Tax Laws Amendment (2007 Measures No. 3) Act 2007 (79 of 2007)

Schedule 6   Repeal of dividend tainting rules

Income Tax Assessment Act 1997

3   Subsection 197-50(1) (note)

Repeal the note, substitute:

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).