Issue
Is a final dividend paid by the liquidator of WoolStock Australia Ltd (WoolStock) to a taxpayer, a primary producer who held ordinary shares in WoolStock, assessable as statutory income under section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. A final dividend paid by the liquidator of WoolStock to the taxpayer, a primary producer who held ordinary shares in Woolstock, is assessable as statutory income under section 6-10 of the ITAA 1997.
Facts
The taxpayer is a primary producer who in 1997 was granted units in Wool International in respect of their contribution to Australia's wool stockpile.
Each unit represented one whole dollar of wool tax the taxpayer paid between 1 July 1993 and 30 June 1996.
On 1 July 1999 (conversion time), Wool International was privatised and registered as WoolStock Australia Ltd.
At conversion time the taxpayer was granted one ordinary share in WoolStock for every unit they held in Wool International.
The value of each share's 'paid-up share capital' was $0.01.
WoolStock went into liquidation on 24 April 2002.
On 1 October 2002, the liquidator paid a cash dividend of $0.0309 per share to be distributed to all WoolStock shareholders.
The dividend was paid as a final dividend, after which the company was deregistered and the shares cancelled.
Reasons for Decision
The assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year (section 6-5 of the ITAA 1997).
The assessable income of a resident taxpayer also includes statutory income amounts that are not ordinary income but are included in assessable income by another provision of tax law. This includes statutory income from all sources, whether in or out of Australia (section 6-10 of the ITAA 1997).
If an amount is included in assessable income under both the ordinary and statutory income rules, the terms of the provision that includes it as statutory income prevail unless it is stated otherwise (section 6-25 of the ITAA 1997).
Where distributions are made to a shareholder of a company that has gone into liquidation and those amounts represent income derived by the company, providing the amounts are not a replacement of paid-up share capital the distribution is deemed to be a dividend (section 47 of the Income Tax Assessment Act 1936 (ITAA 1936)).
In turn, such a deemed dividend is included in the assessable income of a resident shareholder (section 44 of the ITAA 1936).
'Paid-up share capital' is the amount standing to the credit of the company's share capital account reduced by an amount that represents amounts unpaid on shares (subsection 6(1) of the ITAA 1936). In relation to deemed dividends paid by a company in liquidation, 'paid-up share capital' includes the cancelled share capital of the company that has not been repaid to shareholders (subsection 47(3) of the ITAA 1936).
The paid-up share capital of WoolStock shares was $0.01 per share and had not been repaid to shareholders. Accordingly, $0.01 of each $0.0309 final dividend represents cancelled share capital that has not previously been repaid to shareholders and is therefore not a deemed dividend under section 47 of the ITAA 1936.
The remaining $0.0209 per share held is a deemed dividend assessable under section 44 of the ITAA 1936. This statutory income amount is included in the taxpayer's assessable income under section 6-10 of the ITAA 1997.
Note 1: Taxation Determination TD 2001/27 deals with the CGT implications of distributions by a liquidator.
Note 2: ATO ID 2003/594 deals with averaging of primary production income in this taxpayer's circumstances.