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Edited version of your private ruling
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Ruling
Subject: Dividend payment
Question 1
Was the payment made by the company to the individual a dividend under the definition in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) for the year ended 30 June 2009?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2009.
The scheme commences on:
1 July 2008.
Relevant facts and circumstances
There was a dispute about whether a dividend had been validly declared by a company as the declaration wasn't signed.
A distribution was made to the shareholder for the year ended 30 June 2009.
The distribution wasn't debited against the share capital account.
Relevant legislative provisions
Income Tax Assessment Act 1936, subsection 6(1)
Income Tax Assessment Act 1936, section 44
Reasons for decision
Section 254T of the Corporation Act, provides guidelines for when a dividend is declared under corporations law. However; for taxation law purposes the definition of a dividend is covered under subsection 6(1) of the ITAA 1936.
Subsection 6(1) of the ITAA 1936 states that 'dividend' includes:
a) any distribution made by a company to any of its shareholders, whether in money or other property; and
b) any amount credited by a company to any of its shareholders as shareholders;
c) (Repealed by No 63 of 1998)
d) but does not include:
e) moneys paid or credited by a company to a shareholder or any other property distributed by a company to shareholders (not being moneys or other property to which this paragraph, by reason of subsection (4), does not apply or moneys paid or credited, or property distributed for the redemption or cancellation of a redeemable preference share), where the amount of the moneys paid or credited, or the amount of the value of the property, is debited against an amount standing to the credit of the share capital account of the company; or
f) moneys paid or credited, or property distributed, by a company for the redemption or cancellation of a redeemable preference share if:
o the company gives the holder of the share a notice when it redeems or cancels the share; and
o (ii) the notice specifies the amount paid-up on the share immediately before the cancellation or redemption; and
o (iii) the amount is debited to the company's share capital account;
except to the extent that the amount of those moneys or the value of that property, as the case may be, is greater than the amount specified in the notice as the amount paid-up on the share; or
a reversionary bonus on a life assurance policy.
Applying this to your circumstances, the individual was paid moneys by the company as a distribution from the company which was not debited against an amount standing to the credit of the share capital account of the company. This meets the definition of a dividend under subsection 6(1) of the ITAA 1936.
Please note that whether a dividend is assessable is covered by section 44 of the ITAA 1936.
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