Taxation Laws Amendment Act (No. 2) 1999 (93 of 1999)
Schedule 5 Franking of dividends by exempting companies and former exempting companies
Income Tax Assessment Act 1936
42 Before Division 1A of Part IIIAA
Insert:
Division 1AA - Interpretative provisions relating to exempting companies and former exempting companies
160APHBA Exempting companies
A company is taken to be, or to have been, an exempting company at a particular time if:
(a) that time is, or was, as the case may be, a time later than 7.30 pm by legal time in the Australian Capital Territory on 13 May 1997; and
(b) at that time the company is or was, as the case may be, effectively owned by prescribed persons.
160APHBB Effective ownership of company by prescribed persons
(1) A company is taken to be, or to have been, effectively owned by prescribed persons at a particular time if:
(a) at that time:
(i) not less than 95% of the accountable shares in the company; or
(ii) not less than 95% of the accountable interests in shares in the company;
are or were held by, or held indirectly for the benefit of, prescribed persons; or
(b) paragraph (a) does not apply but it would nevertheless be reasonable to conclude that, at that time, the risks involved in, and the opportunities resulting from, holding accountable shares, or accountable interests in shares, in the company that are not, or were not, held by, or directly or indirectly for the benefit of, prescribed persons are or were substantially borne by, or substantially accrue or accrued to, prescribed persons.
(2) In deciding whether it would be reasonable to conclude as mentioned in paragraph (1)(b):
(a) regard is to be had to any arrangement in respect of shares (including unissued shares), or in respect of interests in shares, in the company (including any derivatives held or issued in connection with those shares or interests) of which the company is aware; but
(b) no regard is to be had to risks involved in the ownership of shares, or interests in shares, in the company that are substantially borne by any person in the person's capacity as a secured creditor.
160APHBC Accountable shares
(1) The purpose of this section is to identify which shares in a company are relevant in determining whether the company is effectively owned by prescribed persons.
(2) A share in a company is an accountable share if it is not an excluded share.
(3) A share in a company is an excluded share if, having regard to:
(a) the purposes for which the share was issued; and
(b) any special or limited rights connected with, arising from, or attached to:
(i) the share; or
(ii) other shares in the company held by the holder of the share; or
(iii) shares in the company held by persons other than the holder of the share; or
(iv) interests in any of the above;
including rights that are conferred or exercisable only if the holder of the shares or interests concerned is, or is not, a prescribed person; and
(c) the extent to which any such special or limited rights are similar to or differ from the rights that are normally attached to the ownership of ordinary shares in companies; and
(d) the relationship between the value of the share and the value of the company; and
(e) any relationship or connection (whether of a personal or business nature) between holders of shares in the company of which the company is aware; and
(f) any arrangement in respect of shares (including unissued shares) in the company, or interests in shares in the company, of which the company is aware;
it would be reasonable to conclude that the share is not relevant in determining whether the company is effectively owned by prescribed persons because holding the share does not involve the holder bearing the risks, or result in the accrual to the holder of the opportunities, of ownership of the company that ordinarily arise from, or are ordinarily attached to, the holding of ordinary shares in a company.
(4) In applying subsection (3), the fact that a person is a trustee is to be disregarded.
(5) Without limiting subsection (3), a share in a company held by a person who is not a prescribed person is an excluded share if:
(a) it is a finance share; or
(b) it is a dividend access share; or
(c) it does not carry the right to receive dividends; or
(d) it was issued, transferred or acquired for a purpose (other than an incidental purpose) of ensuring that the company is not effectively owned by prescribed persons.
(6) A share is a finance share if, having regard to the rights attached to the share and to any arrangement with respect to the share of which the company is aware, the share is equivalent to a debt owed by the company to the holder of the share.
(7) A share to which subsection (6) does not apply is a finance share if:
(a) the manner in which the dividends payable in respect of the share are calculated, and the conditions applying to the payment of such dividends, indicate that the dividends paid are equivalent to the receipt by the person to whom they are paid of interest or an amount in the nature of or similar to interest; or
(b) the capital invested by the holder of the share will be redeemed, or, because of an arrangement between the holder and the company or an associate of the company, it is reasonable for the holder to expect that the capital will be redeemed, for an amount that is not less than, or for property (including other shares in the company) the value of which is not less than, the amount paid for the share; or
(c) the share is redeemable by the company by payment of a lump sum or by the transfer of property, or the share has a preferred right to a repayment of capital on a winding up, where the amount of the lump sum or the value of the property, or the amount of the capital to be repaid, as the case may be, is to be calculated by reference to an implicit interest rate.
(8) A share in a company is a dividend access share if, having regard to:
(a) the terms of the issue of the share, including any guarantee of payment of dividends; and
(b) the amounts of the dividends paid on the share relative to the issue price of the share; and
(c) whether there is any guaranteed rate at which franked dividends are to be paid on the share; and
(d) the duration of the period within which the share was issued; and
(e) the rights attached to other shares in the company; and
(f) any other relevant matters;
it could be concluded that the share was issued only for the purpose of paying dividends to the holder of the share.
160APHBD Accountable interests
(1) The purpose of this section is to identify which interests in shares in a company are relevant in determining whether the company is effectively owned by prescribed persons.
(2) An interest in a share in a company is an accountable interest if it is not an excluded interest.
(3) An interest in a share in a company is an excluded interest if, having regard to:
(a) the purposes for which the interest was granted; and
(b) the nature of the interest; and
(c) any special or limited rights connected with or arising from:
(i) the interest; or
(ii) other shares, or interests in other shares, in the company held by the holder of the interest; or
(iii) shares, or interests in shares, in the company held by persons other than the holder of the interest;
including rights that are conferred or exercisable only if the holder of the interests or shares concerned is, or is not, a prescribed person; and
(d) the extent to which the interest is similar to or differs from beneficial ownership; and
(e) the relationship between the value of the interest and the value of the company; and
(f) any relationship or connection (whether of a personal or business nature) between holders of interests in shares in the company, and the holders of shares in the company, of which the company is aware; and
(g) any arrangement in respect of shares (including unissued shares) in the company, or interests in shares in the company, of which the company is aware;
it would be reasonable to conclude that the interest is not relevant in determining whether the company is effectively owned by prescribed persons because holding the share to which the interest relates does not involve the holder bearing the risks, or result in the accrual to the holder of the opportunities, of ownership of the company that ordinarily arise from, or are ordinarily attached to, the holding of ordinary shares in a company.
(4) In applying subsection (3), the fact that a person is a trustee is to be disregarded.
(5) Without limiting subsection (3), an interest in an accountable share in a company is also an excluded interest if it was granted or otherwise created, or was transferred or acquired, for a purpose (other than an incidental purpose) of ensuring that the company is not effectively owned by prescribed persons.
160APHBE Former exempting companies
(1) Subject to subsection (2), a company is a former exempting company if it has at any time ceased to be an exempting company and is not again an exempting company.
(2) If a company that, at any time whether before or after the commencement of this section, became or becomes effectively owned by prescribed persons ceased or ceases to be so effectively owned within 12 months after that time, the company is not taken, by so ceasing, to have become, or to become, a former exempting company.
160APHBF Prescribed persons
(1) A company is a prescribed person in relation to another company if:
(a) the first company is a non-resident; or
(b) were the first company to receive a dividend paid by the other company, the dividend would be exempt income of the company for the purposes of this Part.
(2) A trustee is a prescribed person in relation to a company if:
(a) all the beneficiaries in the trust are prescribed persons under other provisions of this section; or
(b) were the trustee to receive a dividend paid by the company, the dividend would be exempt income of the trust estate for the purposes of this Part.
(3) A partnership is a prescribed person in relation to a company if:
(a) all the partners are prescribed persons under other provisions of this section; or
(b) were the partnership to receive a dividend paid by the company, the dividend would be exempt income of the partnership for the purposes of this Part.
(4) An individual (other than a trustee) is a prescribed person in relation to a company if:
(a) he or she is a non-resident; or
(b) were he or she to receive a dividend paid by the company, the dividend would be exempt income of the individual for the purposes of this Part.
(5) The Commonwealth, each of the States, the Australian Capital Territory, the Northern Territory and Norfolk Island are prescribed persons in relation to any company.
160APHBG Persons who are taken to be prescribed persons
(1) This section applies to a person that:
(a) is a company, a trustee, or a partnership, that holds shares (whether accountable shares or excluded shares), or interests in shares (whether accountable interests or excluded interests), in a company (the relevant company ); and
(b) is not a prescribed person under section 160APHBF.
(2) A company (the shareholding company ) that holds shares, or interests in shares, in the relevant company is taken to be a prescribed person in relation to the relevant company if the risks involved in, and the opportunities resulting from, holding the shares or interests are substantially borne by, or substantially accrue to, as the case may be, one or more prescribed persons.
(3) A trustee of a trust who holds shares, or interests in shares, in the relevant company is taken to be a prescribed person in relation to the relevant company if the risks involved in, and the opportunities resulting from, holding the shares or interests are substantially borne by, or substantially accrue to, as the case may be, one or more prescribed persons.
(4) A trustee of a trust who holds shares, or interests in shares, in the relevant company is taken to be a prescribed person in relation to the relevant company if:
(a) unless subsection (7) applies, the trust is controlled by one or more persons who are prescribed persons; or
(b) all the beneficiaries who are presently entitled to, or during the relevant year of income become presently entitled to, income from the trust are prescribed persons.
(5) In determining whether subsection (3) or (4) applies in respect of a trust that is controlled by a person, regard is to be had to the way in which the person, or any associate of the person, exercises powers in relation to the trust.
(6) A person controls a trust if:
(a) the person has the power, either directly, or indirectly through one or more interposed entities, to control the application of the income, or the distribution of the property, of the trust; or
(b) the person has the power, either directly, or indirectly through one or more entities, to appoint or remove the trustee of the trust; or
(c) the person has the power, either directly, or indirectly through one or more entities, to appoint or remove beneficiaries of the trust; or
(d) the trustee of the trust is accustomed or under an obligation, whether formal or informal, to act according to the directions, instructions or wishes of the person or of an associate of the person.
(7) Paragraph (4)(a) does not apply in relation to a trust if some of the beneficiaries receiving income from the trust are not prescribed persons and the Commissioner considers that it is reasonable to conclude that the risks involved in, and the opportunities resulting from, holding the shares and interests in the relevant company are substantially borne by, or substantially accrue to, as the case may be, one or more persons who are not prescribed persons.
(8) A partnership that holds shares, or interests in shares, in the relevant company is taken to be a prescribed person in relation to the relevant company if the risks involved in, and the opportunities resulting from, holding the shares or interests are substantially borne by, or substantially accrue to, as the case may be, one or more prescribed persons.
(9) If any of the prescribed persons referred to in subsection (2), (3), (4) or (6) is a company, that subsection applies even if the risks involved in, and the opportunities resulting from, holding any of the shares, or interests in shares, in that company are substantially borne by, or substantially accrue to, as the case may be, one or more persons who are not prescribed persons.
160APHBH Eligible employee share schemes
(1) A share in a company is taken to be acquired by a person under an eligible employee share scheme if:
(a) the share is acquired by the person in respect of, or for or in relation directly or indirectly to, any employment of the person by the company or by a company that is a subsidiary of the company; and
(b) all the shares available for acquisition under the scheme are ordinary shares or are preference shares to which are attached substantially the same rights as are attached to ordinary shares; and
(c) immediately after the acquisition of the shares:
(i) the person does not hold a legal or beneficial interest in more than 5% of the shares in the company; and
(ii) the person is not in a position to control, or control the casting of, more than 5% of the maximum number of votes that might be cast at a general meeting of the company.
(2) The question whether a company is a subsidiary of another company is to be determined in the same way as the question whether a corporation is a subsidiary of another corporation is determined under the Corporations Law.
160APHBI Membership of same effectively wholly-owned group of companies
(1) 2 companies are members of the same effectively wholly-owned group of companies on a particular day if:
(a) throughout that day, not less than 95% of the accountable shares in each of the companies, and not less than 95% of the accountable interests in shares in each of the companies, are held by, or are held indirectly for the benefit of, the same persons; or
(b) paragraph (a) does not apply but it would nevertheless be reasonable to conclude, having regard to the matters mentioned in subsection (2), that, throughout that day, the risks involved in, and the opportunities resulting from, holding accountable shares, or accountable interests in shares, in each of the companies are substantially borne by, or substantially accrue to, the same persons.
(2) The matters to which regard is to be had as mentioned in paragraph (1)(b) are:
(a) any special or limited rights attaching to accountable shares, or accountable interests in shares, in each of the companies held by persons other than the persons mentioned in paragraph (1)(b) or their associates; and
(b) any special rights attaching only to accountable shares, or accountable interests in shares, in each of the companies held by the persons mentioned in paragraph (1)(b) or their associates; and
(c) the respective proportions:
(i) that accountable shares in each of the companies held by the persons mentioned in paragraph (1)(b) or their associates, and other accountable shares in the company concerned, bear to all the accountable shares in that company; and
(ii) that accountable interests in shares in each of the companies held by the persons mentioned in paragraph (1)(b) or their associates, and other accountable interests in shares in the company concerned, bear to all the accountable interests in shares in that company; and
(d) the respective proportions that:
(i) the total value of accountable shares in each of the companies held by the persons mentioned in paragraph (1)(b) or their associates, and the total value of other accountable shares in the company concerned, bear to the total value of all the accountable shares in that company; and
(ii) the total value of accountable interests in shares in each of the companies held by the persons mentioned in paragraph (1)(b) or their associates, and the total value of other accountable interests in shares in the company concerned, bear to the total value of all the accountable interests in shares in that company; and
(e) the purposes for which accountable shares, or accountable interests in shares, in each of the companies were issued or granted to persons other than the persons mentioned in paragraph (1)(b) or their associates; and
(f) any arrangement in respect of accountable shares, or accountable interests in shares, in each of the companies held by persons other than the persons mentioned in paragraph (1)(b) or their associates (including any derivatives held or issued in connection with those shares or interests) of which the company concerned is aware.
160APHBJ Eligible continuing substantial shareholders
(1) A shareholder is an eligible continuing substantial shareholder in relation to a dividend paid by a former exempting company (the relevant former exempting company ) if the following provisions apply.
(2) At both of the following times:
(a) the time when the dividend was paid; and
(b) the time immediately before the relevant former exempting company ceased to be an exempting company;
the shareholder:
(c) was entitled to not less than the prescribed percentage of:
(i) if the voting shares (as defined in the Corporations Law) in the relevant former exempting company are not divided into classes - those voting shares; or
(ii) if the voting shares (as so defined) in the relevant former exempting company are divided into 2 or more classes - the shares in one of those classes; and
(d) was a person referred to in one or more of the following subparagraphs:
(i) a non-resident; or
(ii) a life assurance company; or
(iii) an exempting company; or
(iv) a former exempting company; or
(v) a trustee of a trust in which an interest was held by a person referred to in any of subparagraphs (i) to (iv); or
(vi) a partnership in which an interest was held by a person referred to in any of subparagraphs (i) to (iv).
(3) If the assumptions set out in subsection (4) are made:
(a) if the shareholder was a person referred to in any of subparagraphs (2)(d)(i) to (iv) - the shareholder; or
(b) if the shareholder was a trustee of a trust or a partnership, being a trust or partnership in which a person referred to in any of those subparagraphs held an interest - the holder of the interest;
would (if a non-resident) be exempt from dividend withholding tax on the dividend or (if a resident) be entitled to a franking credit or a franking rebate in respect of the dividend.
(4) The assumptions referred to in subsection (3) are that:
(a) the relevant former exempting company was an exempting company at the time it paid the dividend; and
(b) the dividend was a franked dividend paid to the shareholder; and
(c) if the shareholder was a former exempting company - the shareholder was an exempting company; and
(d) if the shareholder was a trustee of a trust or partnership in which a former exempting company had an interest - that former exempting company was an exempting company.
(5) The question whether a person was entitled at a particular time to not less than the prescribed percentage of voting shares or a class of voting shares in a company is to be determined in the same way as that question is determined under subsection 708(5) of the Corporations Law.
(6) A person is taken to hold an interest in a trust if:
(a) the person is a beneficiary under the trust; or
(b) the person derives, or will derive, income indirectly, through interposed trusts or partnerships, from dividends received by the trustee.
(7) A person is taken to hold an interest in a partnership if:
(a) the person is a partner in the partnership; or
(b) the person derives, or will derive, income indirectly, through interposed trusts or partnerships, from dividends received by the partnership.