Commonwealth Consolidated Acts Commonwealth Consolidated Acts(1) Subject to this section, if a buy - back of a share is an off - market purchase, then:
(a) in determining, for the purposes of this Act:
(i) whether an amount is included in the assessable income of the seller under a provision of this Act other than Parts 3 - 1 and 3 - 3 of the Income Tax Assessment Act 1997 (about CGT); or
(ii) whether an amount is allowable as a deduction to the seller; or
(b) whether the seller makes a capital gain or capital loss;
in respect of the buy - back, the seller is taken to have received or to be entitled to receive, as consideration in respect of the sale of the share, an amount equal to the purchase price in respect of the buy - back.
Deemed consideration increased to market value
(2) If apart from this section:
(a) the purchase price in respect of the buy - back;
is less than:
(b) the amount that would have been the market value of the share at the time of the buy - back if the buy - back did not occur and was never proposed to occur;
then, subject to subsection (3), in making the determinations mentioned in paragraphs (1)(a) and (b), the amount of consideration that the seller is taken to have received or to be entitled to receive in respect of the sale of the share is equal to the market value mentioned in paragraph (b) of this subsection.
Deemed consideration reduced where dividend assessable etc.
(3) Subject to subsections (3A) and (8), if there is a reduction amount in respect of the buy - back (see subsection (4)), then, in making the determinations mentioned in paragraphs (1)(a) and (b), the amount of consideration that the seller is taken to have received or to be entitled to receive in respect of the sale of the share, after any application of subsection (2), is reduced by the reduction amount.
(3A) Subsection (3) does not apply if the buy - back is by a listed public company.
Reduction amount
(4) The following steps are to be taken in working out whether there is a reduction amount in respect of the buy - back:
(a) first, work out whether the whole or part of the purchase price in respect of the buy - back is taken to be a dividend by section 159GZZZP;
(b) second, for any amount satisfying paragraph (a), work out whether the whole or part of it is either:
(i) included in the seller's assessable income of any year of income (disregarding section 128D of this Act and section 802 - 15 of the Income Tax Assessment Act 1997 ); or
(ii) an eligible non - capital amount (see subsection (5)).
The amount worked out is the reduction amount in respect of the buy - back.
Eligible non - capital amount
(5) An amount is an eligible non - capital amount if it is neither:
(a) debited against a share capital account or a reserve to the extent that it consists of profits from the revaluation of assets of the company that have not been disposed of by the company; nor
(b) attributable, either directly or indirectly, to amounts that were transferred from such an account or reserve of the company.
Debit for deemed dividend
(7) For the purposes of subsection (5), an amount of the purchase price that is taken to be a dividend by section 159GZZZP is taken to have been debited against the account or reserves against which the purchase price was debited, and to the same extent.
Offsetable amount excluded from reduction where loss
(8) If:
(aa) the seller is a corporate tax entity; and
(a) the amount of consideration that the seller is taken by subsection (1) or (2) to have received or to be entitled to receive in respect of the sale of the share is, apart from this subsection, reduced by a reduction amount under subsection (3); and
(b) the dividend mentioned in paragraph (4)(a), so far as it does not exceed the reduction amount, consists to any extent of an offsetable amount (see subsection (9)); and
(c) disregarding this subsection, as a result of the operation of this section:
(i) for the purposes of Parts 3 - 1 and 3 - 3 of the Income Tax Assessment Act 1997 (about CGT), the seller incurs a capital loss or an increased capital loss (which loss or increase is the loss amount ) in respect of the buy - back; or
(ii) a loss, or an increased loss, (which loss or increase is also the loss amount ) in respect of the buy - back is allowable as a deduction to the seller under a provision of a Part of this Act other than Part 3 - 1 or 3 - 3 of the Income Tax Assessment Act 1997 ; or
(iii) the amount of a deduction allowable from the seller's assessable income of any year of income in respect of the issue or acquisition of the share exceeds, or exceeds by a greater amount, (the excess or increased excess is also the loss amount ) the amount included in the seller's assessable income of any year of income in respect of the buy - back of the share;
then the reduction in the amount of the consideration under subsection (3) is instead a reduction equal to:
(d) the reduction amount;
less:
(e) so much of the offsetable amount as does not exceed the loss amount.
Meaning of offsetable amount
(9) For the purposes of subsection (8), if the seller is entitled to a tax offset under Division 207 of the Income Tax Assessment Act 1997 in the seller's assessment for a year of income in respect of the dividend, the dividend consists of an offsetable amount worked out using the formula:
