Ann: Proposed Capital Return, page-8

From ChatGPT…
In Australia, a capital return on shares is treated differently from dividends for tax purposes. Here’s a breakdown of how it’s handled:

What is a Capital Return?A return of capital is when a company gives back part of your original investment (capital) rather than paying a dividend from profits.It typically happensuring capital restructuringWhen the company has excess cash but no profitsIn takeovers or demergers

Tax Treatment (Australian Taxation Office - ATO):
1. Not Treated as IncomeA return of capital is not taxed as income like a dividend. Instead, it’s treated as a reduction in the cost base of your shares.
2. Capital Gains Tax (CGT) ImplicationsIf the capital return is less than or equal to your cost base:No immediate CGT.Your cost base is reduced by the amount of the capital return.CGT is triggered when you sell the shares in the future (based on the reduced cost base).If the capital return exceeds your cost base:The excess is treated as a capital gain in the year you receive the capital return.
3. No Franking CreditsUnlike dividends, a capital return is not franked, and no franking credits apply. Example:You bought shares for $5.00 each.Your cost base: $5.00/shareYou receive a $1.50 capital return per share.Result:Your cost base becomes $3.50/share.No CGT at the time of the capital return.If instead you received a $6.00 capital return:First $5.00 reduces the cost base to $0.The excess $1.00 is a capital gain reportable that year. Record KeepingYou should:Adjust the cost base of your sharesRetain any documentation of the return of capitalReport any capital gain in your tax return if applicableIf you’d like, I can help you calculate CGT or cost base adjustments for your specific situation.