Issue
Can a shareholder who receives a dividend from a wholly owned company apply the concessions available under Subdivision 115-D of the Income Tax Assessment Act 1997 (ITAA 1997), where the dividends incorporate an eligible capital gain component?
Decision
No - the CGT relief for investors, under Subdivision 115-D of the ITAA 1997 is only available to a shareholder of a listed investment company ('LIC').
Facts
An individual taxpayer acquired a number of income producing assets on or after 20 September 1985, which consisted of shares, trust units and other financial instruments, held for investment purposes.
The taxpayer has transferred some of those income producing assets to a wholly-owned company.
The company pays a dividend to the shareholder which, in part, is made up of capital gains on the disposal of assets by the company that had been held for more than 12 months.
Reasons for Decision
Subdivision 115-D of the ITAA 1997 provides shareholders of certain LICs with benefits similar to those conferred by discount capital gains. The benefits are available if the dividends paid by those companies represent capital gains that would be discount capital gains had they been made by an individual, trust or a complying superannuation entity.
It enables shareholders in LICs to reduce the eligible capital gain component of a dividend by the CGT discount.
Subsection 115-290(1) of the ITAA 1997 provides that a company is a 'listed investment company' if : • it is an Australian resident; and • it is listed on the Australian Stock Exchange or of a body corporate that is approved as a stock exchange under section 769 of the Corporations Act 2001 ; and • 90% or more of the market value of its CGT assets consists of investments permitted by subsection 115-290(4) of the ITAA 1997.
A wholly-owned subsidiary of a LIC can also be treated as a LIC, if the subsidiary meets the LIC requirements other than listing: sub-section 115-290(2) of the ITAA 1997.
As neither the company is listed on the Australian Stock Exchange nor is it a wholly-owned subsidiary of a LIC, it is not considered to be a LIC. It is unnecessary to determine whether 90% or more of the market value of its CGT assets consisted of permitted investments.
Consequently, the CGT relief under subdivision 115-D of the ITAA 1997 is not available to the individual taxpayer on dividends received from the wholly-owned company.