Issue
Is the value of shares received in Company B as a result of the individual taxpayer's shareholding in Company A included, as a dividend, in the taxpayer's assessable income under section 44 of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
Yes. The value of shares received in Company B as a result of the individual taxpayer's shareholding in Company A is included, as a dividend in the taxpayer's assessable income under section 44 of the ITAA 1936.
Facts
The individual taxpayer held shares in Company A.
The taxpayer is a resident of Australia for taxation purposes.
Some time after the taxpayer acquired these shares, Company A split into Company A and Company B. Each share owned in Company A as at the relevant date entitled the holder to receive shares in Company B.
The arrangement is not a demerger for the purposes of Division 125 of the ITAA 1997.
As result of the split, the taxpayer received shares in Company B.
The distribution of the Company B shares was debited against Company A's retained profits.
Reasons for Decision
Subsection 44(1) of the ITAA 1936 includes in the assessable income of a shareholder who is a resident of Australia dividends paid to a shareholder by a company out of profits derived by it from any source.
Subsection 6(1) of ITAA 1936 defines 'dividend' as including any distribution made by a company to any of its shareholders, whether in money or other property, but excludes such a distribution if it is debited against the share capital account of the company.
As the distribution of the Company B shares was debited against Company A's retained earnings, it falls within the definition of 'dividend' and is therefore included in the taxpayer's assessable income under subsection 44(1) of the ITAA 1936. Note: If the dividend is a result of a demerger (for the purposes of Division 125 of the ITAA 1997) happening on or after 1 July 2002, the demerger dividend may be non-assessable or exempt under subsections 44(3) and 44(4) of the ITAA 1936.