Edited version of private advice

Authorisation Number: 1052103867210

Date of advice: 5 April 2023

Ruling

Subject: Uncommercial transaction - income

Question

Is the dividend declared from Company A which their liquidators treated as a voidable transaction, assessable income to you under section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a shareholder of Company A, who is a related entity.

A dividend was declared from Company A on a specified date. You provided us with details of the dividend which was included in your tax return when lodged for the specified financial year.

An administrator was appointed for Company A on a specified date with them being wound up insolvency on a specified date.

The liquidators for Company A claimed an insolvency date of a specified date.

You provided us with details of the demand letter that the liquidators.

The liquidators commenced proceedings against you and other parties to recover moneys.

You provided us with details of the settlement amount that you agreed to pay.

The liquidators included the specified amount payment as 'voidable transaction recoveries' on their end of administration return.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 section 10-5

Income Tax Assessment Act 1997 section 11-55

Income Tax Assessment Act 1997 section 59-30

Reasons for decision

Dividend Income

Section 6-5 of the ITAA 1997 provides that your assessable income includes income according to ordinary concepts, which is called ordinary income. Subsection 6-5(2) of the ITAA 1997 provides that if you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia during the year.

Section 6-10 of the ITAA 1997 provides that your assessable income also includes statutory income, an amount included in assessable income by a statutory provision. Dividends are listed in section 10-5 of the ITAA 1997 as being statutory income. Subsection 6-10(4) of the ITAA 1997 provides that if you are an Australian resident, your assessable income includes your statutory income from all sources, whether in or out of Australia.

As such, you would be required to report dividend income in the year that it is declared to you in that income years tax return.

Repayment of prior year dividend income

Section 59-30 of the ITAA 1997 operates to exclude an amount from your assessable income for an income year if you have repaid it in a later income year and you cannot deduct the repayment in any income year.

Subsections 59-30(1) and 59-30(2) of the ITAA 1997 state:

59-30(1) An amount you receive is not assessable income and is not *exempt income for an income year if:

(a)         you must repay it; and

(b)         you repay it in an income year; and

(c)         you cannot deduct the repayment for any income year.

59-30(2) It does not matter if:

(a)         you received the amount as part of a larger amount; or

(b)         the obligation to repay existed when you received the amount or it came into existence later.

The settlement sum that you were required to pay is not considered to be a repayment of dividend, it is considered to be a payment to settle a claim to avoid further legal action. Therefore, the dividend declared to you on 1 July 20XX is fully assessable income under 6-10 of the ITAA 1997.