Proposed share capital reduction

Will section 160ARDM of the Income Tax Assessment Act 1936 ('ITAA 1936') apply with respect to "tainting" of a share capital account?

The share capital account, as defined in section 6D, is not considered to be a "tainted" share account in terms of Division 7B of the ITAA 1936.

The company had operated with a share capital which was increased at various intervals since 1995 by way of a debt /equity transfer. Amounts have not been transferred from any other accounts.

"Dividend" does not include money paid or debited against the share capital account. However, an account that is "tainted" for purposes of Division 7B is excluded from the share capital account. A "tainted" share capital account does not apply if the amount credited to the account is a debt transferred under a debt/equity swap and does not exceed the lesser of the value of the shares issued by the debtor and the amount of the debt being extinguished under the debt/equity swap.