Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-5 - CORPORATE TAXPAYERS AND CORPORATE DISTRIBUTIONS  

Division 197 - Tainted share capital accounts  

Subdivision 197-C - Consequence of transfer: tainting of share capital account  

SECTION 197-50   The share capital account becomes tainted (if it is not already tainted)  

197-50(1)    
A company ' s *share capital account becomes tainted when an amount to which this Division applies is transferred to the account, if, at the time of the transfer, the account is not already tainted (because of the application of this section in relation to a previous transfer).

Note:

If a company ' s share capital account is tainted, then a distribution from the account is taxed as a dividend in the hands of the shareholder. This is because a tainted share capital account does not count as a share capital account for the purposes of paragraph (d) of the definition of dividend in subsection 6(1) of the Income Tax Assessment Act 1936 (see subsection 975-300(3) of this Act). However, although the distribution is taxed as a dividend, the company cannot pass on to the shareholder the benefit of the tax it has paid, because a distribution from a share capital account (whether or not tainted) is unfrankable (see paragraphs 202-45(e) and 975-300(3)(ba) of this Act).

197-50(2)    
The *share capital account remains tainted until the company chooses to untaint the account (see section 197-55 ).

Note:

If, after a choice to untaint is made, the company ' s share capital account becomes tainted again, the account remains tainted until a fresh choice to untaint is made.

197-50(3)    
The tainting amount , for a company ' s *share capital account that is *tainted at a particular time, means the sum of:

(a) the amount transferred to the company ' s share capital account that most recently caused the account to become tainted; and

(b) any other amounts to which this Division applies that have been transferred to the company ' s share capital account since the transfer referred to in paragraph (a) and before the particular time.