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  • How does a company pay out its profits?



    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    If you own shares in a company, you will generally be paid your share of the company's profits as a dividend. In any income year you may receive both an interim and a final dividend. In most circumstances, you will be liable to pay income tax for that income year on the dividends you are paid or credited.

    You must include in your assessable income dividends paid to you. Your shareholder dividend statement should contain details of the date a payment was made to you-generally referred to on the statement as the payment date or date paid. Where the dividend is paid by cheque, it is deemed to have been paid to you on the date the cheque was posted to you by the company-not on the date the cheque was received, banked or cleared.

    A dividend can be paid to you as money or other property, including shares.

    Dividend reinvestment schemes

    Most dividends you are paid or credited will be in the form of money, either by cheque or directly deposited into a bank account. However, the company may give you the option of reinvesting your dividends in the form of new shares in the company-this is called a dividend reinvestment scheme. If you take this option, you must pay tax on your reinvested dividends. Keep a record of the market value of the reinvested dividend (at the time of reinvestment) to help you work out any potential capital gains or capital losses on the eventual disposal of the shares.

    Bonus shares

    If you are paid or credited taxable bonus shares, the company issuing the shares should provide you with a dividend statement indicating the share value that is subject to tax. A company should also advise you when it issues tax-free bonus shares out of a share premium account.

    From 1 July 1998, the paid-up value of bonus shares is generally not taxed as a dividend. However, if you received bonus shares on or after 20 September 1985, you may have to pay capital gains tax if you make a capital gain when you dispose of them. For more information, see the publication Personal investors' guide to capital gains tax.

    Deemed dividends

    Payments or other benefits you obtain from a private company in which you are a shareholder, or an associate of a shareholder, may be treated as if they were a taxable dividend paid to you. For more information, read the sections Deemed dividends, Transactions that will create deemed dividends and Amounts that will not be deemed to be dividends.

    Non-share dividends

    Distributions from a non-share equity interest that do not constitute a non-share capital return are called non-share dividends.

    Last modified: 13 Dec 2019QC 27432