Where a payment is made by a company or trust under the retirement exemption to a CGT concession stakeholder who is an employee of that entity, the payment is deemed (for the purposes of section 109 of the Income Tax Assessment Act 1936) to have been made in consequence of the termination of employment of the stakeholder.
If the payment from a private company to the employee CGT concession stakeholder is excessive (after considering all the circumstances), section 109 of the Income Tax Assessment Act 1936 deems the excessive remuneration to be a dividend.
Consideration of what is unreasonable or excessive is not restricted to the retirement exemption limit of $500,000. Any opinion formed should also have regard to the length of service and level of contribution to the business by the CGT concession stakeholder or employee.
There are no such implications for payments made to CGT concession stakeholders who are not employees of the company or trust.
Payments made on or after 23 June 2009 to a CGT concession stakeholder who is an employee, to satisfy the retirement exemption requirements, are no longer deemed to be in consequence of termination of employment for the purposes of section 109 of the ITAA 1936 (about excessive payments to shareholders, directors and associates being deemed to be dividends).
Division 7A of the ITAA 1936 also no longer applies to treat such payments made by a company or trust as dividends
Such payments also ceased to be treated as eligible termination payments from 2007-08 onwards.
Payments made on or after 23 June 2009 to satisfy the retirement exemption requirements are not treated as a dividend nor a frankable distribution provided:
- you are a company making a payment to
- a CGT concession stakeholder or
- an interposed entity, or
- you are an interposed entity receiving a payment and passing that payment on.
See Interposed entities receiving or making payments on or after 23 June 2009.