ARTICLE · 21 SEPTEMBER 2011

ATO fact sheets continue the distribution confusion

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ATO has released 2 draft fact sheets relating to the 2010 amendments to corporate law and tax in relation to dividends.

AustraliaTax

The Australian Taxation Office (ATO) has released two draft fact sheets relating to the 2010 amendments to corporate law and the income tax in relation to dividends.

Some of the contentious propositions stated or implied by the fact sheets are as follows.

Distributions which result in negative retained earnings are taxable but not frankable.
Such distributions are only taxable because the ATO assumes 'for illustrative purposes' that they do not reflect a reduction of share capital, and are thus 'dividends', although they are not treated as being paid from profits either. No reasoning is given to support the assumption, in fact, the only direct authority cited by the ATO on the reduction of share capital point is actually contrary to their assumed position.

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