INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART IIIAA - FRANKING OF DIVIDENDS  

Division 7B - Tainted share capital accounts  

Subdivision A - Tainting and untainting accounts, and distributions from tainted accounts  

SECTION 160ARDM   TAINTED SHARE CAPITAL ACCOUNT  

160ARDM(1)   [``tainted'']  

A company's share capital account is tainted if the company transfers an amount to its share capital account from any of its other accounts.

Note:

Certain distributions from tainted share capital accounts will be unfranked dividends for which no section 46 or 46A rebate is available.

160ARDM(2)   [Transfers under debt/equity swaps]  

However, subsection (1) does not apply if the amount:

(a) could be identified in the books of the company as an amount of share capital at all times before it was credited to the share capital account; or

(b) (Repealed by No 80 of 2006)

(c) is an amount to which subsection (2A) applies.

160ARDM(2A)    
This subsection applies to an amount transferred into the company's share capital account if:

(a) the company is a resident; and

(b) immediately before the transfer, the company was not incorporated under the Corporations Law; and

(c) a law of the Commonwealth or of a State or Territory requires or allows either or both of the following to become part of the company's share capital account:

(i) the company's share premium account;

(ii) the company's capital redemption reserve; and

(d) the transfer is made as part of a process that leads to there being no shares in the company that have a par value; and

(e) the amount was an amount standing to the credit of the company's share premium account or capital redemption reserve immediately before the transfer.

Note:

The definition of share premium account in subsection 6(1) of this Act was repealed in relation to companies with shares with no par value (see items 5 and 67 in Schedule 5 to the Taxation Laws Amendment (Company Law Review) Act 1998 ). However, it has been retained in relation to companies with par value shares.

160ARDM(2B)    
If the transfer of an amount as mentioned in subsection (1) is a transfer under a debt/equity swap (as defined in subsection (5)), the following provisions have effect:

(a) if the transferred amount does not exceed the lesser of:

(i) the market value of the shares referred to in subsection (5); and

(ii) so much of the debt referred to in subsection (5) as is discharged, released or extinguished in return for the shares;

subsection (1) does not apply to the transferred amount;

(b) if the transferred amount exceeds the lesser of the amounts referred to in paragraph (a), subsection (1) applies only to the excess.

160ARDM(2C)    
Subsection (1) does not apply to an amount transferred as mentioned in that subsection if:

(a) it is transferred from an option premium reserve of the company; and

(b) the transfer is because of the exercise of options to acquire shares in the company; and

(c) premiums in respect of those options were credited to the option premium reserve.

160ARDM(3)   [Demutualisation]  

If:

(a) an amount or amounts are transferred as mentioned in subsection (1) in connection with the demutualisation of a mutual entity (other than a mutual entity formed by the merger of 2 or more mutual entities); and

(b) Division 326 applies to the demutualisation;

the following provisions have effect:

(c) where the amount or the sum of the amounts transferred does not exceed the total of the capital amounts:

(i) that were contributed to the entity by members of the entity before it was demutualised; and

(ii) in respect of which deductions are not allowable to the members; and

(iii) that were not payments for goods or services provided by the entity;

subsection (1) does not apply to the amount transferred;

(d) where the amount or the sum of the amounts transferred exceeds the total of those capital amounts - subsection (1) applies only to the excess.

160ARDM(4)   [Demutualisations where entity formed by merger]  

If:

(a) an amount or amounts are transferred as mentioned in subsection (1) in connection with the demutualisation of a mutual entity formed by the merger of 2 or more mutual entities; and

(b) Division 326 applies to the demutualisation;

the following provisions have effect:

(c) where the amount or the sum of the amounts transferred does not exceed the total of the capital amounts:

(i) that were contributed to the demutualising entity before the completion of the demutualisation by persons who became members of that entity after the merger took place; and

(ii) in respect of which deductions are not allowable to those members; and

(iii) that were not payments for goods or services provided by that entity;

and the market values of the merging entities, as determined by a qualified valuer, at the time of the merger - subsection (1) does not apply to the amount transferred;

(d) where the amount or the sum of the amounts transferred exceeds the total of those capital amounts and market values - subsection (1) applies only to the excess.

160ARDM(4A)    
If:

(a) an amount is transferred as mentioned in subsection (1); and

(b) the amount is transferred in connection with the demutualisation of a company; and

(c) the demutualisation is implemented in accordance with a demutualisation method in Division 9A of Part III ; and

(d) the transfer occurs within the listing period in relation to the demutualisation (see subsection 121AE(6) ); and

(e) the company (the issuing company ) to whose share capital capital account the amount is transferred is:

(i) if the demutualisation method is the method specified in section 121AF or 121AG - the demutualisation company; or

(ii) if the demutualisation method is the method specified in section 121AH , 121AI , 121AJ , 121AK or 121AL - the company issuing the ordinary shares referred to in that section;

the following provisions have effect:

(f) if the sum of:

(i) the transferred amount; and

(ii) all amounts that were previously transferred to the issuing company's share capital account, from another account of the company, in connection with the demutualisation; and

(iii) all amounts that were previously transferred to the issuing company's retained profit account in connection with the demutualisation;

does not exceed the listing day company valuation amount (as defined in subsection (6)), subsection (1) does not apply to the transferred amount;

(g) if the sum of the amounts referred to in paragraph (f) exceeds the listing day company valuation amount (as defined in subsection (6)), subsection (1) applies only to the excess.

Note:

If there are several transfers of amounts to the issuing company's share capital account, this section must be applied separately in relation to each transferred amount, in the order in which the transfers are made.

160ARDM(4B)    
If:

(a) a life assurance company (the demutualised company ) has demutualised; and

(b) the demutualisation was implemented in accordance with a demutualisation method specified in Division 9AA of Part III ; and

(c) an amount is transferred as mentioned in subsection (1); and

(d) the amount is transferred after the end of the listing period in relation to the demutualisation (see subsection 121AE(6) ); and

(e) the company transferring the amount to its share capital account is either:

(i) the demutualised company (whichever demutualisation method was used); or

(ii) if the demutualisation method was the method specified in section 121AH , 121AI , 121AJ , 121AK or 121AL - the company (the issuing company ) that issued the ordinary shares referred to in that section; and

(f) if subparagraph (e)(i) applies - the following conditions are satisfied in relation to the transferred amount:

(i) the amount is transferred from an account of the demutualised company consisting of shareholders' capital (within the meaning of the Life Insurance Act 1995 ) in relation to a statutory fund (within the meaning of that Act);

(ii) the amount was part of such an account at the time of the demutualisation; and

(g) if subparagraph (e)(ii) applies - the amount is transferred from a capital reserve created at the time of or in connection with the demutualisation;

the following provisions have effect:

(h) if the sum of:

(i) the transferred amount; and

(ii) all amounts that were previously transferred to the demutualised company's share capital account, from another account of the demutualised company, as described in paragraphs (c) to (g); and

(iii) if the demutualisation method was the method specified in section 121AH , 121AI , 121AJ, 121AK or 121AL - all amounts that were previously transferred to the issuing company's share capital account, from another account of the issuing company, as described in paragraphs (c) to (g); and

(iv) all amounts that were previously transferred, in connection with the demutualisation, to the share capital account of the issuing company (within the meaning of subsection (4A)) as described in paragraphs (4A)(b) to (e), or to its retained profit account as described in subparagraph (4A)(f)(iii);

does not exceed the listing day company valuation amount (as defined in subsection (6)), subsection (1) does not apply to the transferred amount;

(i) if the sum of the amounts referred to in paragraph (h) exceeds the listing day company valuation amount (as defined in subsection (6)), subsection (1) applies only to the excess.

Note:

If there are several transfers of amounts to the share capital account of the demutualised company or the issuing company, this subsection must be applied separately in relation to each transferred amount, in the order in which the transfers are made.

160ARDM(5)   [Meaning of debt/equity swap ]  

For the purposes of this section, a debt/equity swap occurs if, under an arrangement (defined in subsection (6)), a taxpayer discharges, releases or otherwise extinguishes the whole or part of a debt owed to the taxpayer in return for the issue by the debtor to the taxpayer of shares (other than redeemable preference shares) in the debtor.

160ARDM(6)   [Meaning of arrangement ]  

In this section:

arrangement
means any agreement, arrangement, understanding, promise, undertaking or scheme, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings.

listing day company valuation amount
has the same meaning as it has for the purposes of table 1 in section 121AS , as that table applies in relation to the demutualisation company referred to in subsection (4A), or the demutualised company referred to in subsection (4B), as the case requires (see note 3 to that table).