So an unlisted Australian company does a buyback, say buying a share at $1.00 that was originally purchased for $0.70.
Normally an Irish taxpayer would just pay CGT on the gain - i.e. 33% x ( $1.00 - $0.70 ), i.e. ignoring FX and allowances, about $0.10 per share in CGT.
However in Australia, unlisted companies doing buybacks are deemed for Australian tax purposes to be split between three types of event
1. A franked dividend
2. An unfranked dividend
3. A capital transaction
So for example if the $1.00 was deemed to be $0.10 capital, $0.40 unfranked, and $0.50 franked, then an Australian taxpayer would pay no capital gain on the $0.10, income tax on the unfranked dividend portion (i.e. their marginal rate on the $0.40, say $0.20 tax) and would get franking credits against tax on the franked part (effectively paying no tax on the franked part).
So Australians don't mind it being treated as income, as long as the dividend is franked as much as possible.
However for an Irish taxpayer, this is an interesting question;
- Does an Irish taxpayer pay the $0.10 in CGT as above, because basically a share was sold so that's that.
- Does an Irish taxpayer pay zero CGT and (assuming 50% top rate) 50% x $0.90 income tax i.e. $0.45 per share in income tax, gaining no benefit from the special treatment of Franking.
I've assumed the former, simply because a share was bought and a share was sold by an Irish taxpayer, simple as that, and Australian tax treatment is somewhat irrelevant to that.
However now there is a complication where the shareholding authority withholds 15% of the amount they deem as a dividend for tax purposes (in this case $0.135 per share) ... so assuming the former, an Irish taxpayer has already paid more than their share of CGT, so double-taxation rules mean that nothing is owed in Ireland?
So I see three possibilities
1. Revenue will basically look at net proceeds after withholding tax and say "that's your receipts from sale, pay CGT on that" i.e. I got $0.865 - $0.70 = $0.165 capital gain.
2. Revenue will look at this as a pure share sale, and allow the Aussies to keep their withholding tax, and allow me to pay Revenue zero.
3. Revenue will look at this the same way as the Aussies but without the franking, and basically say "No capital gain, but a $0.90 dividend, you're due $0.45 tax you've already paid $0.165 to the Aussues so we want the remaining $0.285 please".
4. Revenue will look at this the same way as the Aussues but WITH the franking, and basically say "No capital gain, but a $0.40 unfranked dividend, you're due $0.20 tax you've already paid $0.165 to the Aussues so we want the remaining $0.035 please".
I've received conflicting advice, some tell me it's 2, some tell me it's 3, some tell me it's 1.
Before I go to an international tax specialist about this, has anyone any experience of this situation, or one like it?
Normally an Irish taxpayer would just pay CGT on the gain - i.e. 33% x ( $1.00 - $0.70 ), i.e. ignoring FX and allowances, about $0.10 per share in CGT.
However in Australia, unlisted companies doing buybacks are deemed for Australian tax purposes to be split between three types of event
1. A franked dividend
2. An unfranked dividend
3. A capital transaction
So for example if the $1.00 was deemed to be $0.10 capital, $0.40 unfranked, and $0.50 franked, then an Australian taxpayer would pay no capital gain on the $0.10, income tax on the unfranked dividend portion (i.e. their marginal rate on the $0.40, say $0.20 tax) and would get franking credits against tax on the franked part (effectively paying no tax on the franked part).
So Australians don't mind it being treated as income, as long as the dividend is franked as much as possible.
However for an Irish taxpayer, this is an interesting question;
- Does an Irish taxpayer pay the $0.10 in CGT as above, because basically a share was sold so that's that.
- Does an Irish taxpayer pay zero CGT and (assuming 50% top rate) 50% x $0.90 income tax i.e. $0.45 per share in income tax, gaining no benefit from the special treatment of Franking.
I've assumed the former, simply because a share was bought and a share was sold by an Irish taxpayer, simple as that, and Australian tax treatment is somewhat irrelevant to that.
However now there is a complication where the shareholding authority withholds 15% of the amount they deem as a dividend for tax purposes (in this case $0.135 per share) ... so assuming the former, an Irish taxpayer has already paid more than their share of CGT, so double-taxation rules mean that nothing is owed in Ireland?
So I see three possibilities
1. Revenue will basically look at net proceeds after withholding tax and say "that's your receipts from sale, pay CGT on that" i.e. I got $0.865 - $0.70 = $0.165 capital gain.
2. Revenue will look at this as a pure share sale, and allow the Aussies to keep their withholding tax, and allow me to pay Revenue zero.
3. Revenue will look at this the same way as the Aussies but without the franking, and basically say "No capital gain, but a $0.90 dividend, you're due $0.45 tax you've already paid $0.165 to the Aussues so we want the remaining $0.285 please".
4. Revenue will look at this the same way as the Aussues but WITH the franking, and basically say "No capital gain, but a $0.40 unfranked dividend, you're due $0.20 tax you've already paid $0.165 to the Aussues so we want the remaining $0.035 please".
I've received conflicting advice, some tell me it's 2, some tell me it's 3, some tell me it's 1.
Before I go to an international tax specialist about this, has anyone any experience of this situation, or one like it?