This section is designed to prevent tax avoidance where a company repays share capital after 27th November, 1975, and at or after the time of that repayment the share capital repaid is replaced by a bonus issue. The section achieves this by providing that the amount of the bonus issue up to the amount of the share capital repaid is to be regarded as a distribution. In the case of a non-close company a bonus issue of share capital which is not redeemable and which is made more than ten years after the capital repayment is not to be treated as a distribution. I might add, Mr. Chairman, that we have received no representations objecting to this.
SECTION 85.
Question proposed: "That section 85 stand part of the Bill."
Would the Minister mind just going over it again? I think I understand. The capital is repaid first of all.
That is right.
And then bonus shares are issued to take the place of that capital which is repaid.
Yes.
A very clever device.
I often feel that way.
Why did somebody else not think of all these things before we did? That is all you are doing. You are just catching that. When that sort of thing is done capital repayment is treated the same as the bonus shares.
The bonus issue would be a distribution.
Bonus shares by themselves would not attract any taxation.
No.
What is the situation there?
If they are pure bonus issues they will not be a distribution. If the bonus issue is tied in with a capital repayment it will be a distribution.
So, in the end, they are tied into a capital repayment.
Yes. That is the only way they are being caught.
There is still hope.
We must be clear on the principle of the thing.
Perhaps I can give an illustration.
I know the mechanics for that, but I am just wondering about the status of bonus shares in the future. We are still not applying tax in the hands of the individual recipient. They are just straight-forward bonus shares without any complications. If they are bonus shares related to a capital repayment they now become taxable in the hands of the individual recipient. Why is that?
It is a distribution.
I understand.
Question put and agreed to.