Draft Taxation Determination

TD 93/D135

Income tax: must dividends paid in respect of different classes of shares be franked at the same rate to avoid being considered as underfranked?

• Please note that the PDF version is the authorised version of this draft ruling.
  This document has been finalised by TD 93/166.

FOI status:

draft only - for comment

Preamble

1. Yes. Where dividends paid in respect of different classes of shares have the same reckoning day, they are considered to be same day dividends in terms of subsection 160AQE(2) of the Income Tax Assessment Act 1936. In this circumstance, these dividends must be franked at the same rate.

2. If different reckoning days apply, there is no requirement for a company to frank dividends on different classes of shares at the same rate.

3. Note that in some situations, different classes of shares (as described in the company's Articles of Association) may not constitute different classes of shares for imputation purposes (subsection 160APE(2)).

Example

ABC Pty Ltd passes a resolution on 25 May to pay dividends franked to 50% to class A shareholders. On 27 May they pass another resolution to pay dividends franked to 60% to class B shareholders. Class A and B shares are considered to constitute different classes of shares as per subsection 160APE(2).

If the reckoning day is 30 May for both class A and B dividends, the company will be required to frank both dividends to 60%.

However, if the reckoning day is 30 May for class A dividends and 2 June for class B dividends, the company may frank dividends for class A shares to 50% and class B shares to 60%.

Commissioner of Taxation
3 June 1993

References

BO NEW TD39

Subject References:
imputation system
shares
franked dividend

Legislative References:
ITAA 160APE(2)
ITAA 160AQE(2)
ITAA 160APA