Taxation Laws Amendment (Company Law Review) Act 1998 (63 of 1998)

Schedule 1   General anti-avoidance rule

Income Tax Assessment Act 1936

1   After section 44

Insert:

45 Streaming of bonus shares and unfranked dividends

Application of section

(1) This section applies in respect of a company that, whether in the same year of income or in different years of income, streams the provision of shares (other than shares to which subsection 6BA(5) applies) and the payment of minimally franked dividends to its shareholders in such a way that:

(a) the shares are received by some shareholders but not all shareholders; and

(b) some or all of the shareholders who do not receive the shares receive or will receive minimally franked dividends.

(2) The value of the share at the time that the shareholder is provided with the share is taken, for the purposes of this Act, to be an unfranked dividend that is paid by the company, out of profits of the company, to the shareholder at that time. No entitlement to a rebate arises under section 46 or 46A in respect of the dividend.

(3) A dividend is minimally franked if it is not franked, or is franked to less than 10%, in accordance with section 160AQF or 160AQFA.

Expressions to have same meanings as in Part IIIAA

(4) Expressions used in this section that are defined in Part IIIAA have the same meanings as in that Part.

45A Streaming of dividends and capital benefits

Application of section

(1) This section applies in respect of a company that, whether in the same year of income or in different years of income, streams the provision of capital benefits and the payment of dividends to its shareholders in such a way that:

(a) the capital benefits are, or apart from this section would be, received by shareholders (the advantaged shareholders ) who would, in the year of income in which the capital benefits are provided, derive a greater benefit from the capital benefits than other shareholders; and

(b) it is reasonable to assume that the other shareholders (the disadvantaged shareholders ) have received, or will receive, dividends.

However, it does not apply if section 45 applies in relation to the streaming or in the circumstances set out in subsection (5).

Commissioner to determine that section 45C applies

(2) The Commissioner may make, in writing, a determination that section 45C applies in relation to the whole, or a part, of the capital benefits. A determination does not form part of an assessment.

Note: Subsection (6) limits the determination to a part of the capital benefit in certain cases.

Meaning of provision of capital benefit

(3) A reference to the provision of a capital benefit to a shareholder in a company is a reference to any of the following:

(a) the provision to the shareholder of shares in the company;

(b) the distribution to the shareholder of share capital;

(c) something that is done in relation to a share that has the effect of increasing the value of a share (which may or may not be the same share) held by the shareholder.

Meaning of greater benefit from capital benefits

(4) The circumstances in which a shareholder would, in a year of income, derive a greater benefit from capital benefits than another shareholder include, but are not limited to, any of the following circumstances existing in relation to the first shareholder and not in relation to the other shareholder:

(a) some or all of the shares in the company held by the shareholder were acquired, or are taken to have been acquired, before 20 September 1985;

(b) the shareholder is a non-resident;

(c) the cost base (for the purposes of Part IIIA) of the relevant share is not substantially less than the value of the applicable capital benefit;

(d) the shareholder has a net capital loss for the year of income in which this capital benefit is provided;

(e) the shareholder is a private company who would not be entitled to a rebate under section 46F if the shareholder had received the dividend that was paid to the disadvantaged shareholder;

(f) the shareholder has income tax losses.

Certain capital benefits not covered

(5) This section does not apply where the capital benefit provided to the advantaged shareholders is the provision of shares and it is reasonable to assume that the disadvantaged shareholders have received, or will receive, fully franked dividends.

Determination limited in certain cases

(6) If the capital benefit provided to the advantaged shareholders is the provision of shares and it is reasonable to assume that the disadvantaged shareholders have received, or will receive, partly franked dividends, the Commissioner may only make a determination under subsection (2) in relation to so much of the capital benefit as the Commissioner considers relates to the unfranked part of the dividend.

45B Schemes to provide capital benefits

Purpose of section

(1) The purpose of this section is to ensure that certain payments that are paid in substitution for dividends are treated as dividends for taxation purposes.

Application of section

(2) This section applies if:

(a) there is a scheme under which a person is provided with a capital benefit by a company; and

(b) under the scheme, a taxpayer (the relevant taxpayer ), who may or may not be the person provided with the capital benefit, obtains a tax benefit; and

(c) having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling a taxpayer (the relevant taxpayer ) to obtain a tax benefit.

Commissioner to determine that section 45C applies

(3) The Commissioner may make, in writing, a determination that section 45C applies in relation to the whole, or a part, of the capital benefit. A determination does not form part of an assessment.

Meaning of provided with a capital benefit

(4) A reference to a person being provided with a capital benefit is a reference to any of the following:

(a) the provision of shares in a company to the person;

(b) the distribution to the person of share capital;

(c) something that is done in relation to a share that has the effect of increasing the value of a share (which may or may not be the same share) that is held by the person.

Meaning of relevant circumstances of scheme

(5) The relevant circumstances of a scheme are:

(a) the extent to which the capital benefit is attributable to profits of the company or of an associate (within the meaning in section 318) of the company;

(b) the pattern of distributions of dividends, bonus shares and returns of capital by the company;

(c) whether the relevant taxpayer has capital losses that, apart from the scheme, would be carried forward to a later year of income;

(d) whether some or all of the shares in the company held by the relevant taxpayer were acquired, or are taken to have been acquired, by the relevant taxpayer before 20 September 1985;

(e) whether the relevant taxpayer is a non-resident;

(f) whether the cost base (for the purposes of Part IIIA) of the relevant share is not substantially less than the value of the applicable capital benefit;

(g) whether the relevant taxpayer is a private company who would not have been entitled to a rebate under section 46F if the taxpayer had been paid an equivalent dividend instead of the capital benefit;

(h) if the scheme involves the distribution of share capital - whether the interest held by the relevant taxpayer after the distribution is the same as the interest would have been if an equivalent dividend had been paid instead of the distribution of share capital;

(i) if the scheme involves the provision of shares and the later disposal of those shares or an interest in those shares - the matters set out in subsection (6);

(j) if the scheme involves an increase in the value of a share and the later disposal of that share or an interest in that share - the matters set out in subsection (6);

(k) any of the matters referred to in subparagraphs 177D(b)(i) to (viii).

(6) The matters are:

(a) the period for which the shares, or the interests in the shares, are held by the shareholder or the holder of the interest; and

(b) when the arrangement for the disposal of the shares, or interests in the shares, was entered into; and

(c) whether, and when, any arrangement (for example, an option or other derivative) affecting the incidence of the risks of loss and opportunities for profit or gain from holding the shares or interests in the shares was entered into; and

(d) if there is such an arrangement, the extent to which the risks or opportunities were borne by or accrued to the shareholder or holder of the interest, and the extent to which they were borne by or accrued to any other person, while the shareholder or holder of the interest held the shares or interests in the shares; and

(e) whether there was any change in those risks and opportunities for the shareholder or holder of the interest or any other person.

Meaning of obtaining a tax benefit

(7) A relevant taxpayer obtains a tax benefit if an amount of tax payable, or any other amount payable under this Act, by the relevant taxpayer would, apart from this section, be less than the amount that would have been payable, or would be payable at a later time than it would have been payable, if the capital benefit had been a dividend.

Expressions to have same meanings as in Part IIIAA

(8) Expressions used in this section that are defined in Part IIIAA have the same meanings as in that Part.

45C Effect of determinations under sections 45A and 45B

(1) If the Commissioner makes a determination under subsection 45A(2) or 45B(3), the amount of the capital benefit, or the part of the benefit, is taken, for the purposes of this Act, to be an unfranked dividend that is paid by the company to the shareholder or relevant taxpayer at the time that the shareholder or relevant taxpayer is provided with the capital benefit. No entitlement to a rebate arises under section 46 or 46A in respect of the dividend.

(2) The dividend is taken to have been paid out of profits of the company.

(3) If the Commissioner has made a determination under section 45B in respect of the whole or a part of a capital benefit and the Commissioner makes a further written determination that the capital benefit, or the part of the capital benefit, was paid under a scheme for which a purpose, other than an incidental purpose, was to avoid franking debits arising in relation to the distribution from the company:

(a) on the day on which notice of the determination is served in writing on the company, a class C franking debit of the company arises in respect of the capital benefit; and

(b) the amount of the franking debit is the amount that, if the company had paid a dividend of an amount equal to the amount of the capital benefit, or the part of the capital benefit, at the time when it was provided and had fully franked the dividend, would have been the franked amount of the dividend.

(4) The amount of the capital benefit is:

(a) if the benefit is the provision of a share - the value of the share at the time that it is provided; or

(b) if the benefit is an increase in the value of a share - the increase in the value of the share as a result of the change; or

(c) if the benefit is a distribution to the shareholder of share capital - the amount debited to the share capital account of the company in connection with the provision of the benefit.

Franking debit to be reduced by any franking debit under section 160AQCB, 160AQCNA or 160AQCNB

(5) If:

(a) a franking debit of the company arises under paragraph (3)(b) in respect of a capital benefit; and

(b) a franking debit of the company arises under section 160AQCB, 160AQCNA or 160AQCNB in respect of the same capital benefit;

the amount of the franking debit arising under paragraph (3)(b) is reduced by the amount of the franking debit arising under section 160AQCB, 160AQCNA or 160AQCNB.

Expressions to have same meanings as in Part IIIAA

(6) Expressions used in this section that are defined in Part IIIAA have the same meanings as in that Part.

45D Determinations under sections 45A, 45B and 45C

Notice of determination

(1) If the Commissioner makes a determination under section 45A, 45B or 45C, the Commissioner must give a copy of the determination to:

(a) the company; and

(b) for a section 45A determination - the advantaged shareholder referred to in that section; and

(c) for a section 45B determination - the relevant taxpayer referred to in that section.

The notice may be included in a notice of assessment.

Publication in national newspaper of determination in relation to listed public company

(2) If the Commissioner makes a determination under paragraph (1)(b), in respect of a dividend paid by a listed public company within the meaning of the Income Tax Assessment Act 1997, the Commissioner is taken to have served notice in writing of the determination on the relevant taxpayer if the Commissioner causes the notice to be published in a daily newspaper that circulates generally in each State, the Australian Capital Territory and the Northern Territory. The notice is taken to have been served on the day on which the publication takes place.

Evidence of determination

(3) The production of:

(a) a notice of a determination; or

(b) a document signed by the Commissioner, a Second Commissioner or a Deputy Commissioner purporting to be a copy of a determination;

is conclusive evidence of:

(c) the due making of the determination; and

(d) except in proceedings under Part IVC of the Taxation Administration Act 1953 on an appeal or review relating to the determination, that the determination is correct.

Objections

(4) If a taxpayer to whom a determination relates is dissatisfied with the determination, the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.