Genworth's plan to return capital to shareholders has hit a snag, with the Australian Taxation Office informing the company, in an informal communication, that its preliminary view is that some or all of the proposed A$200 million capital reduction would be treated as an unfranked dividend for tax purposes, making it taxable.When Genworth announced the capital reduction in March it said it was seeking an ATO ruling that no part of the proceeds to Australian residents would be a dividend.In a statement to the Australian Securities Exchange yesterday, Genworth said it was continuing to engage with the ATO. It said it remained of the view that no portion of the proceeds payable to shareholders should be a dividend for tax purposes.It said directors continued to recommend that shareholders vote for the capital reduction at the annual general meeting."The tax implications for each shareholder will depend on the circumstances of the particular shareholder. All shareholders are encouraged to seek independent professional advice in relation to their tax position," the company said.The AGM is on Thursday. The company is also proposing a share consolidation that would reduce the number of shares by 14.5 per cent.Genworth chief executive Georgette Nicholas told investors at the company's 2015 results briefing that the company was "capital heavy" and with the number of high loan-to-valuation ratio loans falling sharply the company is doing less underwriting. At the end of 2015 the company had a pro forma regulatory capital solvency ratio of 1.59 times the prescribed amount, which was above the Genworth board's target range of 1.3 times to 1.4 times.A $202 million capital reduction would take the ratio to 1.46 times the prescribed amount.