, the cost base and reduced cost base of the share will be reduced by the amount of the return of capital (subsection 104-135(4) of the ITAA 1997). 61. A CSR shareholder will make a capital gain if the return of capital is more than the cost base of their CSR share (subsection 104-135(3) of the ITAA 1997). The amount of the capital gain is equal to the excess. 62. If a CSR shareholder makes a capital gain when CGT event G1 happens, the cost base and reduced cost base of the CSR share is reduced to nil. A CSR shareholder cannot make a capital loss when CGT event G1 happens (subsection 104-135(3) of the ITAA 1997). 63. A capital gain made when CGT event G1 happens will be eligible to be treated as a discount capital gain under Subdivision 115-A of the ITAA 1997 provided that the CSR share was acquired at least 12 months before the payment of the return of capital (subsection 115-25(1) of the ITAA 1997) and the other conditions of that Subdivision are satisfied. | CGT event C2 - section 104-25: 64. The right to receive the return of capital is one of the rights inherent in a CSR share at the Record Date. If, after the Record Date but before the Payment Date, a CSR shareholder ceases to own a CSR share in respect of which the return of capital is payable, the right to receive the return of capital in respect of that share will be retained by the shareholder and is a separate CGT asset. 65. CGT event C2 will happen when the return of capital is paid (section 104-25 of the ITAA 1997). The right to receive the payment (being an intangible CGT asset) will end by the right being discharged or satisfied when the payment is made. 66. A CSR shareholder will make a capital gain if the capital proceeds from the ending of the right are more than its cost base. The capital gain is equal to the amount of the excess. A CSR shareholder will make a capital loss if the capital proceeds from the ending of the right are less than its reduced cost base (subsection 104-25(3) of the ITAA 1997). The capital loss is equal to the amount of the difference. 67. In working out the capital gain or capital loss made when CGT event C2 happens, the capital proceeds will be the amount of the proposed return of capital (subsection 116-20(1) of the ITAA 1997). 68. The cost base of the CSR shareholder's right to receive the return of capital is worked out under Division 110 of the ITAA 1997 (modified by Division 112 of the ITAA 1997). The cost base of the right does not include the cost base or reduced cost base of the share previously owned by a CSR shareholder that has been applied in working out a capital gain or capital loss made when a CGT event happened to the share - for example when the CSR shareholder disposed of the share after the Record Date. 69. Therefore, if the full cost base or reduced cost base of the CSR share has been previously applied in working out a capital gain or capital loss when a CGT event happened to that share, then the right to receive the return of capital is likely to have a nil cost base. As a result, the CSR shareholder will generally make a capital gain equal to the amount of the return of capital. 70. As the right to receive the payment of the return of capital was inherent in the CSR share during the time it was owned, the right is considered to have been acquired at the time when the corresponding share was acquired (section 109-5 of the ITAA 1997). Accordingly, if the CSR share was acquired at least 12 months before the payment of the return of capital, a capital gain made from the ending of the corresponding right will satisfy the requirements of section 115-25 of the ITAA 1997. Such a capital gain may be eligible to be treated as a discount capital gain under Subdivision 115-A of the ITAA 1997 provided the other conditions of that Subdivision are satisfied. | Foreign resident shareholders: 71. Under subsection 855-10(1) of the ITAA 1997, an entity disregards a capital gain or capital loss made from a CGT event if they are a foreign resident, or the trustee of a foreign trust for CGT purposes, just before the CGT event happens in relation to a CGT asset that is not 'taxable Australian property'. 72. The term 'taxable Australian property' is defined in the table in section 855-15 of the ITAA 1997. The table sets out these five categories of CGT assets: 73. At the time CGT event G1 happens to a share of a foreign resident CSR shareholder who is entitled to the return of capital, the share will not be an indirect Australian real property interest (as defined in section 855-25 of the ITAA 1997) as the interest will not pass the principal asset test in section 855-30 of the ITAA 1997 at that time. 74. However, a foreign resident CSR shareholder, just before CGT event G1 happens, cannot disregard under subsection 855-10(1) of the ITAA 1997 a capital gain made if: 75. At the time CGT event C2 happens to a foreign resident CSR shareholder who is entitled to the return of capital, the right to the payment will not be an indirect Australian real property interest (as defined in section 855-25 of the ITAA 1997) as the interest will not pass the principal asset test in section 855-30 of the ITAA 1997 at that time. 76. However, a foreign resident CSR shareholder, just before CGT event C2 happens, cannot disregard under subsection 855-10(1) of the ITAA 1997 a capital gain made if: 77. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: Distribution is not a dividend: 25. The return of capital to CSR shareholders will not be a dividend as defined in subsection 6(1). | The application of sections 45A, 45B and 45C to the return of capital: 26. The Commissioner will not make a determination under either subsection 45A(2) or subsection 45B(3) that section 45C applies to the return of capital. | Capital gains tax consequences: 27. CGT event G1 (section 104-135 of the ITAA 1997) will happen when CSR pays the return of capital to a CSR shareholder in respect of a CSR share that they own at the Record Date and continue to own at the Payment Date. 28. CGT event C2 (section 104-25 of the ITAA 1997) will happen when CSR pays the return of capital to a CSR shareholder in respect of a CSR share that they own at the Record Date but cease to own before the Payment Date. | Foreign resident shareholders: 29. A foreign resident CSR shareholder who is paid the return of capital disregards any capital gain made when CGT event G1 happens if their CSR share is not 'taxable Australian property' (section 855-10 of the ITAA 1997). 30. A foreign resident CSR shareholder who is paid the return of capital disregards any capital gain or capital loss made when CGT event C2 happens if their right to receive the return of capital is not 'taxable Australian property' (section 855-10 of the ITAA 1997). Commissioner of Taxation 16 February 2011


Appendix: Distribution is not a dividend: 31. Subsection 44(1) includes in a shareholder's assessable income any dividends, as defined in subsection 6(1), paid to the shareholders 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). 32. The term 'dividend' in subsection 6(1) includes any distribution made by a company to any of its shareholders. However, paragraph (d) specifically excludes a distribution from the definition of 'dividend' if the amount of the distribution is debited against an amount standing to the credit of the share capital account of the company. 33. '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 after 1 July 1998 where the first amount credited to the account was an amount of share capital. 34. Subsection 975-300(3) of the ITAA 1997 states that an account is generally taken not to be a share capital account if it is tainted. Section 197-50 of the ITAA 1997 states that a share capital account is tainted if an amount to which Division 197 of the ITAA 1997 applies is transferred to the account, and the account is not already tainted. 35. As the return of capital will be wholly debited against CSR's untainted share capital account, it will not constitute a dividend because of the exclusion in paragraph (d) of the definition of 'dividend' in subsection 6(1). | Subsection 6(4): 36. The exclusion in paragraph (d) of the definition of dividend in subsection 6(1) is limited by subsection 6(4) which applies in circumstances where, under an arrangement: 37. In the present case, there is no arrangement under which CSR raised share capital from certain shareholders and then distributes the capital raised to other shareholders. Accordingly, subsection 6(4) will have no application in respect of the return of capital. | Anti-avoidance provisions: 38. Sections 45A and 45B are two anti-avoidance provisions, which, if they apply, allow the Commissioner to determine that all or part of a distribution is treated as an unfranked dividend. | Section 45A - streaming of dividends and capital benefits: 39. Section 45A applies in circumstances where capital benefits are streamed to certain shareholders (the advantaged shareholders) who derive a greater benefit from the receipt of capital and it is reasonable to assume that the other shareholders (the disadvantaged shareholders) have received or will receive dividends. 40. CSR will provide its shareholders with a 'capital benefit' (as defined in paragraph 45A(3)(b)) and the capital benefit will be provided to all CSR shareholders in direct proportion to their individual share holding. As all shareholders benefit equally from the proposed return of capital there is no 'streaming' of capital benefits to some shareholders and not to others. 41. Accordingly, section 45A will not apply to the return of capital and the Commissioner will not make a determination under subsection 45A(2) that section 45C applies in relation to the return of capital to the shareholders of CSR. | Section 45B - schemes to provide capital benefits in substitution for dividends: 42. Section 45B applies where certain payments are made to shareholders in substitution for dividends. 43. Subsection 45B(2) sets out the conditions under which the Commissioner may make a determination under subsection 45B(3) that section 45C applies. These conditions are that: Each of these conditions is considered in paragraphs 44 to 57 of this Ruling. | Scheme: 44. A 'scheme' for the purposes of section 45B is taken to have the same meaning as provided in subsection 177A(1) of Part IVA. That definition is widely drawn and includes any agreement, arrangement, understanding, promise, undertaking, scheme, plan or proposal. 45. A return of share capital would constitute a scheme for the purposes of paragraph 45B(2)(a), because the return of capital will provide shareholders with a capital benefit. | Tax benefit: 46. A taxpayer 'obtains a tax benefit', as defined in subsection 45B(9), if: would, apart from the operation of section 45B, if the capital benefit had instead been a dividend. 47. Ordinarily, a return of capital would be subject to the CGT provisions of the income tax law. Unless the amount of the distribution exceeds the cost base of the shares, there will only be a cost base reduction under CGT event G1 (section 104-135 of the ITAA 1997). It is only to the extent (if any) that the distribution exceeds the cost base of the shares that a capital gain arises. A capital gain may not arise at all for certain foreign resident shareholders. By contrast, a dividend would generally be included in the assessable income of a resident shareholder or, in the case of a foreign resident, be subject to dividend withholding tax under section 128B. Therefore, CSR shareholders will obtain tax benefits from the return of capital. | Relevant circumstances: 48. Under paragraph 45B(2)(c) the Commissioner is required to consider the 'relevant circumstances' set out under subsection 45B(8) to determine whether any part of the scheme would be entered into for a purpose, other than an incidental purpose, of enabling a relevant taxpayer to obtain a tax benefit. However, the list of relevant circumstances in subsection 45B(8) is not exhaustive and regard may be had to other circumstances on the basis of their relevance. 49. The test of purpose is an objective one. The question is whether it would be concluded that a person who entered into or carried out the scheme did so for the purpose of obtaining a tax benefit for the relevant taxpayer. This requisite purpose does not have to be the most influential or prevailing purpose but it must be more than an incidental purpose. 50. The purpose which causes section 45B to apply may be the purpose of any party to the scheme. In this case, however, the Commissioner is only concerned with the purpose of CSR. The Commissioner cannot at this stage ascertain the purposes of CSR's numerous shareholders, all of whom were eligible to vote on the return of capital under section 256C of the Corporations Act 2001 and all of whom will participate in the return of capital. Nevertheless, in a case such as this, an objective conclusion as to the purpose of the company should, generally speaking, not be inconsistent with an objective conclusion as to the purpose of the shareholders, in particular those shareholders who voted in favour of the proposal. 51. The relevant circumstances under subsection 45B(8) cover the circumstances of the company and the tax profile of the shareholders. In this instance, because the return of capital will be made to all CSR shareholders holding ordinary shares, regardless of individual circumstances, paragraphs 45B(8)(c) to (h) do not incline towards or against a conclusion as to purpose. The circumstances covered by paragraphs 45B(8)(i) and (j), pertaining to the provision of ownership interests and demerger respectively, are not relevant. The relevant matters are those covered by the circumstances described in paragraphs 45B(8)(a), (b) and (k). 52. Paragraph 45B(8)(a) refers to the extent to which the capital benefit is attributable to capital and profits (realised or unrealised) of the company or an associate (within the meaning of section 318) of the company. In this case, the return is of capital in excess of CSR's requirements obtained from both the pursuit of the demerger proposal and the sales of Sucrogen and the Asian Business Segment. 53. The capital obtained from the rights issue pursuant to the demerger proposal is clearly attributable to the capital of CSR. That part of the return of capital obtained from the proceeds of the sales of Sucrogen and the Asian Business Segment is reflective of the capital released on disposal of the businesses and is not attributable to any realised or unrealised profits of CSR. Accordingly, the return of capital is attributable to capital only. 54. Paragraph 45B(8)(b) refers to the pattern of distributions made by a company or an associate (within the meaning of section 318) of the company. CSR has a consistent history of making regular fully franked dividend distributions and expects this dividend distribution policy to continue. Accordingly, CSR's pattern of distributions does not suggest that the proposed return of capital will be made in substitution for a dividend. 55. Paragraph 45B(8)(k) refers to the matters in subparagraphs 177D(b)(i) to (viii). These are matters by reference to which a scheme is able to be examined from a practical perspective in order to identify and compare its tax and non-tax objectives. The matters include the manner in which the scheme is carried out, the timing of the scheme, its form and substance, and its financial and other implications for the parties involved. 56. CSR has demonstrated that the scheme seeks to return an amount of capital raised during the pursuit of a proposed demerger and from the disposal of segments of its business. The return will release capital which CSR has stated is in excess of its current requirements. The practical implications of the scheme are consistent with it being, in form and substance, a return of capital. 57. Accordingly, the Commissioner will not make a determination under subsection 45B(3), that section 45C applies to the whole, or any part, of the return of capital. | Section 45C: 58. As the Commissioner will not make a determination under subsection 45A(2) or subsection 45B(3) in relation to the scheme as described, section 45C will not deem any part of the return of capital to be an unfranked dividend for the purposes of the ITAA 1936 or the ITAA 1997. | CGT event G1 - section 104-135: 59. CGT event G1 will happen when CSR pays the return of capital amount to a CSR shareholder in respect of a share that they own at the Record Date and continues to own at the Payment Date (section 104-135 of the ITAA 1997). 60. If the return of capital ($0.4357 per share) is equal to or less than the cost base of the CSR share at the Payment Date, the cost base and reduced cost base of the share will be reduced by the amount of the return of capital (subsection 104-135(4) of the ITAA 1997). 61. A CSR shareholder will make a capital gain if the return of capital is more than the cost base of their CSR share (subsection 104-135(3) of the ITAA 1997). The amount of the capital gain is equal to the excess. 62. If a CSR shareholder makes a capital gain when CGT event G1 happens, the cost base and reduced cost base of the CSR share is reduced to nil. A CSR shareholder cannot make a capital loss when CGT event G1 happens (subsection 104-135(3) of the ITAA 1997). 63. A capital gain made when CGT event G1 happens will be eligible to be treated as a discount capital gain under Subdivision 115-A of the ITAA 1997 provided that the CSR share was acquired at least 12 months before the payment of the return of capital (subsection 115-25(1) of the ITAA 1997) and the other conditions of that Subdivision are satisfied. | CGT event C2 - section 104-25: 64. The right to receive the return of capital is one of the rights inherent in a CSR share at the Record Date. If, after the Record Date but before the Payment Date, a CSR shareholder ceases to own a CSR share in respect of which the return of capital is payable, the right to receive the return of capital in respect of that share will be retained by the shareholder and is a separate CGT asset. 65. CGT event C2 will happen when the return of capital is paid (section 104-25 of the ITAA 1997). The right to receive the payment (being an intangible CGT asset) will end by the right being discharged or satisfied when the payment is made. 66. A CSR shareholder will make a capital gain if the capital proceeds from the ending of the right are more than its cost base. The capital gain is equal to the amount of the excess. A CSR shareholder will make a capital loss if the capital proceeds from the ending of the right are less than its reduced cost base (subsection 104-25(3) of the ITAA 1997). The capital loss is equal to the amount of the difference. 67. In working out the capital gain or capital loss made when CGT event C2 happens, the capital proceeds will be the amount of the proposed return of capital (subsection 116-20(1) of the ITAA 1997). 68. The cost base of the CSR shareholder's right to receive the return of capital is worked out under Division 110 of the ITAA 1997 (modified by Division 112 of the ITAA 1997). The cost base of the right does not include the cost base or reduced cost base of the share previously owned by a CSR shareholder that has been applied in working out a capital gain or capital loss made when a CGT event happened to the share - for example when the CSR shareholder disposed of the share after the Record Date. 69. Therefore, if the full cost base or reduced cost base of the CSR share has been previously applied in working out a capital gain or capital loss when a CGT event happened to that share, then the right to receive the return of capital is likely to have a nil cost base. As a result, the CSR shareholder will generally make a capital gain equal to the amount of the return of capital. 70. As the right to receive the payment of the return of capital was inherent in the CSR share during the time it was owned, the right is considered to have been acquired at the time when the corresponding share was acquired (section 109-5 of the ITAA 1997). Accordingly, if the CSR share was acquired at least 12 months before the payment of the return of capital, a capital gain made from the ending of the corresponding right will satisfy the requirements of section 115-25 of the ITAA 1997. Such a capital gain may be eligible to be treated as a discount capital gain under Subdivision 115-A of the ITAA 1997 provided the other conditions of that Subdivision are satisfied. | Foreign resident shareholders: 71. Under subsection 855-10(1) of the ITAA 1997, an entity disregards a capital gain or capital loss made from a CGT event if they are a foreign resident, or the trustee of a foreign trust for CGT purposes, just before the CGT event happens in relation to a CGT asset that is not 'taxable Australian property'. 72. The term 'taxable Australian property' is defined in the table in section 855-15 of the ITAA 1997. The table sets out these five categories of CGT assets: 73. At the time CGT event G1 happens to a share of a foreign resident CSR shareholder who is entitled to the return of capital, the share will not be an indirect Australian real property interest (as defined in section 855-25 of the ITAA 1997) as the interest will not pass the principal asset test in section 855-30 of the ITAA 1997 at that time. 74. However, a foreign resident CSR shareholder, just before CGT event G1 happens, cannot disregard under subsection 855-10(1) of the ITAA 1997 a capital gain made if: 75. At the time CGT event C2 happens to a foreign resident CSR shareholder who is entitled to the return of capital, the right to the payment will not be an indirect Australian real property interest (as defined in section 855-25 of the ITAA 1997) as the interest will not pass the principal asset test in section 855-30 of the ITAA 1997 at that time. 76. However, a foreign resident CSR shareholder, just before CGT event C2 happens, cannot disregard under subsection 855-10(1) of the ITAA 1997 a capital gain made if:


What this Ruling is about | NOT LEGALLY BINDING SECTION: | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | taxable Australian real property; | an indirect Australian real property interest not covered by item 5; | a CGT asset used at any time in carrying on a business through a permanent establishment in Australia and which is not covered by item 1, 2, or 5; | an option or right to acquire a CGT asset covered by item 1, 2 or 3; and | a CGT asset that is covered by subsection 104-165(3) of the ITAA 1997 (choosing to disregard a gain or loss on ceasing to be an Australian resident). | Appendix 2 - Detailed contents list


Related rulings: TR 2006/10
Legislative references: ITAA 1936 ITAA 1936 6(1) ITAA 1936 6(1)(d) ITAA 1936 6(4) ITAA 1936 44(1) ITAA 1936 45A ITAA 1936 45A(2) ITAA 1936 45A(3)(b) ITAA 1936 45B ITAA 1936 45B(2) ITAA 1936 45B(2)(a) ITAA 1936 45B(2)(b) ITAA 1936 45B(2)(c) ITAA 1936 45B(3) ITAA 1936 45B(8) ITAA 1936 45B(8)(a) ITAA 1936 45B(8)(b) ITAA 1936 45B(8)(c) ITAA 1936 45B(8)(d) ITAA 1936 45B(8)(e) ITAA 1936 45B(8)(f) ITAA 1936 45B(8)(g) ITAA 1936 45B(8)(h) ITAA 1936 45B(8)(i) ITAA 1936 45B(8)(j) ITAA 1936 45B(8)(k) ITAA 1936 45B(9) ITAA 1936 45C ITAA 1936 128B ITAA 1936 177A(1) ITAA 1936 177D(b)(i) ITAA 1936 177D(b)(ii) ITAA 1936 177D(b)(iii) ITAA 1936 177D(b)(iv) ITAA 1936 177D(b)(v) ITAA 1936 177D(b)(vi) ITAA 1936 177D(b)(vii) ITAA 1936 177D(b)(viii) ITAA 1936 318 ITAA 1997 ITAA 1997 104-25 ITAA 1997 104-25(3) ITAA 1997 104-135 ITAA 1997 104-135(3) ITAA 1997 104-135(4) ITAA 1997 104-165(3) ITAA 1997 109-5 ITAA 1997 Div 110 ITAA 1997 Div 112 ITAA 1997 Subdiv 115-A ITAA 1997 115-25 ITAA 1997 115-25(1) ITAA 1997 116-20(1) ITAA 1997 Div 197 ITAA 1997 197-50 ITAA 1997 Div 230 ITAA 1997 855-10 ITAA 1997 855-10(1) ITAA 1997 855-15 ITAA 1997 855-25 ITAA 1997 855-30 ITAA 1997 975-300 ITAA 1997 975-300(3) Corporations Act 2001 256C TAA 1953 Copyright Act 1968
Subject references: capital benefit capital gains tax capital raising dividends return of capital on shares share capital CGT events C1-C3 - end of a CGT asset CGT events G1-G3 - shares distributions