Dividend: Shares received from demerger of foreign company - Australian resident shareholder

Are the shares in the Danish company, Novozymes A/S, received by an Australian resident taxpayer, following the demerger of the Danish company, Novo Nordisk A/S, assessable as a dividend under subsection 44(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes. The shares received in Novozymes A/S following the demerger are assessable as a dividend under subsection 44(1) of the ITAA 1936.

The taxpayer owned shares in Novo Nordisk A/S. On 13 November 2000, Novo Nordisk A/S demerged by transferring some of its business activities to the new company, Novozymes A/S. There were no amounts debited to the share capital accounts of Novo Nordisk A/S in respect of the demerger.

The taxpayer received one share in Novozymes A/S for each share owned in Novo Nordisk A/S. The Novozymes A/S share had similar rights, proportion of issued capital, par value, etc in Novozymes A/S as the equivalent share in Novo Nordisk A/S.

The was no change to the taxpayer's Novo Nordisk A/S shares as a result of the demerger.

Subsection 6(1) of the ITAA 1936 defines dividend to include: • any distribution made by a company to any of its shareholders, whether in money or other property; and • any amount credited by a company to any of its shareholders as shareholders.

The definition specifically excludes: • money paid or credited; or property distributed by a company to a shareholder where the amount is debited to the share capital account of the company; • moneys paid or credited; or property distributed by a company for the redemption or cancellation of a redeemable preference share; • a reversionary bonus on a policy of life-assurance

The receipt of these shares, as a result of the demerger, do not fall into one of the exclusions to the definition of a dividend as outlined in subsection 6(1) of the ITAA 1936. Therefore the value of the shares will be an assessable dividend.

Section 44(1) of the ITAA 1936 provides, subject to the other provisions of sections 44 and 128D of the ITAA 1936, that the assessable income of a shareholder in a resident or non-resident company includes dividends paid by a company: - where the shareholder is a resident of Australia as defined in section 6(1) of the ITAA 1936 - irrespective of the source of the profits from which the dividends are paid.

Therefore, the value of the shares received by an Australian resident in Novozymes A/S as part of the demerger will be included as a dividend in the assessable income of the shareholder.