Income Tax Assessment Act 1936

PART III - LIABILITY TO TAXATION  

Division 7A - Distributions to entities connected with a private company  

Subdivision F - General rules applying to all amounts treated as dividends  

SECTION 109ZC   TREATMENT OF DIVIDEND THAT IS REDUCED ON ACCOUNT OF AN AMOUNT TAKEN UNDER THIS DIVISION TO BE A DIVIDEND  

109ZC(1)   [Later dividend rules]  

This section sets out special rules for dealing with a dividend (the later dividend ) distributed by a private company if some or all of the later dividend is set off against some or all of an amount taken under this Division to be a dividend previously paid by the company.

Example:

Some or all of a dividend distributed by a private company to a shareholder might be set off to reduce a loan the company had previously made to the shareholder that was treated as a dividend under Subdivision B.

109ZC(1A)   [ Repayment of certain loans from distributing company]  

This section also sets out special rules for dealing with a dividend (also the later dividend ) distributed by a private company if:

(a) the private company distributes the later dividend to a shareholder in the company; and

(b) the shareholder applies the amount of the dividend to repay all or part of a loan:

(i) that was obtained from the private company by an associate of the shareholder; and

(ii) in relation to which a dividend was previously taken under this Division to have been paid by the private company.

109ZC(2)   [Set off not dividend]  

The amount of the later dividend set off or applied is taken not to be a dividend for the purposes of this Act, except Part 3-6 of the Income Tax Assessment Act 1997 (which deals with franking of distributions). However, if the amount set off or applied exceeds the amount of the later dividend that is not either the franked part of that dividend, or the part of that dividend that has been franked with an exempting credit, the excess is still a dividend.

Note:

This prevents double taxation by ensuring that the entity's assessable income does not include the amount of the later dividend that is not paid to the entity (except to the extent that that amount is franked).

109ZC(3)   [Excluded amounts]  

An amount that is taken not to be a dividend under subsection (2) is not assessable income and is not exempt income.