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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your private ruling

Authorisation Number: 1012563064824

Ruling

Subject: dividends

Question

Is the dividend income assessable in the individual financial years in which the dividends were reinvested by the company?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

You held shares in a company.

Over a number of years the dividends from these shares have been reinvested in further shares.

You did not receive any of the mail from the company as you changed address and forgot that you owned these shares.

Your accountant made you aware that you had received dividends from shares.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1936 subsection 44(1)

Reasons for decision

Subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) defines a dividend to include any distribution made by the company to any of its shareholders, whether in money or other property, and any amount credited by a company to any of its shareholders as shareholders.

As per subsection 44(1) of the ITAA 1936, an Australian resident shareholder (the registered holder of shares) is assessable on all dividends paid (to the shareholder) by a company (whether the company is a resident or non-resident) out of profits derived from any source.

Most dividends you are paid or credited will be in the form of money, either by cheque or directly deposited into a bank account. However, the company may give you the option of reinvesting your dividends in the form of new shares in the company. If you take this option, you must pay tax on your reinvested dividends.

The term 'paid' in relation to a dividend as defined in subsection 6(1) of the ITAA 1936 includes 'credited' or 'distributed. The declaration of a dividend creates a debt owing to the shareholders and the payment, crediting or distribution of the dividend discharges that debt.

In Blankfield v FCT 72 ATC 4177, the High Court held that an amount was paid even though it was not able to be accessed by the taxpayer. The Court said that subsection 44(1) of the ITAA 1936 is not concerned with the derivation of income but rather with the designation as assessable income of those receipts which take the form of dividends paid to a taxpayer.

In your case, the conditions in subsection 44(1) of the ITAA 1936 are satisfied. You were a shareholder and there had been a payment to you of the dividend for the purposes of subsection 44(1) of the ITAA 1936.

Accordingly, the dividends reinvested into company shares are assessable to you in the income year the dividends were paid and credited by the company to you as a shareholder.

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