Nonshare equity interest
An equity interest in a company that is not in legal form solely a share in the capital of the company or stock in the company, is called a nonshare equity interest. The definition of equity interest and related concepts of equity holder and nonshare dividend are used in the imputation provisions of the income tax law so that both shareholders and holders of nonshare equity interests may be paid frankable dividends by the entity.
To be a nonshare equity interest it is necessary for the whole interest, or a part of it, to be in a form other than a share. Therefore, if an equity interest in a company is made up of related interests and at least one of those interests is not a share, the interest is a nonshare equity interest.
Capital raised by a company from the issue of nonshare equity interests is credited to a nonshare capital account.
- A company has a nonshare capital account if the company issues a nonshare equity interest in the company on or after 1 July 2001, or the company has issued a nonshare equity interest in the company before 1 July 2001 that was still in existence on 1 July 2001.
Keeping a nonshare capital account
If a company issues a nonshare equity interest in the company, the company has a notional account called a nonshare capital account. The account records contributions to the company in respect of those nonshare equity interests and returns on those contributions made by the company. The account will record such things as:
- the amount received as consideration for the issue of a nonshare equity interest (for example, the principal amount of a ‘connected entity at call loan’ that is a nonshare equity interest)
- the amount of a debt interest in a company that changes to an equity interest as a result of a material change
- the amount of a connected entity at call loan that was deemed a debt interest because an issuer company satisfied the $20 million turnover test, but becomes a nonshare equity interest because the entity ceases to satisfy the $20 million turnover test
- repayments of principal to the connected entity/lender in respect of a non share equity interest.
Sections 164–15External Link and 164–20External Link of the Income Tax Assessment Act 1997 specify the credits and debits that may be made to the nonshare capital account.