On 29 August 2007, the Institute lodged a submission with the Board of Taxation in response to its discussion paper entitled "Review of the Taxation Treatment of Off-Market Share Buy-backs". 
 
The Institute considers that the taxation rules for off-market share buybacks are appropriate in most respects. However, our submission highlights a number of areas and issues for consideration by the Board. These include:

• Use of franking credits – the submission notes that while there is clear parliamentary policy of having dividend imputation wastage in relation to dividends paid to non-residents, there is no such policy currently operative in relation to dividends paid to Australian residents. 
   
  
• Distortions between different mechanisms - proposals to include franking credits in the calculation of market value or to deny companies the ability to frank the dividend component would result in double taxation consequences. 
   
  
• Implications of the 45-day rule - the Institute submits that there is no need to change the 45-day rule as it applies to off-market buyback transactions. 
   
  
• Resident to resident streaming - the Institute is of the view that the dividend streaming rules do not apply to transactions involving two different shareholders where both shareholders or types of shareholders are entitled to imputation benefits. 
   
  
• Discount to market value - the Institute does not agree with the arbitrary limit of 14% placed on the discount allowed to be given as a tender price in an off-market buyback and submits that the level of discount should not be restricted at all but determined by a free market. 
   
  
• Capital losses - the Institute does not support a change to remove the ability to claim capital losses under an off-market share buyback as the availability of a capital loss helps reduce the instance of double taxation.  
   
  
• ATO Administration - although promoting transparency, the practice statement, PS LA 2007/9, does not provide the level of certainty required to remove the need of companies to obtain class rulings.  
   
  
• Legislative change - the Institute considers that there are two approaches that can be pursued to provide certainty – being legislative change (such as safe harbours) or binding administrative rulings - the preferred approach being legislative change. The legislative change should be in the form of an elective concessionary treatment and could be in the nature of safe harbours. Items that may be covered are in relation to market value of the share bought back, capital and profit split and franking debit. The legislation should also specifically allow as an alternative to safe harbours the ability for taxpayers to approach the Commissioner for a decision. 
   
  
• Unlisted companies - the submission raises issues such as difficulties with private ruling requests. 
   
  
• Employee share plans - the Institute recommends that a carve-out from the share buyback tax rules be provided for all employee share plan transactions. Alternatively, a carve-out should apply for employee share plan buybacks that are not part of a broader buyback arrangement participated in by all shareholders. 
   
  The Institute’s submission is here. 
   
  The Board’s discussion paper is available on the Board of Taxation website. 
   
  The Treasurer’s press release of 10 October 2006 announcing the review is here.