Private ruling: Commissioner's discretion
Published: October 2013
Ruling period: October 2013 to September 2018
Date scheme commenced: October 2013

Ruling: Q1: Will the Commissioner exercise his discretion to enable you to deduct dividends and rebates paid to your members within a period specified after the end of your income year as if they had been made on the last day of the income year pursuant to subsection 120(6) of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes

Relevant facts and circumstances: You are a co-operative company for the purposes of Division 9 of the ITAA 1936. You operate with the primary activity of supplying a specific product to your members. Your tax year commences in October and ends in September each year. Your constitution allows for any surplus arising in any year to be paid to members in the form of: - a rebate on the business done by a member with the co-op; or - the issues of bonus shares to a member ; or - paid to a member by way of limited dividend. Your so-operative rules states that the rebate, bonus shares or dividend must be declared at the Annual General Meeting (AGM) of the Co-op. Your rules also state that the AGM must be held within a specified period after the end of the financial year. There is a requirement that the financial reports be audited annually. Due to this, it is not practical to convene the AGM within a specified time after the end of your financial year. As a result, it is also not practical to make payment of any rebate, bonus shares or dividend within this time period.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 120(6)

Reasons for decision: Summary: Subsection 120(6) states: 'If a co-operative company distributes assessable income among its shareholders within the period of 3 months (or such longer period as the Commissioner decides) starting at the end of a year of income, the co-operative company may elect that the distribution is to be taken, for the purposes of this section only, to have been made on the last day of the year of income.' Therefore, section 120(6) of the ITAA 1936 provides a grace period of three months after the end of an income year, in which to make deductible distributions in relation to that year. A co-op company that makes a distribution of assessable income to its shareholders within the period of three months after the end of an income year, can elect that the distribution is to be taken to have been made on the last day of that income year. Where a distribution is not covered by an election under section 120(6), it appears from the decision in Ardmona Fruit Products Co-operative Co Ltd v FC of T (1952) 86 CLR 530, that in order to be deductible in any year of income, rebates, bonuses, must either be paid or become payable to the shareholders in that year. The Commissioner can extend the grace period beyond the three months. In exercising his discretion to grant you an extension beyond 3 months for the purposes of subsection 120(6) of the ITAA 1936, the Commissioner considered certain factors that were specific to your circumstances to be relevant. After taking the factors specific to your circumstances into consideration, the Commissioner hereby exercises his discretion under subsection 120(6) of the ITAA 1936 to enable you to deduct dividends and rebates paid to your members within a specified period after the end of your financial year.