Class Ruling CR 2019/31
Date of effect: 1 July 2018

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates. Relevant provisions 2. The relevant provisions dealt with in this Ruling are: All legislative references in this Ruling are to the ITAA 1936 or the ITAA 1997 unless otherwise indicated. Class of entities 3. The class of entities to which this Ruling applies are the ordinary shareholders of Caltex Australia Limited (Caltex) who: 4. In this Ruling, these ordinary shareholders of Caltex are referred to as 'Participating Shareholders'. Qualifications 5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out in accordance with the scheme described in paragraphs 10 to 28 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 Ruling does not address all income tax consequences of the Final Ordinary Dividend.

Class of entities or scheme: 3. The class of entities to which this Ruling applies are the ordinary shareholders of Caltex Australia Limited (Caltex) who: 4. In this Ruling, these ordinary shareholders of Caltex are referred to as 'Participating Shareholders'. | Qualifications: 5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out in accordance with the scheme described in paragraphs 10 to 28 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 Ruling does not address all income tax consequences of the Final Ordinary Dividend. 8. This Ruling applies from 1 July 2018 to 30 June 2019. The Ruling continues to apply after 30 July 2019 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 Public Rulings ). 9. The following description of the scheme is based on information provided by the applicant in the Caltex Australia Limited Off-Market Buy-Back Booklet (the Booklet). The Booklet or relevant parts of the Booklet form part of and are to be read with the description. 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. Caltex is an Australian resident public company listed on the Australian Securities Exchange (ASX). 11. The financial statements of Caltex as at 31 December 2018 disclose that Caltex had: 12. The shareholders of Caltex are a mix of individuals, companies and superannuation finds, some of whom are non-residents. 13. On 26 February 2019 (First Announcement Date), Caltex announced that it: 14. Caltex announced it was targeting the repurchase of $260 million of shares. However, Caltex reserved the right to buy back any number of shares, or to not buy back any shares. 15. Caltex proposed the Buy-Back as it had capital surplus to its requirements. Caltex expected that the Buy-Back would have a positive long-term impact on its share price by improving a number of Caltex's financial ratios. These would include increases in earnings and dividends per share and the return on equity. 16. The Buy-Back was conducted through a tender process and was open to all eligible shareholders who are residents of Australia and New Zealand and were registered as such on 4 March 2019 (Record Date), except for: 17. Participation in the Buy-Back was voluntary. Any Caltex shareholder who did not wish to participate was not required to do anything. Non-Participating Shareholders did not receive any property, dividends or distributions by way of compensation for not participating in the Buy-Back. 18. The tender period opened on 18 March 2019 (Opening Date) and closed on 12 April 2019 (Closing Date). 19. Under the tender process, eligible shareholders were entitled to offer to sell some or all of their ordinary shares to Caltex at specified discount percentages (Tender Discount) to the volume weighted average price (VWAP) of Caltex shares sold on the ASX over the five trading days up to and including 12 April 2019 (the Closing Date) calculated to four decimal places. The Tender Discount ranged from 10% to 14% in 1% intervals. Eligible shareholders also had the option of offering to sell different parcels of shares at different Tender Discounts, or at the Final Price Tender which was the price that would ultimately be determined under the tender process as the Buy-Back Price. 20. Eligible shareholders who held 185 ordinary shares or less, and who wished to participate in the Buy-Back, were required to submit one Tender only in respect of all of their shares at one of the specified Tender Discounts, or as a Final Price Tender. 21. Caltex did not accept: 22. Caltex did accept: 23. Where the number of shares tendered that satisfied the Buy-Back criteria exceeded the number of shares Caltex determined to buy back, successful tenders were scaled back on a pro-rata basis. A Priority Allocation of 185 shares was bought back from each successful tendering shareholder before the scale back was applied. 24. Notwithstanding the scale back, successful shareholders who would be left with 75 or fewer shares as a result of the scale back, had all of the shares tendered bought back in full. 25. The Buy-Back Price was subject to two overriding limits: 26. On 15 April 2019, Caltex announced that: 27. All shares bought back under the Buy-Back were cancelled. 28. Under the Buy-Back, $2.01 per share was debited to Caltex's untainted share capital account (within the meaning of section 197-50) and the balance of the Buy-Back Price was debited to Caltex's retained earnings. | Off-market purchase: 29. For the purposes of Division 16K, the Buy-Back is an off-market purchase within the meaning given by paragraph 159GZZZK(d). | The Dividend Component: 30. Participating Shareholders are taken to have been paid a dividend of $21.42 (the Dividend Component) on 15 April 2019 for each share bought back under section 159GZZZP. 31. The Dividend Component is a frankable distribution pursuant to section 202-40, and is capable of being franked in accordance with section 202-5. 32. The difference between the Buy-Back Price and the Dividend Component is not a dividend for income tax purposes (subsection 159GZZZP(2)). | Direct distributions: 33. Australian resident individual and corporate shareholders and trustees of resident complying superannuation funds, who participated in the Buy-Back include in their assessable income: in the income year in which the Buy-Back occurred (subsections 44(1) and 207-20(1)). 34. Participating Shareholders will be entitled to a tax offset under subsection 207-20(2) equal to the amount of the franking credit attached to the Dividend Component, subject to being a 'qualified person'. | Indirect distributions: Partnerships 35. A Participating Shareholder that is a partnership includes in its assessable income for the purposes of calculating the net income of the partnership: in the income year in which the Buy-Back occurred. Trusts 36. A Participating Shareholder that is a trustee of a trust includes in its assessable income for the purposes of determining the net income of the trust: in the income year in which the Buy-Back occurred. Partners and Beneficiaries 37. Subsections 207-35(3) to (6) set out the circumstances in which a partner or beneficiary to whom a franked distribution flows indirectly is required to gross up their assessable income for their share of the franking credit on the franked distribution. Where the franked distribution flows indirectly (within the meaning of Subdivision 207-B) through a trust or partnership to a resident that is an individual, a corporate tax entity (at the time the distribution flows indirectly to it) or a trustee mentioned in paragraphs 207-45(c), (ca) or (d), the entity will, subject to the qualified person rule, be entitled to a tax offset equal to the entity's share of the franking credit on the franked distribution (section 207-45). | Refundable tax offset: 38. The tax offsets are subject to the refundable tax offset rules in Division 67. Certain trustees and corporate tax entities are not entitled to the refundable tax offset rules in accordance with subsections 67-25(1A) to (1DA). | Non-resident Participating Shareholders: 39. As the Dividend Component is fully franked, non-resident Participating Shareholders are not liable to Australian withholding tax in respect of the Dividend Component (paragraph 128B(3)(ga)). | Sale Consideration: 40. Unless the Participating Shareholder is a corporate tax entity to which subsections 159GZZZQ(8) and (9) apply, a Participating Shareholder is taken to have received $5.60 per share as consideration in respect of each share bought back under the Buy-Back (Sale Consideration) on 15 April 2019 in accordance with section 159GZZZQ. 41. Where the Buy-Back price for each share bought back under the Buy-Back was less than what would have been the market value of the share if the Buy-Back did not occur and was never proposed to occur, then the market value rule in subsection 159GZZZQ(2) applies to the Buy-Back. TD 2004/22 outlines the Commissioner's approach for determining what would have been the market value of the share at the time of the Buy-Back if the Buy-Back did not occur and was never proposed to occur for the purposes of subsection 159GZZZQ(2). 42. The effect of the rule is that if the Buy-Back Price is less than the market value, which is determined in accordance with TD 2004/22, the difference is included in the consideration received for the disposal of the share, in addition to the amount of $2.01 per share debited to Caltex's share capital account. Accordingly, the Sale Consideration is $5.60 per share. 43. The treatment of the Sale Consideration will depend on whether the sale is on capital account or on revenue account. | Shares held on capital account: 44. The shares are taken to have been disposed of for CGT purposes on 15 April 2019 pursuant to section 104-10 (CGT event A1). 45. The Sale Consideration of $5.60 per share represents the capital proceeds for CGT purposes pursuant to section 116-20. A Participating Shareholder (other than a partnership) will make a capital gain on a share if the Sale Consideration per share exceeds the cost base of that share. The capital gain is the amount of the excess. Similarly, a Participating Shareholder (other than a partnership) will make a capital loss on a share if the Share Consideration per share is less than the reduced cost base of the share (subsection 104-10(4)). 46. Each partner in a partnership has a separate Cost base / reduced cost base for the partner's interest in each Caltex share sold into the Buy-Back by the partnership (subsection 106-5(2)). Each partner is allocated an appropriate share of the Sale Consideration received by the partnership for the disposal of Caltex shares into the Buy-Back. | Shares held on revenue account: 47. Where shares were held as trading stock, the Sale Consideration of $5.60 per share is included in assessable income pursuant to section 6-5. Participating Shareholders (other than partnerships) that held shares as trading stock also made a capital gain or capital loss calculated as discussed at paragraphs 44 and 45 of this Ruling. However, under section 118-25, any capital gain or capital loss the Participating Shareholders made is disregarded if at the time of the CGT event the shares were held as trading stock. There is a similar exemption for partners in partnerships (paragraph 118-25(1)(b)). 48. Where shares were held as revenue assets (as defined in section 977-50), but were not trading stock, the amount by which the Sale Consideration of $5.60 per share exceeds the cost of each share is included in the Participating Shareholder's assessable income. Correspondingly, if the cost of each share exceeds the Sale Consideration of $5.60 per share the difference is an allowable deduction. Where the Sale Consideration per share exceeds the cost base of that share, the Participating Shareholders (other than partnerships) will also make a capital gain. However, under section 118-20, any capital gain the Participating Shareholders make will be reduced if, because of the event, an amount is otherwise included in assessable income. The capital gain will be reduced to zero if the capital gain does not exceed the amount otherwise included in assessable income (subsection 118-20(2)). If the capital gain exceeds the amount otherwise included in assessable income, the capital gain will be reduced by the amount otherwise included in assessable income (subsection 118-20(3)). There is a similar reduction for partners in partnerships (paragraphs 118-20(1)(b) and 118-20(2)(b), and subsection 118-20(3)). | Foreign resident Participating Shareholders: CGT consequences: 49. Under section 855-10, Participating Shareholders that are foreign residents will only have CGT consequences if the shares purchased under the Buy-Back are 'taxable Australian property'. | Qualified persons: 50. For the purposes of paragraph 207-145(1)(a) which refers to Division 1A of former Part IIIAA, a Participating Shareholder will be considered to satisfy the holding period rule under former section 160APHO, and be a qualified person (as long as the related payments rule is also met) in relation to the Dividend Component received under the Buy-Back if: 51. The 'last-in first-out' rule in former subsection 160APHI(4) has no effect for the purposes of the Final Ordinary Dividend and the Dividend Component of the Buy-Back in respect of additional Caltex shares acquired on or after 1 March 2019, as such shares were not entitled to participate in the Buy-Back. 52. Participating Shareholders who received the Final Ordinary Dividend in relation to Caltex shares sold into the Buy-Back, and who acquired those Caltex shares on or before 28 February 2019 will satisfy the holding period rule in respect of those shares. | The anti-avoidance provisions: 53. The Commissioner will not make a determination under subsections 45A(2) or 45B(3) that section 45C applies to the whole, or any part, of the Capital Component of the Buy-Back Price received by Participating Shareholders. 54. The Commissioner will not make a determination under paragraph 177EA(5)(b) to deny the whole, or any part, of the imputation benefits received in relation to the Dividend Component of the Buy-Back Price by Participating Shareholders. 55. The Commissioner will not make a determination under paragraph 204-30(3)(c) to deny the whole, or any part, of the imputation benefits received in relation to the Dividend Component of the Buy-Back Price by Participating Shareholders. Commissioner of Taxation 15 May 2019 | Off-market purchase: 56. For the purposes of Division 16K, where a company buys a share in itself from a shareholder, the purchase is a 'buy-back' (paragraph 159GZZZK(a)). 57. Division 16K categorises a buy-back as either an 'on-market purchase' or an 'off-market purchase'. 58. A buy-back is an on-market purchase if the share bought back is listed for quotation in the official list of a stock exchange in Australia or elsewhere, and the buy-back is made in the ordinary course of trading on that stock exchange (paragraph 159GZZZK(c)). A buy-back that is not an on-market purchase is an off-market purchase (paragraph 159GZZZK(d)). 59. Although Caltex's ordinary shares are listed for quotation in the official list of the ASX, the Buy-Back was not made in the ordinary course of trading on the ASX. As a result, for the purposes of Division 16K, the Buy-Back is an off-market purchase within the meaning given by paragraph 159GZZZK(d). | The Dividend and Capital Components: 60. The Buy-Back Price received by Participating Shareholders comprises two components: 61. The amount of each of these components is determined in accordance with sections 159GZZZP and 159GZZZQ, and has regard to how Caltex accounted for the Buy-Back. | The Dividend Component: 62. Section 159GZZZP provides that where the buy-back of a share is an off-market purchase, the difference between: is taken to be a dividend paid by the company to the seller on the day the buy-back occurred. The Buy-Back occurred on 15 April 2019. 63. The Buy-Back Price was $23.43 per share, of which $2.01 (the Capital Component) was debited against the amounts standing to the credit of Caltex's share capital account. As a result, the Dividend Component is taken to be $21.42 per share. 64. The Dividend Component of $21.42 per share is frankable, but only to the extent that the Buy-Back Price does not exceed the market value of a Caltex share at the time of the Buy-Back if the buy-back did not occur and was never proposed to occur (paragraph 202-45(c)). 65. TD 2004/22 sets out the Commissioner's view as to how to determine what would have been the market value of a Caltex share at the time of the Buy-Back if the buy-back did not occur and was never proposed to occur. In respect of the Buy-Back, the Buy-Back Price per share did not exceed the market value determined in accordance with TD 2004/22. As a result, the entire Dividend Component is frankable. | Direct distributions: 66. For Participating Shareholders who are Australian residents (other than a partnership or a trust) and who directly received the Dividend Component: in the income year in which the Buy-Back occurred. 67. Subject to the 'qualified person' rule, these Participating Shareholders are entitled to a tax offset under subsection 207-20(2) equal to the amount of the franking credit on the Dividend Component. | Indirect distributions: Partnerships 68. Pursuant to subsection 44(1), the Dividend Component is included in the assessable income of the partnership in the income year in which the Buy-Back occurred for the purposes of computing the net income of the partnership under section 90. 69. Subject to the 'qualified person' rule, pursuant to subsection 207-35(1), the amount of the franking credit on the Dividend Component is also included in the assessable income of the partnership under section 90. Trusts 70. Pursuant to subsection 44(1), the Dividend Component is included in the assessable income of the trustee in the income year in which the Buy-Back occurred for the purposes of calculating the net income of the trust under subsection 95(1). 71. Subject to the 'qualified person' rule, pursuant to subsection 207 35(1), the amount of the franking credit on the Dividend Component is included in the assessable income of the trustee for the purposes of calculating the net income of the trust under subsection 95(1). Partners and Beneficiaries 72. Subsections 207-35(3) to (6) set out the circumstances in which a partner or beneficiary to whom a franked distribution flows indirectly is required to gross up their assessable income for their share of the franking credit on the franked distribution. 73. Where the franked distribution flows indirectly (within the meaning of Subdivision 207-B) through a trust or partnership to a resident that is an individual, a corporate tax entity (at the time the distribution flows directly to it) or a trustee mentioned in paragraphs 207-45(c), (ca) or (d), the entity will, subject to the qualified person rule, be entitled to a tax offset equal to the entity's share of the franking credit on the franked distribution (section 207-45). | Refundable tax offset: 74. The tax offsets are subject to the refundable tax offset rules in Division 67, provided the offsets are not excluded from the refundable tax offset rules pursuant to subsections 67-25(1A) to (1DA). | Non-resident Participating Shareholders: 75. As the Dividend Component of the Buy-Back Price is fully franked, and no determination will be made in respect of the Dividend Component under either paragraph 204-30(c) or paragraph 177EA(5)(b), a Participating Shareholder that is a non-resident is not liable to Australian withholding tax on the Dividend Component (paragraph 128B(3)(ga)). | Calculation of Sale Consideration: 76. For the purposes of determining the amount of a gain or loss (for Caltex shares held on capital account or on revenue account), the consideration received by a Participating Shareholder in respect of the disposal of a share (the Sale Consideration) under the Buy-Back is determined in accordance with section 159GZZZQ. The effect of section 159GZZZQ is to adjust the Capital Component in order to determine the Sale Consideration for CGT or revenue account treatment. 77. Subsection 159GZZZQ(1) provides that a shareholder is taken to have received an amount equal to the purchase price (in this case the Buy-Back Price of $23.43 received for each Caltex share bought back) as consideration in respect of the sale of the share in the Buy-Back. However, this amount is subject to certain adjustments in order to arrive at the Sale Consideration. 78. Subsection 159GZZZQ(2) is one of the adjusting provisions. It provides that if the purchase price is less than the market value of the share at the time of the buy-back (calculated as if the buy-back did not occur and was never proposed to occur) the shareholder is taken to have received an amount equal to the market value of the share as consideration in respect of the sale of the share bought back. 79. For the purposes of subsection 159GZZZQ(2), the Buy-Back was subject to an overriding limit whereby the Buy-Back price would not exceed the relevant market value, following the methodology as outlined in TD 2004/22 (which the Commissioner accepted). The relevant market value of a Caltex share is the VWAP of a Caltex share on the ASX over the last five trading days before the Announcement Date, adjusted for movements in the ASX/S&P 200 index from the commencement of trading on the First Announcement Date to the close of trading on the Closing Date. 80. Under this methodology, the market value of a Caltex share bought was calculated as $27.02. As a result, Participating Shareholders are taken to have instead received consideration of $27.02 for the sale of each Caltex share. 81. Pursuant to subsection 159GZZZQ(3), the deemed consideration of $27.02 is reduced by a 'Reduction Amount'. The Reduction Amount is an amount calculated pursuant to subsection 159GZZZQ(4). In the circumstances of the Buy-Back, the Reduction Amount is equivalent to the Dividend Component of $21.42, unless a Participating Shareholder is a corporate tax entity to whom subsection 159GZZZQ(8) applies (see paragraph 83 of the Ruling). As a result, the Sale Consideration for each Caltex share disposed of under the Buy-Back is $5.60 (being $27.02 less $21.42). 82. However, where a Participating Shareholder is a corporate tax entity which is entitled to a tax offset under Division 207 in respect of the Dividend Component, a further adjustment may be made to the Sale Consideration. Under subsection 159GZZZQ(8), if such a Participating Shareholder would also make either a capital loss or a deductible loss (or any increase in such a loss) in respect of the sale of a Caltex share bought back under the Buy-Back, the Sale Consideration is increased by an off-settable amount determined under subsection 159GZZZQ(9). The Reduction Amount (being the Dividend Component) is itself reduced by so much of the off-settable amount that does not exceed the capital loss or the deductible loss. 83. Participating Shareholders are taken to have disposed of their shares under the Buy-Back on 15 April 2019 (CGT event A1). The disposal may have different taxation implications for Participating Shareholders depending on how the shares were held, for instance: | Shares held on capital account: 84. The Sale Consideration of $5.60 per share (which may be adjusted for shareholders that are corporate tax entities as discussed in paragraph 83 of this Ruling) represents the capital proceeds for CGT purposes pursuant to section 116-20. A Participating Shareholder (other than a partnership) will make a capital gain in respect of the disposal of a share if the Sale Consideration per share exceeds the cost base of the share. The capital gain is the amount of the excess. Similarly, a Participating Shareholder (other than a partnership) will make a capital loss in respect of the disposal of a share if the Sale Consideration per share is less than the reduced cost base of the share (subsection 104-10(4)). 85. Where the Participating Shareholder is a partnership, any capital gain or loss will be made by the partners individually (subsection 106-5(1)). Each partner in a partnership has a separate Cost base / reduced cost base for the partner's interest in each Caltex share sold into the Buy-Back by the partnership (subsection 106-5(2)). Each partner is allocated an appropriate share of the Sale Consideration received by the partnership for the disposal of Caltex shares into the Buy-Back. | Shares held on revenue account: 86. Where shares were held as trading stock, the Sale Consideration of $5.60 per share (which may be adjusted for shareholders that are corporate tax entities as discussed in paragraph 83 of this Ruling) is included in assessable income under section 6-5. Participating Shareholders (other than partnerships) who disposed of shares held as trading stock will also make a capital gain or capital loss. However, as the shares were held as trading stock, the capital gain or loss is disregarded pursuant to section 118-25. There is a similar exemption for partners in partnerships (paragraph 118-25(1)(b)). 87. Where shares were held as revenue assets (as defined in section 977-50), but were not trading stock, the amount by which the Sale Consideration of $5.60 per share (which may be adjusted for shareholders that are corporate tax entities as discussed in paragraph 83 of this Ruling) exceeds the cost base of each share is included in assessable income. Correspondingly, if the cost base exceeds the Sale Consideration of $5.60 per share, the difference is an allowable deduction. Where the Sale Consideration per share exceeds the cost base of the share, these Participating Shareholders (other than partnerships) will also make a capital gain. However, Participating Shareholders who held their shares as revenue assets other than as trading stock will have the amount of the capital gain reduced under the CGT anti-overlap rule (section 118-20). There is a similar reduction for partners in partnerships (paragraphs 118-20(1)(b) and 118-20(2)(b), and subsection 118-20(3)). | Foreign resident Participating Shareholders: CGT consequences: 88. A foreign resident shareholder who participates in the Buy-Back disregards any capital gain or capital loss made in respect of a share bought back under the Buy-Back if the share is not 'taxable Australian property' under the tests in section 855-10. A Caltex share that is disposed of in the Buy-Back will constitute taxable Australian property if the share: | Qualified persons: 89. Paragraph 207-145(1)(a) provides that in relation to a franked dividend made by an entity, only a 'qualified person' in relation to the distribution for the purposes of Division 1A of former Part IIIAA is: Broadly speaking, to be a 'qualified person' in relation to the Dividend Component paid under the Buy-Back, a Participating Shareholder must satisfy both the 'holding period rule' and the 'related payments rule'. 90. Broadly, a Participating Shareholder will not satisfy the 'related payments rule' if the Participating Shareholder, or an associate of the Participating Shareholder, is under an obligation to make, or makes, a payment in respect of the dividend, which effectively passes on the economic benefit of the dividend to another person. There is nothing in the current arrangement that would suggest the making of a related payment merely by participating in the arrangement. Accordingly, the focus will be on the application of the 'holding period rule'. 91. The 'holding period rule' requires a shareholder to hold the shares on which the dividend is paid 'at risk' for a continuous period of at least 45 days during the relevant qualification period. In the absence of a related payment, the relevant qualification period is the primary qualification period, which commences on the day after the shares are acquired and ends on the 45th day after the day on which the shares became ex-dividend. In determining whether a shareholder has satisfied the holding period rule, any days during which there is a materially diminished risk of loss or opportunity for gain in respect of the relevant shares are not counted. The day of acquisition and the day of disposal of the relevant shares are also not counted. 92. Under former subsection 160APHM(2), a shareholder is taken to have materially diminished risks of loss and opportunities for gain with respect to shares if the 'net position' in respect of the risks of loss and opportunity for gain of the shareholder results in the shareholder having less than 30% of the risks and opportunities relating to the shares. 93. The Commissioner does not regard the announcement of the Buy-Back as affecting whether Caltex shares were held at risk or not. 94. There are at least 45 clear days between 1 March 2019 (the Ex-Entitlement Date) and 15 April 2019 (the date tender offers were accepted). As a result, a Participating Shareholder who acquires shares on or before 28 February 2019 that were bought back under the Buy-Back satisfies the 'holding period rule' as long as those shares were held 'at risk' for at least 45 days. 95. Generally, under the 'holding period rule' a shareholder will be deemed to have disposed of their most recently acquired shares first (former subsection 160APHI(4)). The 45 day rule operates on a 'last-in first-out' basis, so that shareholders will be deemed to have disposed of their most recently acquired shares for the purposes of applying the 45 day rule. 96. Where a Participating Shareholder acquired ex-entitlement Caltex shares (on or after 1 March 2019) and participated in the Buy-Back with cum-entitlement shares (which conferred an entitlement to participate in the Buy-Back), the shareholder will not be considered for the purposes of the 45 day rule to be subject to the last-in first-out rule in former subsection 160APHI(4), and so will not be taken to have participated with the 'ex-entitlement' shares. Ex-entitlement shares do not constitute 'related securities' for the purposes of former subsection 160APHI(2) in relation to any cum-entitlement shares. Caltex shares commenced trading on an ex-entitlement basis on 1 March 2019. The Final Ordinary Dividend shared a common timetable to the Buy-Back dividend in respect of Announcement, Ex-Entitlement and Record Dates. Accordingly, for any additional Caltex shares that a Participating Shareholder acquired on or after 1 March 2019 on an ex-entitlement basis, the 'last-in first-out' rule in former subsection 160APHI(4) will not apply in relation to those shares, regarding both the Final Ordinary Dividend and the Dividend Component of the Buy-Back. | Sections 45A and 45B: 97. Sections 45A and 45B are two anti-avoidance provisions, which if they apply, allow the Commissioner to make a determination that section 45C applies. The effect of such a determination is that all or part of the distribution of capital received by a Participating Shareholder under the Buy-Back is treated as an unfranked dividend. Accordingly, the application of these two provisions to the Buy-Back must be considered. 98. Section 45A is an anti-avoidance provision that applies in circumstances where capital benefits are streamed to certain shareholders (the advantaged shareholders) who derive a greater benefit from the receipt of share capital and it is reasonable to assume that the other shareholders (the disadvantaged shareholders) have received or will receive dividends. 99. Although a 'capital benefit' (as defined in paragraph 45(3)(b)) is provided to Participating Shareholders under the Buy-Back, the circumstances of the Buy-Back indicate that there is no streaming of capital benefits to some shareholders and dividends to other shareholders. Under the Buy-Back, all Participating Shareholders received a distribution of share capital as well as a Dividend Component in equal proportion based on the number of shares they sold into the Buy-Back. Accordingly, section 45A has no application to the Buy-Back. 100. Section 45B applies where certain capital payments are paid to shareholders in substitution for dividends. In broad terms, section 45B applies where under a scheme: 101. While the conditions of paragraphs 45B(2)(a) and (b) were met in respect of the Buy-Back, the requisite purpose of enabling a person to obtain a tax benefit as a result of the capital distribution was not present. 102. Having regard to the 'relevant circumstances' (as set out in subsection 45B(8)) of the Buy-Back, it is apparent that: 103. Accordingly, the Commissioner will not make a determination under subsection 45B(3) that section 45C applies to treat all or part of the distribution of share capital of $2.01 per share as an unfranked dividend paid by Caltex. | Section 177EA: 104. Section 177EA is a general anti-avoidance provision that applies to a wide range of schemes designed to obtain imputation benefits. In essence, it applies to the schemes for the disposition of shares or an interest in shares, where a franked distribution is paid or payable in respect of the shares or an interest in shares. This would include a buy-back with a franked dividend component. 105. Specifically, subsection 177EA(3) provides that section 177EA applies if: 106. The conditions in paragraph 177EA(3)(a) to (d) are satisfied in respect of the Buy-Back. Accordingly, if the issue is whether, having regard to the relevant circumstances of the scheme, it would be concluded that, on the part of Caltex, its shareholders or any other relevant party, there is a more than incidental purpose of conferring an imputation benefit under the scheme. In respect of the Buy-Back, the relevant taxpayer is the Participating Shareholder and the scheme comprises the circumstances surrounding the Buy-Back. 107. In arriving at a conclusion, the Commissioner must have regard to the relevant circumstances of the scheme which include, but are not limited to, the circumstances set out in subsection 177EA(17). The relevant circumstances listed in subsection 177EA(17) encompass a range of circumstances which, taken individually or collectively, could indicate the requisite purpose. Due to the diverse nature of these circumstances some may not be present at any one time in any one scheme. 108. The Commissioner has come to the view that section 177EA applies to the Buy-Back. In coming to this conclusion, the Commissioner had regard to all the relevant circumstances of the arrangement, as outlined in subsection 177EA(17). Among the circumstances of the Buy-Back reflected in those paragraphs is the greater attraction of the Buy-Back to resident shareholders of the franking credits than for non-resident shareholders. 109. Where section 177EA applies, the Commissioner has a discretion pursuant to subsection 177EA(5) to make a determination to debit Caltex's franking account pursuant to paragraph 177EA(5)(a), or deny the imputation benefit to each Participating Shareholder pursuant to paragraph 177EA(5)(b). The Commissioner will exercise his discretion in such a way that he will not make a determination that the imputation benefit obtained by Participating Shareholders will be denied under paragraph 177EA(5)(b). | Section 204-30: 110. Section 204-30 applies where a corporate tax entity streams the payment of dividends, or the payment of dividends and the giving of other benefits, to its members in such a way that: 111. If section 204-30 applies, the Commissioner may make a determination to debit Caltex's franking account pursuant to paragraph 204-30(3)(a), and/or to deny the imputation benefit to each Participating Shareholder pursuant to paragraph 204-30(3)(c). 112. For section 204-30 to apply, Participating Shareholders to whom distributions are streamed must derive a greater benefit from franking credits than ordinary shareholders of Caltex who do not participate in the Buy-Back. Some of the cases in which a member of an entity 'derives a greater benefit from franking credits' are listed in subsection 204-30(8) by reference to the ability of a member to fully utilise franking credits. 113. A portion of Caltex's ordinary shares are held by non-resident shareholders who do not benefit from franking credits to the same extent as resident shareholders. As a result, the conditions in subsection 204-30(1) for section 204-30 to apply are met. However, the Commissioner will not make a determination under subsection 204-30(3). 114. The following is a detailed contents list for this Ruling: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft

Ruling: Off-market purchase: 29. For the purposes of Division 16K, the Buy-Back is an off-market purchase within the meaning given by paragraph 159GZZZK(d). | The Dividend Component: 30. Participating Shareholders are taken to have been paid a dividend of $21.42 (the Dividend Component) on 15 April 2019 for each share bought back under section 159GZZZP. 31. The Dividend Component is a frankable distribution pursuant to section 202-40, and is capable of being franked in accordance with section 202-5. 32. The difference between the Buy-Back Price and the Dividend Component is not a dividend for income tax purposes (subsection 159GZZZP(2)). | Direct distributions: 33. Australian resident individual and corporate shareholders and trustees of resident complying superannuation funds, who participated in the Buy-Back include in their assessable income: in the income year in which the Buy-Back occurred (subsections 44(1) and 207-20(1)). 34. Participating Shareholders will be entitled to a tax offset under subsection 207-20(2) equal to the amount of the franking credit attached to the Dividend Component, subject to being a 'qualified person'. | Indirect distributions: Partnerships 35. A Participating Shareholder that is a partnership includes in its assessable income for the purposes of calculating the net income of the partnership: in the income year in which the Buy-Back occurred. Trusts 36. A Participating Shareholder that is a trustee of a trust includes in its assessable income for the purposes of determining the net income of the trust: in the income year in which the Buy-Back occurred. Partners and Beneficiaries 37. Subsections 207-35(3) to (6) set out the circumstances in which a partner or beneficiary to whom a franked distribution flows indirectly is required to gross up their assessable income for their share of the franking credit on the franked distribution. Where the franked distribution flows indirectly (within the meaning of Subdivision 207-B) through a trust or partnership to a resident that is an individual, a corporate tax entity (at the time the distribution flows indirectly to it) or a trustee mentioned in paragraphs 207-45(c), (ca) or (d), the entity will, subject to the qualified person rule, be entitled to a tax offset equal to the entity's share of the franking credit on the franked distribution (section 207-45). | Refundable tax offset: 38. The tax offsets are subject to the refundable tax offset rules in Division 67. Certain trustees and corporate tax entities are not entitled to the refundable tax offset rules in accordance with subsections 67-25(1A) to (1DA). | Non-resident Participating Shareholders: 39. As the Dividend Component is fully franked, non-resident Participating Shareholders are not liable to Australian withholding tax in respect of the Dividend Component (paragraph 128B(3)(ga)). | Sale Consideration: 40. Unless the Participating Shareholder is a corporate tax entity to which subsections 159GZZZQ(8) and (9) apply, a Participating Shareholder is taken to have received $5.60 per share as consideration in respect of each share bought back under the Buy-Back (Sale Consideration) on 15 April 2019 in accordance with section 159GZZZQ. 41. Where the Buy-Back price for each share bought back under the Buy-Back was less than what would have been the market value of the share if the Buy-Back did not occur and was never proposed to occur, then the market value rule in subsection 159GZZZQ(2) applies to the Buy-Back. TD 2004/22 outlines the Commissioner's approach for determining what would have been the market value of the share at the time of the Buy-Back if the Buy-Back did not occur and was never proposed to occur for the purposes of subsection 159GZZZQ(2). 42. The effect of the rule is that if the Buy-Back Price is less than the market value, which is determined in accordance with TD 2004/22, the difference is included in the consideration received for the disposal of the share, in addition to the amount of $2.01 per share debited to Caltex's share capital account. Accordingly, the Sale Consideration is $5.60 per share. 43. The treatment of the Sale Consideration will depend on whether the sale is on capital account or on revenue account. | Shares held on capital account: 44. The shares are taken to have been disposed of for CGT purposes on 15 April 2019 pursuant to section 104-10 (CGT event A1). 45. The Sale Consideration of $5.60 per share represents the capital proceeds for CGT purposes pursuant to section 116-20. A Participating Shareholder (other than a partnership) will make a capital gain on a share if the Sale Consideration per share exceeds the cost base of that share. The capital gain is the amount of the excess. Similarly, a Participating Shareholder (other than a partnership) will make a capital loss on a share if the Share Consideration per share is less than the reduced cost base of the share (subsection 104-10(4)). 46. Each partner in a partnership has a separate Cost base / reduced cost base for the partner's interest in each Caltex share sold into the Buy-Back by the partnership (subsection 106-5(2)). Each partner is allocated an appropriate share of the Sale Consideration received by the partnership for the disposal of Caltex shares into the Buy-Back. | Shares held on revenue account: 47. Where shares were held as trading stock, the Sale Consideration of $5.60 per share is included in assessable income pursuant to section 6-5. Participating Shareholders (other than partnerships) that held shares as trading stock also made a capital gain or capital loss calculated as discussed at paragraphs 44 and 45 of this Ruling. However, under section 118-25, any capital gain or capital loss the Participating Shareholders made is disregarded if at the time of the CGT event the shares were held as trading stock. There is a similar exemption for partners in partnerships (paragraph 118-25(1)(b)). 48. Where shares were held as revenue assets (as defined in section 977-50), but were not trading stock, the amount by which the Sale Consideration of $5.60 per share exceeds the cost of each share is included in the Participating Shareholder's assessable income. Correspondingly, if the cost of each share exceeds the Sale Consideration of $5.60 per share the difference is an allowable deduction. Where the Sale Consideration per share exceeds the cost base of that share, the Participating Shareholders (other than partnerships) will also make a capital gain. However, under section 118-20, any capital gain the Participating Shareholders make will be reduced if, because of the event, an amount is otherwise included in assessable income. The capital gain will be reduced to zero if the capital gain does not exceed the amount otherwise included in assessable income (subsection 118-20(2)). If the capital gain exceeds the amount otherwise included in assessable income, the capital gain will be reduced by the amount otherwise included in assessable income (subsection 118-20(3)). There is a similar reduction for partners in partnerships (paragraphs 118-20(1)(b) and 118-20(2)(b), and subsection 118-20(3)). | Foreign resident Participating Shareholders: CGT consequences: 49. Under section 855-10, Participating Shareholders that are foreign residents will only have CGT consequences if the shares purchased under the Buy-Back are 'taxable Australian property'. | Qualified persons: 50. For the purposes of paragraph 207-145(1)(a) which refers to Division 1A of former Part IIIAA, a Participating Shareholder will be considered to satisfy the holding period rule under former section 160APHO, and be a qualified person (as long as the related payments rule is also met) in relation to the Dividend Component received under the Buy-Back if: 51. The 'last-in first-out' rule in former subsection 160APHI(4) has no effect for the purposes of the Final Ordinary Dividend and the Dividend Component of the Buy-Back in respect of additional Caltex shares acquired on or after 1 March 2019, as such shares were not entitled to participate in the Buy-Back. 52. Participating Shareholders who received the Final Ordinary Dividend in relation to Caltex shares sold into the Buy-Back, and who acquired those Caltex shares on or before 28 February 2019 will satisfy the holding period rule in respect of those shares. | The anti-avoidance provisions: 53. The Commissioner will not make a determination under subsections 45A(2) or 45B(3) that section 45C applies to the whole, or any part, of the Capital Component of the Buy-Back Price received by Participating Shareholders. 54. The Commissioner will not make a determination under paragraph 177EA(5)(b) to deny the whole, or any part, of the imputation benefits received in relation to the Dividend Component of the Buy-Back Price by Participating Shareholders. 55. The Commissioner will not make a determination under paragraph 204-30(3)(c) to deny the whole, or any part, of the imputation benefits received in relation to the Dividend Component of the Buy-Back Price by Participating Shareholders. Commissioner of Taxation 15 May 2019


Appendix: Off-market purchase: 56. For the purposes of Division 16K, where a company buys a share in itself from a shareholder, the purchase is a 'buy-back' (paragraph 159GZZZK(a)). 57. Division 16K categorises a buy-back as either an 'on-market purchase' or an 'off-market purchase'. 58. A buy-back is an on-market purchase if the share bought back is listed for quotation in the official list of a stock exchange in Australia or elsewhere, and the buy-back is made in the ordinary course of trading on that stock exchange (paragraph 159GZZZK(c)). A buy-back that is not an on-market purchase is an off-market purchase (paragraph 159GZZZK(d)). 59. Although Caltex's ordinary shares are listed for quotation in the official list of the ASX, the Buy-Back was not made in the ordinary course of trading on the ASX. As a result, for the purposes of Division 16K, the Buy-Back is an off-market purchase within the meaning given by paragraph 159GZZZK(d). | The Dividend and Capital Components: 60. The Buy-Back Price received by Participating Shareholders comprises two components: 61. The amount of each of these components is determined in accordance with sections 159GZZZP and 159GZZZQ, and has regard to how Caltex accounted for the Buy-Back. | The Dividend Component: 62. Section 159GZZZP provides that where the buy-back of a share is an off-market purchase, the difference between: is taken to be a dividend paid by the company to the seller on the day the buy-back occurred. The Buy-Back occurred on 15 April 2019. 63. The Buy-Back Price was $23.43 per share, of which $2.01 (the Capital Component) was debited against the amounts standing to the credit of Caltex's share capital account. As a result, the Dividend Component is taken to be $21.42 per share. 64. The Dividend Component of $21.42 per share is frankable, but only to the extent that the Buy-Back Price does not exceed the market value of a Caltex share at the time of the Buy-Back if the buy-back did not occur and was never proposed to occur (paragraph 202-45(c)). 65. TD 2004/22 sets out the Commissioner's view as to how to determine what would have been the market value of a Caltex share at the time of the Buy-Back if the buy-back did not occur and was never proposed to occur. In respect of the Buy-Back, the Buy-Back Price per share did not exceed the market value determined in accordance with TD 2004/22. As a result, the entire Dividend Component is frankable. | Direct distributions: 66. For Participating Shareholders who are Australian residents (other than a partnership or a trust) and who directly received the Dividend Component: in the income year in which the Buy-Back occurred. 67. Subject to the 'qualified person' rule, these Participating Shareholders are entitled to a tax offset under subsection 207-20(2) equal to the amount of the franking credit on the Dividend Component. | Indirect distributions: Partnerships 68. Pursuant to subsection 44(1), the Dividend Component is included in the assessable income of the partnership in the income year in which the Buy-Back occurred for the purposes of computing the net income of the partnership under section 90. 69. Subject to the 'qualified person' rule, pursuant to subsection 207-35(1), the amount of the franking credit on the Dividend Component is also included in the assessable income of the partnership under section 90. Trusts 70. Pursuant to subsection 44(1), the Dividend Component is included in the assessable income of the trustee in the income year in which the Buy-Back occurred for the purposes of calculating the net income of the trust under subsection 95(1). 71. Subject to the 'qualified person' rule, pursuant to subsection 207 35(1), the amount of the franking credit on the Dividend Component is included in the assessable income of the trustee for the purposes of calculating the net income of the trust under subsection 95(1). Partners and Beneficiaries 72. Subsections 207-35(3) to (6) set out the circumstances in which a partner or beneficiary to whom a franked distribution flows indirectly is required to gross up their assessable income for their share of the franking credit on the franked distribution. 73. Where the franked distribution flows indirectly (within the meaning of Subdivision 207-B) through a trust or partnership to a resident that is an individual, a corporate tax entity (at the time the distribution flows directly to it) or a trustee mentioned in paragraphs 207-45(c), (ca) or (d), the entity will, subject to the qualified person rule, be entitled to a tax offset equal to the entity's share of the franking credit on the franked distribution (section 207-45). | Refundable tax offset: 74. The tax offsets are subject to the refundable tax offset rules in Division 67, provided the offsets are not excluded from the refundable tax offset rules pursuant to subsections 67-25(1A) to (1DA). | Non-resident Participating Shareholders: 75. As the Dividend Component of the Buy-Back Price is fully franked, and no determination will be made in respect of the Dividend Component under either paragraph 204-30(c) or paragraph 177EA(5)(b), a Participating Shareholder that is a non-resident is not liable to Australian withholding tax on the Dividend Component (paragraph 128B(3)(ga)). | Calculation of Sale Consideration: 76. For the purposes of determining the amount of a gain or loss (for Caltex shares held on capital account or on revenue account), the consideration received by a Participating Shareholder in respect of the disposal of a share (the Sale Consideration) under the Buy-Back is determined in accordance with section 159GZZZQ. The effect of section 159GZZZQ is to adjust the Capital Component in order to determine the Sale Consideration for CGT or revenue account treatment. 77. Subsection 159GZZZQ(1) provides that a shareholder is taken to have received an amount equal to the purchase price (in this case the Buy-Back Price of $23.43 received for each Caltex share bought back) as consideration in respect of the sale of the share in the Buy-Back. However, this amount is subject to certain adjustments in order to arrive at the Sale Consideration. 78. Subsection 159GZZZQ(2) is one of the adjusting provisions. It provides that if the purchase price is less than the market value of the share at the time of the buy-back (calculated as if the buy-back did not occur and was never proposed to occur) the shareholder is taken to have received an amount equal to the market value of the share as consideration in respect of the sale of the share bought back. 79. For the purposes of subsection 159GZZZQ(2), the Buy-Back was subject to an overriding limit whereby the Buy-Back price would not exceed the relevant market value, following the methodology as outlined in TD 2004/22 (which the Commissioner accepted). The relevant market value of a Caltex share is the VWAP of a Caltex share on the ASX over the last five trading days before the Announcement Date, adjusted for movements in the ASX/S&P 200 index from the commencement of trading on the First Announcement Date to the close of trading on the Closing Date. 80. Under this methodology, the market value of a Caltex share bought was calculated as $27.02. As a result, Participating Shareholders are taken to have instead received consideration of $27.02 for the sale of each Caltex share. 81. Pursuant to subsection 159GZZZQ(3), the deemed consideration of $27.02 is reduced by a 'Reduction Amount'. The Reduction Amount is an amount calculated pursuant to subsection 159GZZZQ(4). In the circumstances of the Buy-Back, the Reduction Amount is equivalent to the Dividend Component of $21.42, unless a Participating Shareholder is a corporate tax entity to whom subsection 159GZZZQ(8) applies (see paragraph 83 of the Ruling). As a result, the Sale Consideration for each Caltex share disposed of under the Buy-Back is $5.60 (being $27.02 less $21.42). 82. However, where a Participating Shareholder is a corporate tax entity which is entitled to a tax offset under Division 207 in respect of the Dividend Component, a further adjustment may be made to the Sale Consideration. Under subsection 159GZZZQ(8), if such a Participating Shareholder would also make either a capital loss or a deductible loss (or any increase in such a loss) in respect of the sale of a Caltex share bought back under the Buy-Back, the Sale Consideration is increased by an off-settable amount determined under subsection 159GZZZQ(9). The Reduction Amount (being the Dividend Component) is itself reduced by so much of the off-settable amount that does not exceed the capital loss or the deductible loss. 83. Participating Shareholders are taken to have disposed of their shares under the Buy-Back on 15 April 2019 (CGT event A1). The disposal may have different taxation implications for Participating Shareholders depending on how the shares were held, for instance: | Shares held on capital account: 84. The Sale Consideration of $5.60 per share (which may be adjusted for shareholders that are corporate tax entities as discussed in paragraph 83 of this Ruling) represents the capital proceeds for CGT purposes pursuant to section 116-20. A Participating Shareholder (other than a partnership) will make a capital gain in respect of the disposal of a share if the Sale Consideration per share exceeds the cost base of the share. The capital gain is the amount of the excess. Similarly, a Participating Shareholder (other than a partnership) will make a capital loss in respect of the disposal of a share if the Sale Consideration per share is less than the reduced cost base of the share (subsection 104-10(4)). 85. Where the Participating Shareholder is a partnership, any capital gain or loss will be made by the partners individually (subsection 106-5(1)). Each partner in a partnership has a separate Cost base / reduced cost base for the partner's interest in each Caltex share sold into the Buy-Back by the partnership (subsection 106-5(2)). Each partner is allocated an appropriate share of the Sale Consideration received by the partnership for the disposal of Caltex shares into the Buy-Back. | Shares held on revenue account: 86. Where shares were held as trading stock, the Sale Consideration of $5.60 per share (which may be adjusted for shareholders that are corporate tax entities as discussed in paragraph 83 of this Ruling) is included in assessable income under section 6-5. Participating Shareholders (other than partnerships) who disposed of shares held as trading stock will also make a capital gain or capital loss. However, as the shares were held as trading stock, the capital gain or loss is disregarded pursuant to section 118-25. There is a similar exemption for partners in partnerships (paragraph 118-25(1)(b)). 87. Where shares were held as revenue assets (as defined in section 977-50), but were not trading stock, the amount by which the Sale Consideration of $5.60 per share (which may be adjusted for shareholders that are corporate tax entities as discussed in paragraph 83 of this Ruling) exceeds the cost base of each share is included in assessable income. Correspondingly, if the cost base exceeds the Sale Consideration of $5.60 per share, the difference is an allowable deduction. Where the Sale Consideration per share exceeds the cost base of the share, these Participating Shareholders (other than partnerships) will also make a capital gain. However, Participating Shareholders who held their shares as revenue assets other than as trading stock will have the amount of the capital gain reduced under the CGT anti-overlap rule (section 118-20). There is a similar reduction for partners in partnerships (paragraphs 118-20(1)(b) and 118-20(2)(b), and subsection 118-20(3)). | Foreign resident Participating Shareholders: CGT consequences: 88. A foreign resident shareholder who participates in the Buy-Back disregards any capital gain or capital loss made in respect of a share bought back under the Buy-Back if the share is not 'taxable Australian property' under the tests in section 855-10. A Caltex share that is disposed of in the Buy-Back will constitute taxable Australian property if the share: | Qualified persons: 89. Paragraph 207-145(1)(a) provides that in relation to a franked dividend made by an entity, only a 'qualified person' in relation to the distribution for the purposes of Division 1A of former Part IIIAA is: Broadly speaking, to be a 'qualified person' in relation to the Dividend Component paid under the Buy-Back, a Participating Shareholder must satisfy both the 'holding period rule' and the 'related payments rule'. 90. Broadly, a Participating Shareholder will not satisfy the 'related payments rule' if the Participating Shareholder, or an associate of the Participating Shareholder, is under an obligation to make, or makes, a payment in respect of the dividend, which effectively passes on the economic benefit of the dividend to another person. There is nothing in the current arrangement that would suggest the making of a related payment merely by participating in the arrangement. Accordingly, the focus will be on the application of the 'holding period rule'. 91. The 'holding period rule' requires a shareholder to hold the shares on which the dividend is paid 'at risk' for a continuous period of at least 45 days during the relevant qualification period. In the absence of a related payment, the relevant qualification period is the primary qualification period, which commences on the day after the shares are acquired and ends on the 45th day after the day on which the shares became ex-dividend. In determining whether a shareholder has satisfied the holding period rule, any days during which there is a materially diminished risk of loss or opportunity for gain in respect of the relevant shares are not counted. The day of acquisition and the day of disposal of the relevant shares are also not counted. 92. Under former subsection 160APHM(2), a shareholder is taken to have materially diminished risks of loss and opportunities for gain with respect to shares if the 'net position' in respect of the risks of loss and opportunity for gain of the shareholder results in the shareholder having less than 30% of the risks and opportunities relating to the shares. 93. The Commissioner does not regard the announcement of the Buy-Back as affecting whether Caltex shares were held at risk or not. 94. There are at least 45 clear days between 1 March 2019 (the Ex-Entitlement Date) and 15 April 2019 (the date tender offers were accepted). As a result, a Participating Shareholder who acquires shares on or before 28 February 2019 that were bought back under the Buy-Back satisfies the 'holding period rule' as long as those shares were held 'at risk' for at least 45 days. 95. Generally, under the 'holding period rule' a shareholder will be deemed to have disposed of their most recently acquired shares first (former subsection 160APHI(4)). The 45 day rule operates on a 'last-in first-out' basis, so that shareholders will be deemed to have disposed of their most recently acquired shares for the purposes of applying the 45 day rule. 96. Where a Participating Shareholder acquired ex-entitlement Caltex shares (on or after 1 March 2019) and participated in the Buy-Back with cum-entitlement shares (which conferred an entitlement to participate in the Buy-Back), the shareholder will not be considered for the purposes of the 45 day rule to be subject to the last-in first-out rule in former subsection 160APHI(4), and so will not be taken to have participated with the 'ex-entitlement' shares. Ex-entitlement shares do not constitute 'related securities' for the purposes of former subsection 160APHI(2) in relation to any cum-entitlement shares. Caltex shares commenced trading on an ex-entitlement basis on 1 March 2019. The Final Ordinary Dividend shared a common timetable to the Buy-Back dividend in respect of Announcement, Ex-Entitlement and Record Dates. Accordingly, for any additional Caltex shares that a Participating Shareholder acquired on or after 1 March 2019 on an ex-entitlement basis, the 'last-in first-out' rule in former subsection 160APHI(4) will not apply in relation to those shares, regarding both the Final Ordinary Dividend and the Dividend Component of the Buy-Back. | Sections 45A and 45B: 97. Sections 45A and 45B are two anti-avoidance provisions, which if they apply, allow the Commissioner to make a determination that section 45C applies. The effect of such a determination is that all or part of the distribution of capital received by a Participating Shareholder under the Buy-Back is treated as an unfranked dividend. Accordingly, the application of these two provisions to the Buy-Back must be considered. 98. Section 45A is an anti-avoidance provision that applies in circumstances where capital benefits are streamed to certain shareholders (the advantaged shareholders) who derive a greater benefit from the receipt of share capital and it is reasonable to assume that the other shareholders (the disadvantaged shareholders) have received or will receive dividends. 99. Although a 'capital benefit' (as defined in paragraph 45(3)(b)) is provided to Participating Shareholders under the Buy-Back, the circumstances of the Buy-Back indicate that there is no streaming of capital benefits to some shareholders and dividends to other shareholders. Under the Buy-Back, all Participating Shareholders received a distribution of share capital as well as a Dividend Component in equal proportion based on the number of shares they sold into the Buy-Back. Accordingly, section 45A has no application to the Buy-Back. 100. Section 45B applies where certain capital payments are paid to shareholders in substitution for dividends. In broad terms, section 45B applies where under a scheme: 101. While the conditions of paragraphs 45B(2)(a) and (b) were met in respect of the Buy-Back, the requisite purpose of enabling a person to obtain a tax benefit as a result of the capital distribution was not present. 102. Having regard to the 'relevant circumstances' (as set out in subsection 45B(8)) of the Buy-Back, it is apparent that: 103. Accordingly, the Commissioner will not make a determination under subsection 45B(3) that section 45C applies to treat all or part of the distribution of share capital of $2.01 per share as an unfranked dividend paid by Caltex. | Section 177EA: 104. Section 177EA is a general anti-avoidance provision that applies to a wide range of schemes designed to obtain imputation benefits. In essence, it applies to the schemes for the disposition of shares or an interest in shares, where a franked distribution is paid or payable in respect of the shares or an interest in shares. This would include a buy-back with a franked dividend component. 105. Specifically, subsection 177EA(3) provides that section 177EA applies if: 106. The conditions in paragraph 177EA(3)(a) to (d) are satisfied in respect of the Buy-Back. Accordingly, if the issue is whether, having regard to the relevant circumstances of the scheme, it would be concluded that, on the part of Caltex, its shareholders or any other relevant party, there is a more than incidental purpose of conferring an imputation benefit under the scheme. In respect of the Buy-Back, the relevant taxpayer is the Participating Shareholder and the scheme comprises the circumstances surrounding the Buy-Back. 107. In arriving at a conclusion, the Commissioner must have regard to the relevant circumstances of the scheme which include, but are not limited to, the circumstances set out in subsection 177EA(17). The relevant circumstances listed in subsection 177EA(17) encompass a range of circumstances which, taken individually or collectively, could indicate the requisite purpose. Due to the diverse nature of these circumstances some may not be present at any one time in any one scheme. 108. The Commissioner has come to the view that section 177EA applies to the Buy-Back. In coming to this conclusion, the Commissioner had regard to all the relevant circumstances of the arrangement, as outlined in subsection 177EA(17). Among the circumstances of the Buy-Back reflected in those paragraphs is the greater attraction of the Buy-Back to resident shareholders of the franking credits than for non-resident shareholders. 109. Where section 177EA applies, the Commissioner has a discretion pursuant to subsection 177EA(5) to make a determination to debit Caltex's franking account pursuant to paragraph 177EA(5)(a), or deny the imputation benefit to each Participating Shareholder pursuant to paragraph 177EA(5)(b). The Commissioner will exercise his discretion in such a way that he will not make a determination that the imputation benefit obtained by Participating Shareholders will be denied under paragraph 177EA(5)(b). | Section 204-30: 110. Section 204-30 applies where a corporate tax entity streams the payment of dividends, or the payment of dividends and the giving of other benefits, to its members in such a way that: 111. If section 204-30 applies, the Commissioner may make a determination to debit Caltex's franking account pursuant to paragraph 204-30(3)(a), and/or to deny the imputation benefit to each Participating Shareholder pursuant to paragraph 204-30(3)(c). 112. For section 204-30 to apply, Participating Shareholders to whom distributions are streamed must derive a greater benefit from franking credits than ordinary shareholders of Caltex who do not participate in the Buy-Back. Some of the cases in which a member of an entity 'derives a greater benefit from franking credits' are listed in subsection 204-30(8) by reference to the ability of a member to fully utilise franking credits. 113. A portion of Caltex's ordinary shares are held by non-resident shareholders who do not benefit from franking credits to the same extent as resident shareholders. As a result, the conditions in subsection 204-30(1) for section 204-30 to apply are met. However, the Commissioner will not make a determination under subsection 204-30(3).


Summary - what this Ruling is about | NOT LEGALLY BINDING SECTION: | If this ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in the ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this ruling. | Further, if we think that the ruling disadvantages you, we may apply the law in a way that is more favourable to you. | (a) there is a scheme for a disposition of membership interests, or an interest in membership interests, in a corporate tax entity; and | (c) the distribution was, or is expected to be, a franked distribution or a distribution franked with an exempting credit; and | (d) except for this section, the person (the relevant taxpayer ) would receive, or could reasonably be expected to receive, imputation benefits as a result of the distribution; and | (e) 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 the relevant taxpayer to obtain an imputation benefit. | Assessability of the Dividend Component and tax offset | Appendix 2 - Detailed contents list


Related rulings: TD 2004/22 TR 2006/10
Legislative references: ITAA 1936 ITAA 1936 44(1) ITAA 1936 45A ITAA 1936 45A(2) ITAA 1936 45B 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 45C ITAA 1936 90 ITAA 1936 95(1) ITAA 1936 128B(3)(ga) ITAA 1936 Div 16K ITAA 1936 159GZZZK ITAA 1936 159GZZZK(a) ITAA 1936 159GZZZK(c) ITAA 1936 159GZZZK(d) ITAA 1936 159GZZZP ITAA 1936 159GZZZP(2) ITAA 1936 159GZZZQ ITAA 1936 159GZZZQ(1) ITAA 1936 159GZZZQ(2) ITAA 1936 159GZZZQ(3) ITAA 1936 159GZZZQ(4) ITAA 1936 159GZZZQ(8) ITAA 1936 159GZZZQ(9) ITAA 1936 Pt IIIAA Div 1A ITAA 1936 160APHI(2) ITAA 1936 160APHI(4) ITAA 1936 160APHM ITAA 1936 160APHM(2) ITAA 1936 160APHO ITAA 1936 177EA ITAA 1936 177EA(3) ITAA 1936 177EA(3)(a) ITAA 1936 177EA(3)(b) ITAA 1936 177EA(3)(c) ITAA 1936 177EA(3)(d) ITAA 1936 177EA(5) ITAA 1936 177EA(5)(a) ITAA 1936 177EA(5)(b) ITAA 1936 177EA(17) ITAA 1997 ITAA 1997 6-5 ITAA 1997 Div 67 ITAA 1997 67-25 ITAA 1997 67-25(1A) ITAA 1997 67-25(1B) ITAA 1997 67-25(1C) ITAA 1997 67-25(1D) ITAA 1997 67-25(1DA) ITAA 1997 104-10 ITAA 1997 104-10(4) ITAA 1997 104-165(3) ITAA 1997 106-5(1) ITAA 1997 106-5(2) ITAA 1997 116-20 ITAA 1997 118-20 ITAA 1997 118-20(1)(b) ITAA 1997 118-20(2) ITAA 1997 118-20(2)(b) ITAA 1997 118-20(3) ITAA 1997 118-25 ITAA 1997 118-25(1)(b) ITAA 1997 202-5 ITAA 1997 202-40 ITAA 1997 202-45(c) ITAA 1997 204-30 ITAA 1997 204-30(1) ITAA 1997 204-30(1)(a) ITAA 1997 204-30(1)(b) ITAA 1997 204-30(1)(c) ITAA 1997 204-30(3) ITAA 1997 204-30(3)(a) ITAA 1997 204-30(3)(c) ITAA 1997 204-30(8) ITAA 1997 Div 207 ITAA 1997 Subdiv 207-B ITAA 1997 207-20 ITAA 1997 207-20(1) ITAA 1997 207-20(2) ITAA 1997 207-35 ITAA 1997 207-35(1) ITAA 1997 207-35(3) ITAA 1997 207-35(4) ITAA 1997 207-35(5) ITAA 1997 207-35(6) ITAA 1997 207-45 ITAA 1997 207-45(c) ITAA 1997 207-45(ca) ITAA 1997 207-45(d) ITAA 1997 207-145 ITAA 1997 207-145(1)(a) ITAA 1997 Div 230 ITAA 1997 855-10 ITAA 1997 855-15 TAA 1953