Income Tax Assessment Act 1936

PART III - LIABILITY TO TAXATION  

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

Subdivision B - Private company payments, loans and debt forgiveness are treated as dividends  

SECTION 109C   PAYMENTS TREATED AS DIVIDENDS  

109C(1)   When private company is taken to pay a dividend.  

A private company is taken to pay a dividend to an entity at the end of the private company's year of income if the private company pays an amount to the entity during the year and either:

(a) the payment is made when the entity is a shareholder in the private company or an associate of such a shareholder; or

(b) a reasonable person would conclude (having regard to all the circumstances) that the payment is made because the entity has been such a shareholder or associate at some time.

Note 1:

Some payments do not give rise to dividends under Subdivision D . This section also does not give rise to a dividend if the amount is paid to a CGT concession stakeholder under subsection 152-325(1) of the Income Tax Assessment Act 1997 (see subsection 152-325(11) ).

Note 2:

A private company is treated as making a payment to a shareholder or shareholder's associate if an interposed entity makes a payment to the shareholder or associate. See Subdivision E.

109C(2)   Amount of dividend.  

The dividend is taken to equal the amount paid, subject to section 109Y .

Note:

Section 109Y limits the total amount of dividends taken to have been paid by a private company under this Division to the company's distributable surplus.

109C(3)   What is a payment to an entity?  

In this Division, payment to an entity means:

(a) a payment to the extent that it is to the entity, on behalf of the entity or for the benefit of the entity; and

(b) a credit of an amount to the extent that it is:

(i) to the entity; or

(ii) on behalf of the entity; or

(iii) for the benefit of the entity; and

(c) a transfer of property to the entity.

Note:

See also section 109CA ( Payment includes provision of asset).

109C(3A)   Loans are not payments.  

However, a loan to an entity is not a payment to the entity.

Note:

Payments converted to loans before the private company's lodgment day are treated as loans (see subsection 109D(4A) ).

109C(4)   Value of payment by transfer of property.  

The amount of a payment consisting of a transfer of property is the amount that would have been paid for the transfer by parties dealing at arm's length less any consideration given by the transferee for the transfer. (The amount of a payment is nil if the consideration given by the transferee equals or exceeds the amount that would have been paid at arm's length for the transfer.)