ATO Interpretative Decision
ATO ID 2001/609
Income Tax
Dividends & Imputation Credits - dividends received by an employer and paid to an employeeFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the taxpayer entitled to imputation credits under section 160AQU of the Income Tax Assessment Act 1936 (ITAA 1936) for dividends received by their employer and then paid to them in their capacity as an employee?
Decision
No, the taxpayer is not entitled to imputation credits under section 160AQU of the ITAA 1936 for dividends received by their employer and then paid to them in their capacity as employee.
Facts
The taxpayer's employer is a shareholder in several companies listed on the Australian Stock Exchange and receives dividends from these companies.
The taxpayer's employer directed payment of the dividends to the taxpayer in lieu of, or as a substituted method of, remuneration for the taxpayer's services as an employee.
Reasons for Decision
A franked dividend is a dividend paid or credited to a shareholder by an Australian resident company from profits that have had Australian company tax paid on them (sections 160APA and 160AQF of the ITAA 1936).
A shareholder who receives a franked dividend is required to include in their assessable income an extra amount under section 160AQT of the ITAA 1936. The extra amount is equivalent to the amount of company tax attributable to the dividend. The shareholder is then entitled to claim that amount as an imputation credit under section 160AQU of the ITAA 1936.
To be eligible to receive dividends and the associated imputation credits from a company, a taxpayer must have a shareholding interest in the capital of the company and be listed on the share register of the company. It is the employer, not the employee, who is registered as a shareholder. It is the employer who is entitled to receive dividends and use the imputation credits received.
Any dividend passed on from the employer to the taxpayer in their capacity as an employee loses its character as a dividend. Any amounts received by the taxpayer as remuneration for their services as an employee would be regarded as income in the nature of salary or wages and assessable to them under section 6-5 of the Income Tax Assessment Act 1997. The taxpayer is therefore not entitled to any imputation credits under section 160AQU of the ITAA 1936.
Date of decision: 19 July 2001
Legislative References:
Income Tax Assessment Act 1936
section 160APA
section 160AQF
section 160AQT
section 160AQU
section 6-5
Keywords
Franked dividends
Dividend income
Imputation credits
Shareholder
Date reviewed: 22 April 2014
ISSN: 1445-2782