Tax Laws Amendment (2010 Measures No. 2) Act 2010 (75 of 2010)
Schedule 1 Distributions to entities connected with a private company
Income Tax Assessment Act 1936
31 At the end of Subdivision F of Division 7A of Part III
109ZCA Treatment of dividend that is reduced on account of an amount included in assessable income under Subdivision EA
(1) This section sets out special rules for dealing with a dividend (the later dividend ) distributed by a private company if:
(a) an amount is included in the assessable income of a shareholder, or an associate of a shareholder, of the company under section 109XB because of a loan made to the shareholder or associate by a trustee in relation to a present entitlement of the company to an amount from the net income of the trust estate; and
(b) subsection 109XA(2) applied to the loan; and
(c) some or all of the later dividend is applied to repay all or a part of the loan.
(2) The amount of the later dividend applied is taken not to be a dividend for the purposes of this Act, except Part 3-6 of the Income Tax Assessment Act 1997 (which deals with franking of distributions).
(3) However, if the amount set off or applied exceeds the amount of the later dividend that is neither:
(a) the franked part of that dividend; nor
(b) the part of that dividend that has been franked with an exempting credit;
the excess is still a dividend.
Note: This prevents double taxation by ensuring that the entity's assessable income does not include the amount of the later dividend that is not paid to the entity (except to the extent that that amount is franked).
(4) An amount that is taken not to be a dividend under subsection (2) is not assessable income and is not exempt income.