Division 16K: effect of buy-backs of shares

Dabner, Justin (2015) Division 16K: effect of buy-backs of shares. In: Reilly, Jerry, (ed.) Australian Income Tax 1936 Commentary. Thomson Reuters, New York, NY, USA.

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[Extract] The tax treatment of share buy-backs is provided for in Division 16K of Part III of the ITAA 1936 comprising s 159GZZZJ thru to s 159GZZZS. Division 16K was enacted in 1990 to complement changes to the corporations legislation that permitted companies to buy-back their shares: [159GZZZJ.1060]. Thus the division applies where a company buys a share (or non-share equity – s 159GZZZIA) in itself from a shareholder and cancels the share.

On-market v off-market distinction:

The division distinguishes between on-market and off-market share buy-backs. These concepts are defined in s 159GZZZK. If the share is listed on a stock exchange and the purchase is made in the ordinary course of business of that stock exchange, the buy-back will be an on-market purchase. All other buy-backs are treated as off-market. As to the concept of the ordinary course of business on a stock exchange see Attorney-General (Vic) v Walsh's Holdings Ltd [1973] VR 137 in which Gowans J said at 144 that the phrase “carries overtones of an anonymous competitive bargaining in an open forum according to the common and usual course of that activity and without unusual features in the bargaining suggestive of collateral objectives”; see also Cuming Smith & Co Ltd v Westralian Farmers Co-operative Ltd (1978) 3 ACLR 906; Green v Crusader Oil NL (1985) 10 ACLR 120 and ICAL Ltd v County Natwest Securities Australia Ltd (1988) 13 ACLR 129.

Item ID: 43611
Item Type: Book Chapter (Research - B1)
ISBN: 978-0-409-48993-4
Date Deposited: 19 Jun 2016 23:06
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