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Edited version of private ruling
Authorisation Number: 1011710238482
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Ruling
Subject: Dividend income and franking credits
Question 1
Is the dividend income assessable to you in the year in which the dividend was declared?
Answer
Yes.
Question 2
Are you entitled to a franking credit when you declare the dividend income?
Answer
Yes.
This ruling applies for the following periods
Year ending 30 June 2008
Year ending 30 June 2009
Year ending 30 June 2010
Year ending 30 June 2011
The scheme commenced on
01 July 2007
Relevant facts
You have shares in a number of companies.
Some of these companies have reverted to paying your dividends only into a bank account.
You have no intention of providing your bank account details to the companies. Therefore, they are holding your dividends in an account and will not pay them to you until you provide them with your bank account details.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a person, who is an Australian resident, shall include the ordinary income derived by the person from all sources during the income year. Dividends are considered to be ordinary income for the purpose of section 6-5 of the ITAA 1997.
Pursuant to subsections 6-5(2) and (3) ordinary income is included in the assessable income of a taxpayer when it is derived by that taxpayer. Subsection 6-5(4) further provides that in working out whether you have derived an amount of ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.
In your case, dividends are derived when the companies in which you held shares declared the dividend. As the companies have no bank account details to distribute the dividends to you, they are held on your behalf by the companies. It is considered that the amounts have been dealt with on your behalf. It is not relevant when considering if you have derived the income whether or not you have physically received the amount. The relevant consideration is whether the dividends have been dealt with in any way on your behalf or as you direct. In this case, it is considered that your refusal to provide your bank details is a direction for the companies to hold the amounts on your behalf.
Therefore, dividends should be declared in the year in which they were declared. When the dividend is declared in your return, any imputation credit can be applied against the income.