ato logo

Prevention of double taxation

Last updated 26 July 2004

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 2001. The loan was not repaid by 30 June 2002. Simone included an amount of $500 as assessable income-as a deemed dividend-on her 2001-02 tax return.

In December 2002, 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 2002-03 year. This is because she had previously included the other $500-the loan which had been treated as a deemed dividend-on her 2001-02 tax return.

End of example