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As a general rule, if a subsequent dividend paid by the private company is used to offset an amount that has already been subject to tax as a deemed dividend, that amount will not be included as assessable income.
Simone is a shareholder in a private company, Martley Pty Ltd. She borrowed, on a non-commercial basis, $500 from the company in September 2002. The loan was not repaid by 30 June 2003. Simone included an amount of $500 as assessable income - as a deemed dividend - on her 2002-03 tax return.
In December 2003, Simone became entitled to receive an unfranked dividend of $1,100 from Martley Pty Ltd.
However, Simone agreed that Martley Pty Ltd would offset $500 of her entitlement against the outstanding loan and pay the balance of $600 to her. Therefore, Simone is only required to include an amount of $600 in her assessable income for the 2003-04 year. This is because she had previously included the other $500 - the loan which had been treated as a deemed dividend - on her 2002-03 tax return.
Last modified: 12 Jan 2005QC 27523