The share capital tainting rules will be amended to allow certain companies to transfer amounts into their share capital accounts without triggering the share capital tainting rules.
The Minister for Revenue and Assistant Treasurer, Mal Brough, today announced the changes as part of the simplified imputation system.
Share capital tainting rules are designed to ensure that a company cannot transfer profits to its share capital account and then distribute those profits to shareholders in the guise of preferentially taxed share capital.
"These rules should not be triggered in circumstances where amounts representing genuine capital are transferred into the account, for example, on a demutualisation. The change I am announcing today will make that clear," Mr Brough said today.
"Under the amendments, amounts contributed to an insurance company by its members before the insurance company demutualised may be transferred by the company to its share capital account without the share capital tainting rules being triggered.
In addition, the share capital tainting rules will not be triggered where an amount is transferred to a share capital account under a debt-for-equity swap if the amount does not exceed market value of the debt being extinguished. This exception recognises that a debt-for-equity swap should be viewed as the repayment of a debt to a debt holder and the reinvestment of the repayment as an injection of equity. Where the amount reinvested with the company exceeds the market value of the extinguished debt, the share capital account is tainted by an amount equal to the excess.
"The changes I am announcing today to the share capital tainting rules further demonstrate our preparedness to listen and respond to the views of the business community through open and constructive engagement," Mr Brough said.
These changes will take effect from 1 July 1998 to coincide with the commencement date of the share capital tainting provisions.