Income tax: capital gains: how is the 'exempt' component of a capital gain that arises on the disposal of goodwill treated when distributed to shareholders by a liquidator in the course of winding up a company?

The component is not deemed to be a dividend under subsection 47(1) of the Income Tax Assessment Act 1936. It does not represent income derived by the company under ordinary concepts or under the extended definition of income in subsection 47(1A).

In terms of paragraph 47(1A)(b), this component would not be included in the assessable income of the company under section 160ZO notwithstanding the requirement that the capital gain be recalculated in accordance with the provision. There is nothing in subsection 47(1A) to indicate that the usual exempting provisions, including section 160ZZR, are not to be taken into account in recalculating the gain. The only additional requirement in paragraph 47(1A)(b) is to ignore indexation and capital losses.

The exempt component will represent consideration in respect of the disposal of the shares (in the case of a final distribution) or an amount to which section 160ZL applies (in the case of an interim distribution).