INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART III - LIABILITY TO TAXATION  

Division 2 - Income  

Subdivision D - Dividends  

SECTION 46C   DIVIDENDS PAID INSTEAD OF INTEREST UNDER CERTAIN SHORT-TERM FINANCE ARRANGEMENTS  

46C(1)   [Definitions]  

In this section, unless the contrary intention appears -

arrangement
means any agreement, arrangement or understanding, whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings.

associate
has the same meaning as in section 26AAB .

commencing time
means 5 o'clock in the afternoon, by Australian Eastern Standard Time, on 7 April 1986.

debt dividend
, in relation to a shareholder, means a dividend (not being a debt dividend for the purposes of section 46D) paid to the shareholder after the commencing time in respect of a share in a company (whether the company is a resident or a non-resident) where -

(a) the following subparagraphs apply:

(i) the share was issued to the shareholder after the commencing time;

(ii) if the share was issued before 8 May 1986 - the share was not issued pursuant to an obligation:

(A) that was in existence at the commencing time; and

(B) a breach of which would result in a substantial liability for damages;

(iii) the dividend was paid under a short-term finance arrangement in relation to the company (whenever entered into);

(b) the following subparagraphs apply:

(i) the share was acquired (otherwise than at the time of its issue) by the shareholder after the commencing time;

(ii) the dividend was paid under a short-term finance arrangement in relation to the company (whenever entered into);

(iii) if the short-term finance arrangement was entered into after the commencing time - the arrangement was a short-term finance arrangement only because of paragraph (a) of the definition of short-term finance arrangement ;

(iv) if the short-term finance arrangement was entered into at or before the commencing time - the share was not issued under the arrangement at or before the commencing time; or

(c) the following subparagraphs apply:

(i) the share was issued to, or acquired by, the shareholder at or before the commencing time;

(ii) the dividend was paid under a short-term finance arrangement that:

(A) was entered into after the commencing time; and

(B) was a short-term finance arrangement only because of paragraph (a) of the definition of short-term finance arrangement ;

and, having regard to -

(d) the manner in which the amount of dividends in respect of the share was to be calculated;

(e) the conditions applicable to the payment of dividends in respect of the share; and

(f) any other relevant matters,

the payment of the dividend may reasonably be regarded as equivalent to the payment of interest on a loan.

finance
includes money raised by the issue of shares.

loan
includes the provision of credit or any other form of financial accommodation.

short-term finance arrangement
, in relation to a company, means an arrangement entered into or carried out by any of the parties to the arrangement for the purpose, or for purposes that included the purpose -

(a) of enabling the company or an associate of the company to obtain finance (whether by way of renewal or otherwise) for a period that is not to exceed, or is reasonably likely not to exceed, 2 years; or

(b) of enabling the company or an associate of the company to obtain an extension of the period for which finance was obtained under an earlier arrangement, being an extension for a period that is not to exceed, or is reasonably likely not to exceed, 2 years.

46C(2)   [Mere payment of a call]  

For the purposes of this section, the mere payment of a call in respect of a share after the commencing time does not, of itself, constitute the entering into of a short-term finance arrangement after that time.

46C(3)   [Mere transfer of share; obtaining letter of credit]  

For the purposes of this section, the mere transfer of a share, or the mere obtaining of a letter of credit, or both, after the commencing time does not, of itself, constitute the entering into of a short-term finance arrangement after that time.

46C(4)   [Avoidance of doubt]  

Subsections (2) and (3) are enacted for the avoidance of doubt.

46C(5)   [Rebate re debt dividend]  

A shareholder is not entitled to, and shall not be allowed, a rebate under section 46 or 46A in respect of a debt dividend.