Tutorial: Company Taxation: Share Repurchases and Amalgamations 1….

Question Answered step-by-step Tutorial: Company Taxation: Share Repurchases and Amalgamations 1…. Tutorial: Company Taxation: Share Repurchases and Amalgamations1.      For shares that are repurchased off-market, the brightline tests apply to determine whether the repurchase is able to be treated as a return of capital (wholly or partially tax free) or as a dividend (which will be taxable to the shareholder recipients).  Originally the proposed tax treatment was to apply the slice rule, such that a repurchase that met the brightline tests would include a portion of each of the components of shareholders’ funds.  Instead, the approach required is to extinguish subscribed capital first (which is tax-free), then all future repurchases will be taxed as dividends. The treatment of share repurchases for financial accounting purposes largely follows the original slice rule proposal, other than that any realised capital gains, in addition to subscribed capital, will be tax free.  Assume that Inland Revenue, as part of its ongoing tax simplification work, intends to review the current tax treatment of share repurchases with the view of making it the same as for financial accounting purposes.  The thresholds at which the off market repurchases impact upon the decision as to whether the amount paid will be a dividend or can be tax free, is also to be reviewed.  Inland Revenue is seeking submissions on both the proposal to use the financial accounting treatment (which was also the original slice rule proposed for tax purposes), as well as suggestions for any modification to the brightline test thresholds.   You work for a mid-size accounting firm and your manager has asked you to prepare the first draft of the ‘slice rule’ and ‘brightline thresholds’ portion of the firm’s submission on the proposed tax simplification measures.   REQUIRED:Answer a first draft of the share repurchase portion of this submission on Inland Revenue’s proposals, including:pros and cons of the slice rule change;any changes to the brightline thresholds;the potential impact on company share repurchase activities from both (1) and (2); anda recommendation as to whether your firm supports the proposals or not. Law Social Science Tax law ACCT 358 Share QuestionEmailCopy link Comments (0)