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Question

What is a Return of Capital?

Answer

"Return of Capital refers to Company returning capital payments back to shareholders. It is a transfer of value from the company to the owner (shareholder). For public companies the capital owners who receive the payments are the shareholders of the company.

Shareholders who receive a Return of Capital payment are potentially subject to Capital Gains Tax. The distinction between this type of payment and Income payments paid as Dividend or Interest which are subject to Income Tax is that the payment relates to company monies that exceed the growth (net income/taxable income) of a business. Usually a Return of Capital event will not affect the number of shares you hold in the stock. However, those who hold the stock will find the value of their shareholding may decrease as a result of the return of capital.

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