ATO ID 2001/609: Dividends & Imputation Credits - dividends received by an employer and paid to an employee
Date of decision: 19 July 2001
Business line: Private Groups and High Wealth Individuals

Issue
Is the taxpayer entitled to imputation credits under section 160AQU of the Income Tax Assessment Act 1936 (ITAA 1936) for dividends received by their employer and then paid to them in their capacity as an employee?

Decision
No, the taxpayer is not entitled to imputation credits under section 160AQU of the ITAA 1936 for dividends received by their employer and then paid to them in their capacity as employee.

Facts
The taxpayer's employer is a shareholder in several companies listed on the Australian Stock Exchange and receives dividends from these companies. The taxpayer's employer directed payment of the dividends to the taxpayer in lieu of, or as a substituted method of, remuneration for the taxpayer's services as an employee.

Reasons for decision
Summary: A franked dividend is a dividend paid or credited to a shareholder by an Australian resident company from profits that have had Australian company tax paid on them (sections 160APA and 160AQF of the ITAA 1936). A shareholder who receives a franked dividend is required to include in their assessable income an extra amount under section 160AQT of the ITAA 1936. The extra amount is equivalent to the amount of company tax attributable to the dividend. The shareholder is then entitled to claim that amount as an imputation credit under section 160AQU of the ITAA 1936. To be eligible to receive dividends and the associated imputation credits from a company, a taxpayer must have a shareholding interest in the capital of the company and be listed on the share register of the company. It is the employer, not the employee, who is registered as a shareholder. It is the employer who is entitled to receive dividends and use the imputation credits received. Any dividend passed on from the employer to the taxpayer in their capacity as an employee loses its character as a dividend. Any amounts received by the taxpayer as remuneration for their services as an employee would be regarded as income in the nature of salary or wages and assessable to them under section 6-5 of the Income Tax Assessment Act 1997 . The taxpayer is therefore not entitled to any imputation credits under section 160AQU of the ITAA 1936.

Legislative references: Income Tax Assessment Act 1936 section 160APA section 160AQF section 160AQT section 160AQU
Subject references: Franked dividends Dividend income Imputation credits Shareholder