Ask Ban Tacs Question
When a shareholder receives a return of capital, is that ROC applied to each individual parcel of shares they have on hand when the ROC is paid?
What specific section of the act says to apply it that way?
Further Information
Could I please see the documentation you received about the return of capital? I will be able to give you more detail then. The section is 104-135(4) https://www.ato.gov.au/law/view/document?docid=PAC/19970038/104-135
Response
It is a pending return of capital due end of June but the company has already said their preliminary ato ruling information is that it will have no dividend component at all and it a straight return on capital.
Answer
Well this is a good outcome other than the fact you are not getting franking credits. You see if there was an unfranked dividend paid instead then you would be taxed on it at your normal marginal tax rates. This way the return of capital just reduces your cost base. Providing your cost base is more than the return of capital no tax will be payable until you actually sell the shares. If the return of capital is more than your cost base then the difference will be assessable but if you have owned the shares for more than 12 months (and are an Australian resident) only half of the difference will be taxable.
The reason I was asking for the documentation was just to check if there were any different classes of shares that were getting a return of capital. If not then all of those shares you own are getting the same ROC each so each share’s cost base is reduced.
