Tax Alert - Alignment of tax treatment for “on” and “off” market share buy-backs undertaken by listed public companies

Lowe Lippmann Chartered Accountants

Background

During February 2023, the Treasury Laws Amendment (2023 Measures No 1) Bill 2023 (the Bill) was introduced to improve the integrity of off-market share buy-backs undertaken by listed public companies. These measures were first announced in the October 2022–23 Federal Budget.

At that time, the difference between the total purchase price and that part of the purchase price debited against the company's share capital account (in relation to the off-market share buy-back) was taken to be a dividend, which could be franked where imputation credits were available.

Conversely, at that time, in the case of an on-market buy-back (ie. on an exchange in the ordinary course of trading), no part of the buy-back price was treated as a dividend and the total amount received by the shareholder was treated as consideration for the sale of the shares.

The amendments put forward in the Bill proposed to ensure that where a listed public company undertakes an off-market share buy-back of a share, no part of the purchase price in response of the buy-back will be taken to be a dividend.

Changes now the Bill has received Royal Assent

The Bill passed through the Senate on 16 November 2023 and has now received Royal Assent. The tax treatment has now been aligned between off-market share buy-backs undertaken by listed public companies with on-market share buy-backs.

These changes apply retrospectively to buy-backs undertaken by listed public companies that were first announced to the market after 7:30pm (AEDT) on 25 October 2022.

Today, if a listed public company undertakes an off-market buy-back of a share, sellers will not be assessed on any part of the purchase price as a dividend, but assessed on the sale as a revenue or capital gain or loss.

Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.

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