Private ruling: Dividend distribution from company shares
Date of advice: 28 April 2016
Published: June 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Question and Answer | Do you include in your assessable income the in specie dividend distribution in the form of Company Ltd shares which you received on your Company Plc shares? | Yes

Relevant facts and circumstances: You: • are a resident of Australia for tax purposes • hold shares in Company Plc and Company Ltd • hold your shares on capital account, and • received one, Company X share for each share you held in Company Plc and Company Ltd. • did not receive your shareholdings through an employee share scheme arrangement

Relevant legislative provisions: Section 6(1) of the Income Tax Assessment Act 1936 | Section 44(1) of the Income Tax Assessment Act 1936 | Section 6-5 of the Income Tax Assessment Act 1997 | Section 6-10 of the Income Tax Assessment Act 1997 | Section 10-5 of the Income Tax Assessment Act 1997 | Section 125-70 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: Australian residents include ordinary income and statutory income derived from Australian and foreign sources in their assessable income: subsections 6-5(2) and 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997). Section 10-5 of the ITAA 1997 sets out a list of ordinary income and statutory income provisions contained in both the ITAA 1997 and the Income Tax Assessment Act 1936 (ITAA 1936). The list includes 'dividends' which are included in the assessable income of Australian resident shareholders pursuant to subsection 44(1) of the ITAA 1936. Paragraph 44(1)(a)(i) of the ITAA 1936 provides that Australian residents must include in their assessable income dividends (other than non-share dividends) received from a company, out of profits derived by the company from any source. 'Dividends' are defined in subsection 6(1) of the ITAA 1936 to include any distributions made by a company to its shareholders whether in the form of money or other property and the amount of the distribution is not debited to the share capital account of the company (paragraphs (a) and (d) of the definition). You received one Company X share for each share held in Company Plc which are dividends for the purposes of subsection 6(1) as the Company X shares were a distribution of property that Company Plc made which was not debited to Company Plc's share capital account. Dividends are included in a taxpayer's assessable income pursuant to section 44 of the ITAA 1936, unless a later subsection in section 44 or another provision in the ITAA 1936 or ITAA 1997 exempts the dividend or treats the dividend as non-assessable non-exempt income in the circumstances of the taxpayer. Although Company Ltd and Company Plc operate as if they were a single economic enterprise under an Arrangement, each retains its separate legal identities, tax residences and stock exchange listings. The Company X shares you received as 'dividends' on your shares held in Company Plc are subject to a different Australian income tax treatment than for those you received on your shares held in Company Ltd . The distribution of Company X shares to shareholders by Company Plc does not constitute a 'demerger' for Australian income tax purposes (as defined in subsection 6(1) of the ITAA 1936 and section 125-70 of the ITAA 1997) and therefore is not treated as a 'demerger dividend' which may in turn be treated as 'non-assessable non-exempt' income.