ATO Interpretative Decision
ATO ID 2004/56
Income Tax
Distribution statements for non-share equity interestsFOI status: may be released
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This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Current
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Can the holder of a non-share equity interest, as determined by Division 974 of the Income Tax Assessment Act 1997 (ITAA 1997), rely upon a distribution statement provided by an Australian issuer in accordance with Subdivision 202-E of the ITAA 1997?
Decision
Yes. The statutory obligation on an Australian issuer to provide a distribution statement generally entitles the holder to rely upon the statement to ascertain the extent, if any, of the frankable distribution. However, should the holder know that the distribution is other than a frankable distribution or that the distribution statement is fraudulent, then the holder's entitlement to rely upon the distribution statement is effectively displaced.
Facts
An Australian resident company issues a financing instrument on 1 July 2001 to a resident taxpayer.
The instrument gives rise to a non-share equity interest under the debt and equity tests contained in Division 974 of the ITAA 1997.
The company makes a frankable distribution for an income year ending on or after 30 June 2002 to the holder of the instrument and provides the holder with a distribution statement.
Reasons for Decision
A non-share equity interest is an equity interest in a company that is not solely a share (subsection 995-1(1) of the ITAA 1997). Money or other property distributed or an amount credited to the holder of a non-share equity interest, as the holder of that interest, are a 'non-share distribution' (section 974 -115 of the ITAA 1997).
The distribution is a 'non-share dividend' as defined under section 974-120 of the ITAA 1997 to the extent that the distribution is not debited against the company's share capital or non-share capital account. Generally, under subsection 202-40(2) of the ITAA 1997, a 'non-share dividend' is a 'frankable distribution' but only to the extent that it is not specifically listed as unfrankable in section 202-45 of the ITAA 1997.
Where an Australian company makes a 'frankable distribution' it is obligated under Subdivision 202-E of the ITAA 1997, in particular section 202-75 of the ITAA 1997, to provide a 'distribution statement' to the recipient.
Section 215-1 of the ITAA 1997 provides for the imputation system within Part 3-6 of the ITAA 1997 to apply to a non-share equity interest. The holder is entitled to rely upon the issuer's distribution statement stating the franked distribution amount and franking credit for the purpose of ascertaining a tax offset provided within Subdivision 207-A of the ITAA 1997.
The statutory obligation on the issuer to provide a distribution statement generally entitles the holder to rely upon the statement to ascertain the extent, if any, of the frankable distribution. However, should the holder know that the distribution is other than a frankable distribution or that the distribution statement is fraudulent, then the holder's entitlement to rely upon the distribution statement is effectively displaced.
Amendment History
| Date of Amendment | Part | Comment |
|---|---|---|
| 27 October 2017 | Reason for Decision | Punctuation corrected. |
| Reference to 'section 207-5' replaced with 'Subdivision 207-A'. | ||
| Legislative References | Updated | |
| 17 October 2014 | Reason for Decision | Amend reference to 'subsection 202-45' and replace with 'section 202-45' |
Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
subsection 202-40(2)
section 202-45
section 202-75
Subdivision 207-A
section 215-1
section 974-115
section 974-120
subsection 995-1(1)
Keywords
Debt equity borderline
Equity test
Financing arrangement
Franked dividends
Imputation system
Non-share equity interest
Date reviewed: October 2017
ISSN: 1445-2782
| Date: | Version: | |
| 12 December 2003 | Original statement | |
| 17 October 2014 | Updated statement | |
| You are here → | 27 October 2017 | Updated statement |