A share capital account is tainted when an entity is prevented from transferring profits into that account (share capital) and from distributing profits to shareholders by means of a non-assessable capital distribution. As such, all future payments out of share capital become- or are treated as- assessable dividends for income tax purposes.

This prevention is governed by the so-called tainting rules that apply where an entity transfers profits into a share capital account, and subsequently it pays such profits to shareholders. These rules prevent entities from taking advantage of the exception stating that amounts returned to shareholders from the share capital account are not dividends- and cannot be treated as dividends- for income tax purposes.