Dividend access shares – recent decision highlights potential problems in attaching franking credits to dividends

The full Federal Court recently considered whether a dividend access share was a debt or equity interest. The majority concluded that the particular share was a debt interest – as a result, there was no entitlement to franking credits.

What happened in the case?

In D Marks Partnership v Commissioner of Taxation [2016] FCAFC86, one of the issues was whether dividends paid to Quintaste Pty Ltd could be franked.

HL Securities Pty Ltd had issued Z class shares to Quintaste. The relevant terms of the Z class shares were that:

Each share shall be redeemable at the direction of the directors, at any time, for the issue price, and, at the end of 47 months following its issue, shall be automatically redeemed at its issue price and cease to exist at the expiration of that time, whether or not its redemption price has been paid.