Schedule 4 to the Treasury Laws Amendment (2023 Measures No 1) Bill 2023 proposes amendments to align the tax treatment for off-market share buy-backs undertaken by listed public companies with the treatment for on-market share buy-backs. The Bill also proposes amendments relating to selective share cancellations to ensure alignment of tax treatment across capital management activities for listed companies.
The proposed amendments will ensure that where a listed public company undertakes an off-market share buy-back of a share or non-share equity interest, no part of the purchase price in response of the buy-back will be taken to be a dividend. Under the current tax treatment for an off-market buy-back, the difference between the purchase price and the part of the purchase price in respect of the buy-back which is debited against the company's share capital account is taken to be a dividend. Franking credits may be available with respect to such a dividend. In the case of an on-market buy-back, no part of the buy-back price is treated as a dividend and the total amount received by the shareholder is treated as consideration for the share sale.
This measure also includes commensurate amendments to the tax treatment of selective share cancellations for listed public companies. In particular, distributions by a listed public company that are considered consideration for the cancellation of a membership interest as part of a selective reduction of capital will now be unfrankable.
The amendments are proposed to apply to buy-backs and selective share cancellations undertaken by listed public companies that are first announced to the market after 7:30 pm (AEDT) on 25 October 2022. A buy-back or selective share cancellation will be taken to be announced to the market where it has been disclosed to the relevant approved stock exchange and notification has been released to the market as required by the rules of that stock exchange. For buy-backs and selective share cancellations undertaken by listed public companies that are not announced to the market, or announced after the event, the amendments apply to those that occur after 7:30 pm (AEDT) on 25 October 2022.
Exposure draft legislation to give effect to the measure had previously been released for consultation. The measure was first announced in the October 2022–23 Federal Budget.
Source: 2022 October Federal Budget, Paper No 2, p 13; Improving the integrity of off-market share buy-backs, Treasury website and Treasury Laws Amendment (2023 Measures No 1) Bill 2023, Parliament of Australia website.