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Income tax: capital gains: if all or part of the final distribution by a liquidator in the course of winding up a company is assessable to a shareholder as a dividend which is franked*, is any capital gain accruing to the shareholder on the disposal of the shares reduced under subsection 160ZA(4) by the imputation credit included in assessable income by section 160AQT?

Preamble

No. Subsection 160ZA(4) of the Income Tax Assessment Act 1936 does not operate to reduce any capital gain by the imputation credit included in assessable income by section 160AQT. As the section 160AQT amount is not consideration in respect of the disposal of the shares, there is no 'double taxation' arising from the inclusion of this amount in assessable income.

A final distribution by a liquidator constitutes 'consideration in respect of the disposal' of the shares for the purposes of sec 160ZD. To the extent that the distribution is deemed to be a dividend by subsection 47(1) and assessable under subsection 44(1), subsection 160ZA(4) reduces any capital gain that would otherwise arise on the disposal of the shares. However, the capital gain is not further reduced under subsection 160ZA(4) by the amount of any imputation credit attaching to the deemed dividend. *Note: a deemed dividend under subsection 47(1) (except where subsection 47(2A) applies) is a 'frankable dividend' as defined in section 160APA.

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