New Business Tax System (Debt and Equity) Act 2001 (163 of 2001)

Schedule 1   Debt and equity interests

Part 1   Amendment of the Income Tax Assessment Act 1997

Income Tax Assessment Act 1997

33   Part 3-5 (link note after the heading)

Repeal the link note, substitute:

[The next Division is Division 164.]

Division 164 - Non-share capital accounts for companies

Guide to Division 164

164-1 What this Division is about

A company that issues non-share equity interests will have a notional account called a non-share capital account . This account records contributions to the company in relation to those non-share equity interests and returns made by the company of those contributions.

A non-share distribution that represents a return of contributions is not taxed as a dividend (subject to the anti-avoidance provisions dealing with dividend substitution). In certain circumstances a company may use its share capital account as the source for such distributions.

Table of sections

Operative provisions

164-5 Object

164-10 Non-share capital account

164-15 Credits to non-share capital account

164-20 Debits to non-share capital account

[This is the end of the Guide.]

Operative provisions

164-5 Object

(1) This Division provides for the *non-share capital account through which a company records contributions made to it in respect of *non-share equity interests and returns by it of those contributions.

(2) This allows a *non-share distribution to be characterised as either:

(a) a *non-share dividend; or

(b) a *non-share capital return.

164-10 Non-share capital account

(1) A company has a non-share capital account if:

(a) the company issues a *non-share equity interest in the company on or after 1 July 2001; or

(b) the company has issued a non-share equity interest in the company before 1 July 2001 that is still in existence on 1 July 2001.

(2) The account continues in existence even if the company ceases to have any *non-share equity interests on issue.

(3) The balance of the account cannot fall below nil.

(4) The only credits and debits that may be made to the account are those provided for in sections 164-15 and 164-20.

164-15 Credits to non-share capital account

(1) If the company issues a *non-share equity interest in the company on or after 1 July 2001, there is a credit to the *non-share capital account equal to:

(Amount received - share capital account credit)

where:

amount received is the market value, when it is provided, of the consideration the company receives for the issue of the interest.

share capital account credit is the amount of any credit made to the company's share capital account in respect of the issue of the interest.

Note: The issue of a non-share equity interest can give rise to a credit to the company's share capital account if the interest consists, for example, of a stapled security that includes a share in the company's capital.

(2) If a *debt interest in the company changes at a particular time to an *equity interest in the company because of section 974-110, there is a credit to the *non-share capital account at that time equal to:

(Amount received - Share capital account credit - Amount returned)

where:

amount received is the market value, when it was provided, of the consideration the company received for the issue of the interest.

amount returned is so much of the amount received as has been returned to a holder of the interest before the change occurs.

share capital account credit is the amount of any credit made to the company's share capital account in respect of the issue of the interest.

(3) If the company has a *non-share capital account at the beginning of 1 July 2001 because of a *non-share equity interest the company issued before 1 July 2001, there is a credit to the non-share capital account on that day for each non-share equity interest in the company that:

(a) was issued before 1 July 2001; and

(b) is still in existence on 1 July 2001.

(4) The amount of the credit under subsection (3) is:

(Amount received - Return of amount received - Share capital account credit)

where:

amount received is the market value, when it is provided, of the consideration the company receives for the issue of the interest.

return of amount received is the sum of the amounts paid before 1 July 2001 by way of return, in whole or in part, of the amount received.

share capital account credit is the sum of any amounts credited before 1 July 2001 to the company's share capital account in respect of the issue of the interest.

164-20 Debits to non-share capital account

(1) The company may debit the whole or a part of a *non-share distribution against the company's *non-share capital account:

(a) to the extent to which the distribution is made as consideration for the surrender, cancellation or redemption of a *non-share equity interest in the company; or

(b) to the extent to which:

(i) the distribution is made in connection with a reduction in the market value of a non-share equity interest in the company; and

(ii) the amount of the distribution is equal to the amount of the reduction in market value.

(2) The total of the amounts debited to the account in respect of a particular *non-share equity interest must not exceed the total of the amounts credited to the account in respect of the interest.

(3) If an *equity interest in the company changes at a particular time to a *debt interest in the company because of section 974-110, there is a debit to the *non-share capital account at that time equal to:

(Credits in relation to the interest - Debits in relation to the interest)

where:

credits in relation to the interest is the sum of all the credits that have been made to the *non-share capital account in relation to the interest before the change occurs.

debits in relation to the interest is the sum of all the debits that have been made to the *non-share capital account in relation to the interest before the change occurs.