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And excess amount taxed as capital gain returns of

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and  Excess amount taxed as capital gain Returns of  Capital to  shareholders  that hold post-85  shares © CCH Australia Limited
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Foundations of Taxation Law [¶23.9](c) © CCH Australia Limited Capital reduction example  Capital reduction example  (cancellation) (cancellation) Facts: Shares acquired for $10 in 1996 Capital return of $17 (shares cancelled) in  2009 Result: Capital gain of $7 in 2009 (CGT discount or  indexation may be available)
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Foundations of Taxation Law [¶23.9](d) © CCH Australia Limited Capital reduction example Capital reduction example (no cancellation) (no cancellation) Facts: Shares acquired for $10 in 1996 Capital return of $7 (no cancellation) in 2004 Shares sold for $20 in 2009 Result: Cost base of shares reduced to $3 ($10 - $7)  in 2004 Capital gain of $17 ($20 - $3) arises in 2009  (CGT discount or indexation may be  available)
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Foundations of Taxation Law [¶23.10](a) © CCH Australia Limited Share buy-backs Share buy-backs Under the  Corporations Act , companies are  permitted to buy back their shares provided: The buy-back does not materially prejudice their  ability to pay their creditors, and  The buy-back satisfies the procedures in Div 2 of  Part 2J.1 of the Act A share buy-back results in the cancellation of  a shareholder’s shares in the company Companies can fund share buy-backs using  both their share capital and their profits Share buy backs taxed under Div 16K of Part III  ITAA36 (subject to proposed reforms)
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Foundations of Taxation Law [¶23.10](b) © CCH Australia Limited Taxation of sellers under share buy- Taxation of sellers under share buy- backs backs On-market buy-back In determining gain/loss on the shares, seller is  deemed to have received the purchase price paid  for the shares as consideration  Off-market buy-back Purchase price may include a “dividend  component” and/or a “capital component” Dividend component calculated according to s  159GZZZP Capital component calculated under s  159GZZZQ
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Foundations of Taxation Law [¶23.11] © CCH Australia Limited Liquidator distributions Liquidator distributions Liquidation of a company results in the  cancellation of shareholder’s shares Cancellation of shares results in CGT event C2 Liquidation of a company can also result in  deemed dividends arising under s 47(1) ITAA36 Distributions by liquidators in the course of  winding up a company are deemed to be  dividends to the extent to which those  distributions represent “income derived by the  company” other than “income which has been  properly applied to replace a loss of paid up  capital”  
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[¶23.12] Foundations of Taxation Law © CCH Australia Limited
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