ATO Interpretative Decision
ATO ID 2003/459
Income Tax
Deemed Dividend: liquidator's loan not treated as a dividendFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is a loan made to a shareholder in the course of a members' voluntary winding-up of a private company by a liquidator taken to be a dividend under subsection 109D(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. The private company is not taken to pay a dividend under subsection 109D(1) of the ITAA 1936 in relation to a loan made by a liquidator in the course of winding-up the company.
Facts
The taxpayer is a shareholder of the private company which is a proprietary company.
The private company is solvent and resolves by special resolution during the 2001-02 income year that it be wound up voluntarily.
The private company held a general meeting and appointed a liquidator for the purpose of winding-up the company. The liquidator is not a registered liquidator.
The liquidator made a loan to the taxpayer six months after the special resolution but still within the 2001-02 income year. No interest is payable in relation to the loan.
The taxpayer did not fully repay the loan by the end of the 2001-02 income year.
Reasons for Decision
Under subsection 109D(1) of the ITAA 1936 an amount lent by a private company to a shareholder during the current year is taken to be a dividend if the loan is not fully repaid by the end of the current year, and Subdivision D of the ITAA 1936 does not prevent the private company from being taken to pay a dividend.
Subdivision D of Division 7A of the ITAA 1936 sets out rules about payments and loans that are not treated as dividends.
The loan to the taxpayer is not excluded under section 109N of the ITAA 1936 from being taken to be a dividend under section 109D of the ITAA 1936 as the rate of interest payable on the loan is nil.
Section 109NA of the ITAA 1936 provides that a private company is not taken under subsection 109D(1) of the ITAA 1936 to pay a dividend because of a loan made in the course of the winding-up of the company by a liquidator. The note to section 109NA of the ITAA 1936 highlights that if such a loan is not fully repaid by the end of the following year of income, the company will be taken to have paid a dividend under subsection 109D(1A) of the ITAA 1936.
In a members' voluntary winding up, the company in general meeting must appoint a liquidator (section 495 of the Corporations Act 2001). In a members' voluntary winding up of a proprietary company the liquidator does not need to be a registered liquidator (subsection 532(4) of the Corporations Act).
A loan will be accepted as a 'loan made in the course of the winding-up of the company by a liquidator' when it is made after the winding-up is taken to have begun under the Corporations Act.
For a voluntary winding-up this is generally taken to be on the day on which the company passed the special resolution resolving that it be wound up voluntarily (section 513B of the Corporations Act).
The liquidator of the private company made a loan to the taxpayer after the winding up of the company began. Section 109NA of the ITAA 1936 is satisfied since the loan was made to the taxpayer by the liquidator in the course of winding-up the company.
Accordingly, the private company is not taken to have paid a dividend to the taxpayer for the 2001-02 income year under subsection 109D(1) of the ITAA 1936.
Date of decision: 2 April 2003Year of income: 30 June 2002
Legislative References:
Income Tax Assessment Act 1936
Division 7A
Subdivision D
section 109D
section 109N
section 109NA
section 495
section 513B
section 532
Keywords
Deemed dividends
Dividend income
Private company distributions
Shareholders
Shareholder loans
Liquidation
Winding up
Date reviewed: 28 October 2016
ISSN: 1445-2782