Class rulings for share buy-backs and capital reductions
A request for a class ruling for share buy-backs or capital reductions must be in writing and include:
- a detailed description of all facts relevant to the scheme, including
- details about the principals carrying out the scheme, and
- documents you refer to in your request, as attachments
- the title given to the scheme (if relevant)
- a clear and accurate description of the number and class of entities subject to the scheme
- clear questions about provisions to be ruled on, including any issues with a detailed review of the provisions as well as the results of any research
- a reason why the buy-back or capital reduction is being undertaken and what commercial advantages will be gained and for how long
- the sources of funds used for either
- the capital component of the buy-back consideration or the non-dividend part of the capital reduction amount
- dividend component or dividend amount
- how the capital/dividend split was calculated
- if any dividend component or dividend amount is to be fully franked, partially franked, unfranked, treated as conduit foreign income, and so on.
- if some or all of the buy-back price or capital reduction amount is a distribution of property (including an in specie distribution of shares), a description of the property, its nature and market value.
- the latest set of financial accounts no more than 6 months old
- the balance of the franking account and projected movements up to the time of the buy-back or capital reduction
- dividend history for the last few years
- details about shareholder profile including:
- a breakdown between residents and non-residents
- the proportion of pre-CGT and post-CGT shares
- an analysis of cost bases.
- a statement that the share capital account is untainted (within the meaning of section 197-50 of the Income Tax Assessment Act 1997 (ITAA 1997)) and details of any amounts that have been transferred to the share capital account from other accounts after 30 June 2002
- journal entries related to the buy-back or capital reduction.
For more information, see Class rulings.
Further class ruling considerations
When applying for a class ruling for a share buy-back or capital reduction you should also consider the following:
- If you want to request a different methodology to Taxation Determination TD 2004/22Opens in a new window, you should provide reasons why and how any alternative index proposed is more appropriate.
- If you would like the class ruling to rule on whether shares held by foreign resident shareholders are 'indirect Australian real property' interests, which often includes consideration of the 'principal asset test'. This is relevant with other tests to determine whether shares held by foreign residents are taxable Australian property for capital gains tax purposes.
- If the company proposing the buy-back is unlisted, you might need to provide a market valuation of the shares, see Market valuation for tax purposes.
How we review share buy-backs
After we receive the application, we:
- examine the buy-back timetable in relation to applying the holding period rule
- if the buy-back is off-market and the company proposing the buy-back is unlisted, we need to know what the maximum level of discount the company intends buying back its shares for, as well as whether the shares could be purchased at a premium to market value.
The issue of a class ruling with a particular scheme depends on the requesting entity:
- acknowledging that we will reveal in the ruling
- the name of the entities involved as principals in the carrying out of the scheme
- the name and description of the scheme
- a description of the agreements, deeds and transactions to which the participants are parties.
- obtaining express consent to be named from all parties named in the ruling
- that the description of the scheme contained in the proposed ruling is accurate.
For more information, see:
- PS LA 2007/9Opens in a new window Share buy-backs
- PS LA 2008/10Opens in a new window Application of section 45B of the Income Tax Assessment Act 1936 to share capital reductions