The Board completed its review of the taxation treatment of off-market share buybacks and provided its report to the Treasurer in June 2008. In preparing its report the Board took into account the various submissions to the review, discussions with stakeholders and the consultants’ evaluations. The Board’s report is expected to be available at the time the Government releases its response to the report.

Background

On 10 October 2006 the then Government announced that it had asked the Board of Taxation to undertake a review of the taxation treatment of off-market share buybacks, and provide a report to the Treasurer.

The Board appointed a Working Group of its members comprising Brett Heading (Chairman), Eric Mayne, Dick Warburton AO, Keith James and John Emerson to oversee the Board’s review of the taxation treatment of off‑market share buybacks.

In conducting the review, the Board took into account:

• the factors influencing the increasing trend towards the use of off‑market share buybacks;
• the implications of the current taxation treatment of off‑market share buybacks for different types of shareholders;
• the compliance cost impacts of off‑market share buybacks;
• the administrative practices of the Australian Taxation Office relating to off‑market share buybacks;
• the basis for splitting the proceeds of off‑market share buybacks into a dividend component and a capital component;
• the application of the dividend streaming rules to off‑market share buybacks;
• the capital gains tax implications of off‑market share buybacks; and
• any other matters the Board considered to be appropriate.

On 16 July 2007, the Board of Taxation released its discussion paper on the Review of the Taxation Treatment of Off-Market Share Buybacks. A copy of the discussion paper is available for download.

The discussion paper provided some background to and the framework under which off‑market share buybacks operate in Australia; outlined the tax treatment of off‑market share buybacks for various types of shareholders; and examined various issues in relation to the terms of reference for the review. The Board conducted targeted consultation with selected stakeholders in developing the discussion paper.

To assist in the Review process, the Board held consultation meetings in Sydney on 26 July 2007 and in Melbourne on 31 July 2007. The purpose of those meetings was to enable interested stakeholders to seek clarification on any aspects of the review’s terms of reference and its scope and to promote stakeholder discussion on the issues raised in the discussion paper and any other relevant issues. A copy of the consultation presentation is available for download.

The Board requested written submissions on the Review of the Taxation Treatment of Off-Market Share Buybacks by 24 August 2007.  All submissions received were acknowledged.  Copies of public submissions made to the Board are available from the Off-Market Share Buybacks submissions page.

After considering the views of all stakeholders the Board was to prepare its report and provide recommendations to Government by the second quarter of 2008.

Further information on this review can be obtained from Vernon Joice (02 6263 4369) at the Board of Taxation Secretariat.