Otto Energy’s $38 Million Capital Return Split Into Dividend and Return of Capital

• ATO issues final Class Ruling CR 2025/43 on Otto Energy’s June 2025 distribution
• Distribution comprises $0.00657 return of capital and $0.00143 dividend per share
• Dividend portion assessable for Australian resident shareholders, unfranked
• Return of capital reduces shareholders’ cost base for capital gains tax purposes
• Distribution funded from Otto’s surplus cash reserves, reflecting capital management strategy

Final ATO Ruling Brings Clarity to Otto Energy’s Capital Return

Otto Energy Limited (ASX – OEL) has received a definitive ruling from the Australian Taxation Office (ATO) regarding the tax treatment of its recent $0.008 per share distribution made on 16 June 2025. The ruling, published as Class Ruling CR 2025/43, confirms that the payment is split into two components – a return of capital of $0.00657 per share and a dividend of $0.00143 per share.

This clarification is significant for shareholders, as it delineates the tax implications of each component. Australian resident shareholders must include the dividend portion in their assessable income, while the return of capital portion is not treated as income but instead reduces the cost base of their shares for capital gains tax (CGT) calculations.

Implications for Shareholders and Taxation

The ruling applies to shareholders registered on 30 May 2025 who held their shares on capital account and were not temporary residents of Australia. For residents, the dividend is unfranked and classified as conduit foreign income, meaning no franking credits are attached. Non-resident shareholders are not liable for withholding tax on the dividend, and certain CGT exemptions apply depending on their residency status and use of shares.

The return of capital reduces the cost base of shares, potentially affecting future capital gains calculations. Shareholders who acquired their shares at least 12 months prior to the payment date may be eligible for discounted capital gains treatment on any gains arising from this event.

Context Within Otto Energy’s Capital Management

This distribution reflects Otto Energy’s ongoing capital management strategy. The company, which operates primarily in the Gulf Coast region of the United States and Alaska, funded the payment from its surplus cash reserves. At the time of the distribution, Otto had approximately 4.8 billion shares on issue, with nearly half held by a non-resident shareholder.

Otto’s capital return follows a resolution passed at its 2023 annual general meeting to return up to A$40 million to shareholders. The $38.36 million distribution made in June 2025 aligns with this commitment and marks a notable event given the company’s accumulated losses and absence of franking credits.

Looking Ahead

While the ruling provides certainty on the tax treatment of this distribution, shareholders are advised to seek personalised tax advice given the nuances of individual circumstances. The ruling also underscores Otto Energy’s strategic approach to capital allocation amid its exploration and production activities in the US oil and gas sector.

Bottom Line?

Otto Energy’s final ATO ruling sets a clear tax framework for shareholders, spotlighting the company’s disciplined capital return amid its US-focused operations.

Questions in the middle?

• How will the split between dividend and return of capital influence shareholder sentiment and trading activity?
• What are the potential impacts on Otto Energy’s share price given the unfranked nature of the dividend?
• Could future capital management initiatives follow a similar structure based on this ruling?