Return of Capital (ROC) Explained: 2026 Guide for Australian Investors

Return of capital is a payment made by a company to its shareholders that comes from the company’s own capital base, rather than from earned profits. Unlike dividends, which represent a distribution of profits and are typically taxable, ROC returns part of your original investment—effectively giving you back some of your purchase price.

• Not a dividend: ROC payments don’t count as income, so you usually don’t pay tax on them immediately.

• Reduces cost base: The amount you receive lowers the cost base of your shares, which can impact capital gains tax (CGT) when you eventually sell.

• Why companies use ROC: Businesses may return capital when they have excess funds, complete a major asset sale, or want to restructure their balance sheet without signalling strong ongoing profits.

The ROC trend is gaining steam on the ASX this year. Several high-profile companies have opted for ROC distributions in 2026, reflecting a mix of surplus cash and strategic restructuring.

• BHP Group: In early 2026, BHP announced a $3 billion ROC payout following its divestment of non-core assets. Shareholders received a per-share payment, lowering their cost base but not triggering immediate tax.

• Telstra: Facing subdued profit growth, Telstra shifted part of its usual dividend to a return of capital in its February 2026 update, aiming to maintain shareholder value while conserving franking credits.

• Listed Investment Companies (LICs): Many LICs—particularly those focusing on infrastructure and property—have ramped up ROC as a tool to smooth payouts during periods of low income generation.

This trend is partly driven by economic headwinds and the new 2026 Treasury guidelines encouraging capital efficiency and transparency in distributions. The ATO has also updated reporting requirements, making it easier for investors to track ROC payments on their annual statements.

ROC isn’t a free lunch. While it offers flexibility, it comes with long-term tax implications:

• Cost base reduction: Each ROC payment reduces the amount you originally paid for your shares. For example, if you bought shares at $10 and receive $1 in ROC, your new cost base is $9.

• Capital gains tax (CGT): When you eventually sell, your capital gain will be higher (since your cost base is lower), increasing your CGT liability.

• CGT event E4: If ROC payments exceed your original cost base, the excess is treated as an immediate capital gain in the year of payment.

Let’s illustrate with a real-world scenario:

• You buy 1,000 shares of XYZ Ltd at $8 each ($8,000 total).

• Over two years, you receive $1,500 in ROC payments.

• Your new cost base is $8,000 - $1,500 = $6,500.

• If you later sell all your shares for $10,000, your capital gain is $10,000 - $6,500 = $3,500 (not $2,000 as it would have been without ROC).

Keep in mind:

• ROC is not included in your assessable income for the year received (unless it triggers a CGT event E4).

• Accurate record-keeping is crucial—ATO scrutiny has increased in 2026, and brokers now provide more detailed statements, but errors can still happen.

With more companies turning to ROC, investors should pay attention to:

• The company’s financial health: A ROC payment could indicate either prudent capital management or a lack of profitable growth opportunities. Scrutinise the balance sheet and future earnings prospects.

• Dividend sustainability: Companies substituting ROC for traditional dividends may be signalling reduced profitability or a shift in payout policy.

• Tax records: Check your annual statements and keep detailed records to ensure you accurately track cost base adjustments and CGT calculations.

• Policy changes: The ATO and Treasury have flagged ongoing reviews of corporate payout frameworks, with potential tweaks to ROC treatment under discussion for the 2026–26 budget cycle.

Proactive investors are already adjusting their portfolios, focusing on transparency and tax efficiency as ROC becomes a more common feature in the ASX landscape.

Return of capital is no longer a niche strategy—it’s a mainstream tool for companies and a critical consideration for shareholders. As 2026 unfolds, understanding ROC’s mechanics, tax impacts, and the motivations behind these payments will help you make smarter, more informed investment decisions. Stay vigilant, keep your records up to date, and don’t let a return of your own money catch you by surprise.