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Law Council of Australia

Business Law Section

Consultation - Capital raised for the purpose of funding franked distributions

This submission relates to the Australian Taxation Office’s (ATO’s) consultation into capital raised for the purpose of funding franked distributions (Consultation), and the integrity measures introduced in Schedule 5 to the Treasury Laws Amendment (2023 Measures No. 1) Act 2023 (Cth) (Act).

The Law Council welcome's the ATO’s invitation to make a submission in relation to the Consultation. This submission is made by the Taxation Committee of the Business Law Section of the Law Council of Australia (the Committee).

The key matters the Committee wishes to raise in respect of the Act to the ATO’s attention, which would require additional guidance from the ATO, are set out below.

In particular, Law Council considers the following matters to be issues requiring additional guidance or administrative relief:

  1. There remains significant uncertainty as to the assessment of what may be considered a “substantial part” of a distribution or a “relevant part” of a distribution. We consider that guidance should be provided so that the legislation is administered in accordance with the explanatory materials to the Act, and the entire capital raising should be assessed in ascertaining whether a “substantial” part has been funded by an equity raising, rather than a “relevant part”.
     
  2. The language of the legislation has the potential to impact ordinary commercial transactions, beyond the mischief originally identified in 2015. Accordingly, we consider that guidance should be given to ensure that only those arrangements similar to the original mischief identified will be captured by the provisions.
     
  3. Any guidance provided by the ATO should be by reference to understanding the legislative language provided under the Act, as opposed to specific administrative relief related to particular transactions or comments in the Explanatory Memorandum (EM) or the comments described as ‘corrections’ in the Supplementary Explanatory Memorandum (Supplementary EM).

Read the full submission below.

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