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Edited version of your private ruling
Authorisation Number: 1012465986794
Ruling
Subject: Assessability of dividend transferred through 3rd party bank account
Questions and Answers
1. Are you required to pay tax on dividends received in your bank account on behalf of a friend?
No
2. Are you required to pay tax on the percentage of the dividends you retain to reimburse your costs?
No.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commences on
1 July 2012
Relevant facts and circumstances
Your friend, who lives overseas owns shares and receives related dividends from Australia. Previous dividend cheques have not been received and the reissued cheques will be deposited into your Australian bank account, from which they will be transferred electronically overseas to your friend. You will retain a small percentage of the dividend amount to cover the costs of transfer.
This arrangement will only be applicable to a small number of dividend cheques as it has been arranged for future dividends to be paid electronically directly into your friend's overseas bank account.
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), which is about income according to ordinary concepts, states:
Your assessable income includes income according to ordinary concepts, which is called ordinary income.
The phrase 'income according to ordinary concepts' is not defined in the tax legislation. However, the characteristics of ordinary income have been developed by case law and generally fall into three categories:
§ income from providing personal services;
§ income from property; or
§ income from carrying on a business.
Case law has included the following guidelines to assist in determining the nature of a receipt:
§ the nature of a payment is determined by examining the character of the payment in the hands of the recipient;
§ regard must be given to all facts, as such a broad view must be taken of a taxpayer's situation and it is necessary to consider the total situation of the taxpayer;
§ a payment that is provided for a purpose which is not part of the recipient's business will not be income in nature;
§ periodicity, regularity or recurrence may show a payment to be income;
§ a payment paid in consideration for the performance of services is generally income;
§ calculation of a payment by reference to expected profits made is a factor supporting a conclusion of income.
As an example, in respect to volunteers, the Tax Office publication Volunteers and tax (NAT 4612-04.2008) states a payment that is not assessable will have many of the following characteristics:
§ The payment is to meet incurred or anticipated expenses.
§ The payment has no connection to the recipient's income-producing activities or services.
§ The payment is not received as remuneration or as a consequence of employment.
§ The payment is not relied upon or expected by the recipient for day-to-day living.
§ The payment is not legally required or expected.
§ There is no obligation on the part of the payer to make the payment.
§ The payment is a token amount compared to the services provided or expenses incurred by the recipient. Whether the payment is token depends on the full facts surrounding the payment and recipient's circumstances.
In your case, the dividends transferred to your bank account are the income of your friend. Therefore, the dividends in the hands of you, as a recipient, do not fall within the scope of "your assessable income" under section 6-5 of the ITAA 1997. It follows you are not required to pay tax on the dividends that are transferred through your bank account on behalf of your friend.
Further, the percentage of the dividends you retain is merely a reimbursement to meet the anticipated costs of transfer. The percentage you retain has no connection to income producing activities, is not received as a consequence of employment, is not relied upon for your day-to-day living, is not legally required or expected, does not have periodicity, regularity or recurrence and is not related to expected profits. It follows you are not required to pay tax on the percentage of the dividends you retain to meet the costs of transfer. In short, the bank transfer is simply a private matter between friends rather than a tax matter.
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