An equity interest in a company that is not in legal form solely a share in the capital of the company or stock in the company, is called a non-share equity interest. The definition of equity interest and related concepts of equity holder and non-share dividend are used in the imputation provisions of the income tax law. Both shareholders and holders of non-share equity interests may be paid frankable dividends by the entity.
To be a non-share equity interest it is necessary for the whole interest, or a part of it, to be in a form other than a share. Therefore, if an equity interest in a company is made up of related interests and at least one of those interests is not a share, the interest is a non-share equity interest.
Capital raised by a company from the issue of non-share equity interests is credited to a non-share capital account.
A company has a non-share capital account if the company issues a non-share equity interest in the company on or after 1 July 2001, or the company has issued a non-share equity interest in the company before 1 July 2001 that was still in existence on 1 July 2001.
Keeping a non-share capital account
If a company issues a non-share equity interest in the company, the company has a notional account called a non-share capital account. The account records contributions to the company in respect of those non-share equity interests and returns by the company of those contributions. A distribution on a non-share equity interest can be characterised as either a non-share dividend or a non-share capital return. Specifically, non-share distributions that are debited against the notional account are non-share capital returns.
Sections 164–15 and 164–20 of the Income Tax Assessment Act 1997 specify the credits and debits that may be made to the non-share capital account.