In July 2012, the Australian Taxation Office published Taxpayer
Alert 2012/4, which highlighted the Commissioner's view that
the use of Dividend Access Shares (DAS) may infringe a number of
the integrity measures contained within Part IVA of the Income
Tax Assessment Act 1936 (Cth) (ITAA 1936).
Almost one year on, the ATO have extended upon this reasoning by
releasing TD2013/D5, which provides a detailed example of a DAS
arrangement that the Commissioner would regard as constituting
"dividend stripping" for the purposes of Section 177E
What Type Of DAS Arrangement Would Constitute Dividend
The following is an overview of the facts considered in
A private company with substantial accumulated profits issues a
new class of shares to associates of the private company's
shareholders (trusts and companies controlled by them) for nominal
The shares have some or all of the following characteristics:
(1) a right to receive dividends; (2) a lack of voting rights; and
(3) a right for the private company to redeem the new shares and/or
abolish dividend entitlements within four years of issue.
The company declares and pays a fully franked dividend on the
DAS equivalent to its accumulated profits, which is satisfied by a
promissory note issued by the company.
A series of transactions are carried out to deliver these
profits to the original shareholder in tax-free or substantially
tax-free form such as:
Distributing funds to an associated non-resident who then loans
a comparable amount back to the company on minimal repayment
Distributing funds to a trust or individual with carried
forward tax losses;
Distributing funds through a series of trusts and companies to
end up in control of the original shareholder and/or their
Lent to the original shareholders and/or their associates.
In circumstances where the Commissioner finds that the sole or
dominant purpose of a particular scheme was to obtain a tax
benefit, Part IVA will operate to effectively cancel all or part of
the tax benefits obtained by the taxpayer.
It is clear that each set of circumstances will need to be
carefully evaluated to determine if a taxpayer has infringed the
The Commissioner believes that Part IVA is likely to be breached
where the economic benefit of the company's profits are
delivered to ordinary shareholders or associates in a more tax
effective manner than if a dividend were to be paid on ordinary
It is also clear that previous 'non-tax' reasons for
using these arrangements (e.g. asset protection, succession
planning) will be rejected by the Commissioner unless the taxpayer
can prove that the use of the DAS actually achieves non-tax
objectives and that those objectives could not have been achieved
in a simpler manner.
Redchip lawyers believe that DAS still remain a useful tool
within commercial, business succession or estate planning contexts
where it can be established that their use serves a legitimate
non-tax purpose. However, this Draft Taxation Determination
highlights the importance of proper planning and consideration of
the relevant circumstances of each case in order to avoid
unnecessary taxation consequences.
Taxpayers should seek the advice of a taxation professional if
they propose to implement a DAS arrangement or declare or pay
dividends as part of a DAS arrangement.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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