Edited version of your private ruling

Authorisation Number: 1012608381799

Ruling

Subject: Investment income

Question 1

Are you obliged to include dividends declared, but not yet physically received by you, as assessable income in the 2011-12 and the 2012-13 financial years?

Answer

Decline to rule

Question 2

Are you obliged to include dividends declared, but not yet physically received by you, as assessable income in the 2013-14 financial year?

Answer

Yes

Question 3

Are you entitled to claim a credit for TFN withholding amounts withheld and remitted to the Australian Taxation Office because you have not supplied your TFN to various companies?

Answer

Yes

This ruling applies for the following periods

Year ending 30 June 2014

The scheme commenced on

1 July 2013

Relevant facts

You own shares in many public companies.

You receive dividends from those public companies.

Some public companies, in which you hold shares, have declared dividends, but because you refuse to provide your bank details to those companies, they refuse to pay you the dividend by cheque and retain the declared dividend.

You also do not supply your tax file number (TFN) to some of the public companies.

You do not include declared dividends (which you have not physically received) in your tax returns.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 6

Income Tax Assessment Act 1936 Section 44

Taxation Administration Act 1953 Subsection 120-140(1) of Schedule 1

Reasons for decision

Question 1

Taxation Ruling TR 2006/11 provides guidance on Private Rulings.

Paragraph 39, in part, states in the usual case where an application has been made in the approved form, the Commissioner is bound to make the private ruling. However, in the interests of allowing the Commissioner to focus efforts on increasing certainty for entities in the most genuine and worthy cases, the Commissioner may decline to rule in certain situations. Situations where the Commissioner may decline to rule include when the matter is already being, or has been considered by the Commissioner for you. This includes where you already have a private ruling on the matter, where the matter has already been decided for the purposes of a Commissioner's assessment, where the matter is the subject of a tax audit of which you are aware and which will be decided by the audit, or the matter is the subject of an objection against an assessment.

You have asked the Commissioner to provide a private ruling on certain matters in the 2011-12 and 2012-13 financial years. The Commission is declining to rule on matters in those years as those matters have already been decided for the purposes of a Commissioner's assessment. The Commissioner is declining to rule on the questions you have asked in those years as the matter has already been decided. If you disagree with the Notices of Assessment in those years you can object against them.

Question 2

Section 44 of the Income Tax Assessment Act 1936 (ITAA 1936) states in part the assessable income of a shareholder in a company includes, if the shareholder is a resident, dividends that are paid to the shareholder by the company out of profits derived by it from any source.

Section 6 of the ITAA 1936 states a dividend includes:

• Any distribution made by a 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.

When the High Court was considering the question whether it is competent to rescind a resolution to pay an interim dividend in Brookton Co-operative Society Ltd v FC of T 81 ATC 4346, Mason J, with whom Gibbs CJ and Aickin J agreed, made some observations in regard to the meaning of ''credited'' in the definition of ''paid'' in relation to a dividend. His Honour said (81 ATC at p 4355):

''By virtue of sec 44(1)(a) and the statutory definition, a dividend does not form part of the assessable income of a shareholder unless it is paid or credited, notwithstanding that the declaration of a final dividend by the company in general meeting creates a debt and an enforceable right on the part of the shareholder to the dividend. Consequently, in its application to a final dividend, the extended statutory definition does nothing to disturb or qualify, as between company and shareholder, the characteristic of a dividend as a debt which is owing by the company to the shareholder. As this is the effect of the extended definition in its application to a final dividend, it would be irrational and incongruous to give it a more radical application when applied to an interim dividend. The reference to 'dividends' in sec 44(1)(a) must be read as a reference to dividends the payment of which is enforceable by the shareholder because they have been declared so as to create a debt, or to dividends which are no longer revocable because, as between company and shareholder, they have been satisfied by payment. When sec 44(1)(a) is so read, the purpose of the extended definition becomes clear - it is to guard against the possibility, perhaps remote, that the word 'paid' might be so narrowly construed that dividends credited or distributed to shareholders in circumstances where they can no longer be revoked or rescinded by the company would not constitute assessable income in the hands of shareholders.''

In your case you have been notified of the declaration of a dividend.

The dividend cannot be revoked as it has been declared and paid to all shareholders who have supplied their bank account details. The dividend has been credited and paid to those shareholders. In your case, as you have not supplied your bank account details, you have still been credited with the dividend but have not been paid because of a disagreement between the company and yourself as to the mode of payment. As you have received notification of a declaration of a dividend and have been credited with a dividend, you must include that dividend in your assessable income despite the fact that you haven't actually received the payment of the dividend.

Another indicator which points towards you being credited with a dividend, is that you have not supplied your TFN to some companies and those companies have withheld an amount from the dividend. If you had not been credited with a dividend the company would be unable to withhold the TFN withholding amount from the dividend. By not supplying a TFN to some companies you are in effect receiving part of your dividend from the ATO (when you lodge your taxation return) which has been withheld and submitted to the ATO by the company.

Once notices of a declared dividend have issued, companies will pay the dividend to a nominated bank account or retain the dividend in trust if given incorrect bank account details or if they have not been provided any bank account details at all. If either of these situations occurs the company correctly alerts the Australian Taxation Office (ATO) that they have declared a dividend and have credited a dividend to those shareholders. The issue of incorrect bank account details or bank account details which haven't been supplied is a matter between yourself and the companies concerned. Any company is within its rights to hold a dividend if you do not supply your bank account details, if that is that company's policy. The company is correct in informing the ATO that a dividend has been credited to shareholders, even though it is held in trust on your behalf and has not physically been paid because of incorrect bank details or not being supplied bank details at all. It is still your dividend but because of an administrative problem it has not been physically paid to you.

Dividends, which have been declared, are credited to you as a shareholder when the notice has issued and the company has attempted to pay you via a bank account. The fact that you have chosen not to supply your bank account details does not change the fact that you have been credited with the dividend. Any dividend which has been credited to you must be included in your assessable income. You will know this amount as you receive notices from the companies concerned as they issue a notice which states the amount to be declared as assessable income.

Question 3

Subsection 120-140(1) of Schedule 1 of the Taxation Administration Act 1953 (TAA) states an investment body must withhold an amount from a payment it makes to another entity in respect of a Part VA investment if:

• All or some of the payment is ordinary or statutory income of the other entity; and

• If the investment is non-transferrable - the other entity did not quote its tax file number in connection with the investment before the time when the payment became payable; and

• If the investment is transferrable - the other entity did not quote its tax file number in connection with the investment before the time when the other entity had to be registered with the investment body as the investor to be entitled to payment.

The amount of tax remitted to the ATO is calculated using the maximum personal marginal tax rate, plus Medicare.

In your case you have not quoted your TFN to some investment bodies of which you are a shareholder, therefore the investment bodies concerned are obliged to withhold an amount from any dividends credited or paid to you. The investment bodies concerned will withhold an amount and send it to the ATO. It will also notify you of any amounts withheld:

• when notifying you of the payment of interest or other investment income in the usual statements sent out to you

• when sending a dividend or distribution cheque

• when updating passbook information, or

• in writing, within 21 days of you requesting the details of any amount withheld from interest or other investment income paid.

If an amount is withheld from your investment income, you are able to claim the amount withheld as a credit when you lodge your tax return at the end of the financial year. There is a box on the tax return for this purpose. You must declare all investment income on your tax return, regardless of whether an amount has been withheld.

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