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Edited version of your written advice
Authorisation Number: 1012686010786
Ruling
Subject: Exercise of Commissioner's discretion under subsection 120(6) of the Income Tax Assessment Act 1936
Question 1
Should the Commissioner exercise his discretion under subsection 120(6) of the Income Tax Assessment Act 1936 (ITAA 1936) to enable the co-operative to deduct dividends and rebates paid to its members within 5 months after the end of its 30 June income year as if they had been made on 30 June, for the years to which this ruling applies?
Answer:
Yes
This ruling applies for the following periods:
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
The scheme commences on:
1 July 2013
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
A co-operative operates in the wholesale industry serving members throughout a number of States. The co-operative has a large number of members and a large annual turnover.
Prior to 30 June each year, the quantum of dividends and rebates to be paid by the co-operative in respect of the financial year is determined by the Board of Directors.
After completion of an audit, the accounts are printed and mailed to members and the Annual General Meeting (AGM).
The rules of the co-operative provide that dividends and rebates can only be paid with the approval of members (although the quantum is finalised prior to 30 June). This is done at the annual general meeting of the co-operative, at which time the accounts for the previous financial year are presented to members. Members then vote to approve the payment of the dividends and rebates determined by the Board of Directors. The members have never disagreed with the decision of the Board regarding the quantum of the dividends and rebates to be paid.
Once the payment of the dividends and rebates is ratified by members at the annual general meeting, the co-operative proceeds to pay the dividend. Due to the large number of members, a significant amount of work is required to ensure that all eligible members are identified, and the relevant amounts are paid.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 8 (Commissioner's administration)
Income Tax Assessment Act 1936 Subsection 120 (deduction allowable to co-operative)
Income Tax Assessment Act 1936 Subsection 120(6) (time of distribution)
Reasons for decision
Issue 1
Question 1
Summary
The Commissioner will exercise his discretion under subsection 120(6) of the Income Tax Assessment Act 1936 (ITAA 1936) to enable the co-operative to deduct dividends and rebates paid to its members within 5 months after the end of its 30 June income year as if they had been made on 30 June, for the income years ending 30 June 2014 through until the income year ending 30 June 2019.
Detailed reasoning
A co-operative company is able claim an allowable deduction for assessable income that is distributed to the co-operative's shareholders as rebates or bonuses based on the business done by the co-operative or distributed to shareholders as interest or dividends on shares (subsection 120(1) of the Income Tax Assessment Act 1936).
Subsection 120(6) Income Tax Assessment Act 1936 (ITAA 1936), requires a co-operative company to distribute its assessable income amongst its shareholders within the period of 3 months starting at the end of a year of income. The co-operative may elect that the distribution is to be taken, for the purposes of subsection 120(6) only, to have been made on the last day of the year of income. The three months may be extended by the Commissioner.
In exercising the discretion to grant the co-operative company an extension beyond 3 months for the purposes of subsection 120(6) of the ITAA 1936, the Commissioner considers the following factors specific to your circumstances to be relevant:
• the large number of members and branches and the practical difficulties in paying distributions within 3 months of the end of the financial year;
• the requirement to have the financial statements audited before a distribution can be made;
• the requirement for the annual general meeting to be held after the audited accounts are finalised, printed and distributed to members; and
• the co-operative requiring that the members approve the payment of dividends and rebates at the annual general meeting.
The Commissioner will exercise his discretion under subsection 120(6) of the Income Tax Assessment Act 1936 (ITAA 1936) to enable the co-operative to deduct dividends and rebates paid to its members within 5 months after the end of its 30 June income year as if they had been made on 30 June, for the income years ending 30 June 2014 through until the income year ending 30 June 2019.