ATO Interpretative Decision
ATO ID 2003/812
Income Tax
Division 7A: Partly paid shares issued to a private company shareholderFOI status: may be released
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This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 private company taken under subsection 109D(1) of the Income Tax Assessment Act 1936 (ITAA 1936) to have paid a dividend to the shareholder in relation to partly paid shares issued during the 2001-02 income year, upon which no calls have been made?
Decision
No. The partly paid shares, upon which no calls have been made, are not considered to be a 'loan' and so the private company is not taken under subsection 109D(1) of the ITAA 1936, to have paid a dividend to the shareholder as at 30 June 2002.
Facts
During the 2001-02 income year, a private company issued shares to a director shareholder. The total issue price was $5,000 and the shares were partly paid by the shareholder on issue to the amount of $1,000.
The company did not make any calls on the shares during the 2001-02 income year.
Reasons for Decision
A private company is taken under subsection 109D(1) of the ITAA 1936 to pay a dividend at the end of its income year if the private company makes a loan to a shareholder during the income year, the loan is not fully repaid by the end of that income year, and subdivision D of Division 7A of Part III of the ITAA 1936 does not prevent the private company from being taken to pay a dividend.
Subsection 109D(3) of the ITAA 1936 defines a 'loan', for the purposes of Division 7A, to include an advance of money, a provision of credit or any other form of financial accommodation, or a transaction which in substance effects a loan of money.
The shareholder in this case is liable under subsection 254M(1) and section 516 of the Corporations Act 2001 to pay calls on the partly paid shares up to the unpaid amount of the total issue price of the shares. However, the shareholder is not liable to pay this amount until the directors make a call or the company is wound up.
Neither event has happened during the 2001-02 income year. As such, the shareholder does not owe the private company any money and the transaction cannot be described as a 'loan' as defined by subsection 109D(3) of the ITAA 1936.
Therefore, the private company is not taken under subsection 109D(1) of the ITAA 1936 to have paid the shareholder a dividend as at 30 June 2002.
Amendment History
| Date of amendment | Part | Comment |
|---|---|---|
| 24 April 2014 | Reasons for Decision | References to subsection 109D(4) corrected to 109D(3) |
| Legislative References | Reference to subsection 109D(4) corrected to 109D(3) |
Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1936
subsection 109D(1)
subsection 109D(3)
subsection 254M(1)
section 516
Keywords
Deemed dividends
Private companies
Shareholder loans
Shares
Date reviewed: 22 November 2016
ISSN: 1445-2782
| Date: | Version: | |
| 15 July 2003 | Original statement | |
| You are here | 24 April 2014 | Updated statement |