Consultation paper – Capital management advice and guidance

Your feedback

This paper invites your feedback on your future needs for advice and guidance relating to publicly listed and multinational businesses undertaking certain capital management activities as defined below.

Closing date for comment: 11 August 2023

Provide feedback: by email to: PGIPAGUnit@ato.gov.auThis link will download a file

Contact officer: Scott Woods, phone 02 4923 1480

We encourage you to raise any other relevant issues or specific concerns about matters discussed in this paper. Your responses may be made available to the public on the ATO website unless you indicate that you would like all or part of your response to remain in confidence. Automatically generated confidentiality statements in emails do not suffice for this purpose. Confidential elements should be marked or provided in a separate document.

Purpose of paper

The ATO is seeking feedback on the advice and guidance we currently provide for publicly listed and multinational businesses on 2 capital management activities involving:

• returns of capital
• certain pre-sale dividend payments to shareholders.

Our objective is to identify opportunities for public advice or guidance that:

• support taxpayers to self-assess their tax affairs
• reduce the need for taxpayers to apply for class or private rulings
• improve efficiency where taxpayers continue to require rulings or their circumstances are reviewed.

The extent to which feedback helps to achieve this objective will inform prioritisation and allocation of resources.

This consultation is not seeking feedback on business reorganisations that may also involve a return of capital or dividend, such as certain demergers or internal restructures applying roll-over relief.

Background

Capital management is an important consideration for publicly listed and multinational businesses. The ATO receives a significant volume of applications for binding advice through the rulings system on the consequences of specific transactions by publicly listed and multinational businesses who are considering potential capital management activities on similar fact patterns. Applications for rulings are typically on the tax consequences of:

• returns of share capital
• dividends paid prior to a scheme of arrangement or takeover.

We are currently considering whether our existing public advice or guidance for these capital management transactions needs to be updated, or whether new advice or guidance needs to be developed.

By undertaking this consultation, our goal is to ensure that taxpayers are well placed to make timely decisions that affect their businesses now and into the future and that this will also lead to certainty and greater efficiencies for taxpayers, advisers and the ATO. Your feedback through this consultation process will play an important role in achieving this objective.

Consultation questions

The ATO invites interested parties to lodge written submissions on the following questions. We will also be meeting with interested parties to discuss feedback. If you would like to participate in these meetings, indicate this in your written submission or email the contact officer.

When responding to the questions:

• be clear which question number or topic(s) your response relates to. It is not necessary to respond to all questions.
• be as specific as possible in your responses to ensure your feedback can be fully considered.
• provide clear examples of the particular commercial issues or transaction types and include a description of how guidance would assist you in understanding the tax outcomes.

All suggestions for improvement in our capital management advice and guidance are encouraged, including in relation to our existing public advice and guidance on the specified capital management transactions identified for consultation.

Note that submissions that are outside the scope of this consultation may not be considered.

Returns of capital

1. When you are contemplating a return of capital, to what extent do you refer to Practice Statement Law Administration PS LA 2008/10 Application of section 45B of the Income Tax Assessment Act 1936 to share capital reductions?
2. Do you refer to any other public advice or guidance provided by the ATO? If so, what advice or guidance do you refer to and why?
3. In relation to the guidance you use
   1. Do you find the advice or guidance easy to understand and apply? If not, what parts of the guidance are not clear in their application?
   2. Is the advice or guidance sufficient to understand the tax outcomes on your returns of capital? If not, where can the guidance be improved?
   3. Do you consider parts of the advice or guidance to be incorrect, misleading or unclear? If so, please identify them.
   4. Do you consider any parts of the advice or guidance need updating or clarifying? If so, please identify them.
    
4. Are there any areas or issues where the ATO does not have advice or guidance relating to a return of capital but should? If yes, provide detail.
5. To what extent do you consider the need for class or private rulings on specific returns of capital, or the scope of those rulings would be reduced, by
   1. PS LA 2008/10 being updated? Provide details of what updates you consider would be required, if any, and what impact your suggestions would have.
   2. the publication of additional advice or guidance? Provide details of what additional advice or guidance you consider would be required, if any, and what impact your suggestions would have.
    

Pre-sale dividends

6. When contemplating a pre-sale dividend prior to scheme of arrangement, to what extent do you refer to Taxation Ruling TR 2010/4 Income tax: capital gains: when a dividend will be included in the capital proceeds from a disposal of shares that happens under a contract or a scheme of arrangement?
7. Do you refer to any other public advice or guidance published by the ATO? If so, what guidance do you refer to and why?
8. In relation to the advice or guidance you use
   1. Do you find the advice or guidance easy to understand and apply? If not, what parts of the guidance are not clear in their application?
   2. Is the advice or guidance sufficient to understand the tax outcomes on your pre-sale dividend? If not, where can the guidance be improved?
   3. Do you consider parts of the advice or guidance to be incorrect, misleading or unclear? If so, identify them and provide detail.
   4. Do you consider any parts of the advice or guidance need updating or clarifying? If so, identify them and provide detail.
    
9. Are there any areas or issues where the ATO does not have advice or guidance relating to a pre-sale dividend but should?
10. To what extent do you consider the need for class or private rulings would be reduced, or those ruling applications would be more efficient, by
    1. TR 2010/4 being updated? Provide details of what updates you consider would be required, if any, and what impact your suggestions would have.
    2. the publication of additional advice or guidance? Provide details of what additional advice or guidance you consider would be required, if any, and what impact your suggestions would have.
     

Other feedback

11. Is there anything else about ATO guidance that you would like to bring to our attention that might assist you in understanding the tax outcomes of capital management transactions undertaken by publicly listed and multinational businesses that involve returns of capital or distributions to shareholders as part of undertaking capital management activities?
12. Indicate if you would like to participate in meetings to discuss your feedback.

This paper invites your feedback on Capital management advice and guidance.