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 109Y   PROPORTIONAL REDUCTION OF DIVIDENDS SO THEY DO NOT EXCEED DISTRIBUTABLE SURPLUS  

109Y(1)   Reduction of amounts of dividends.  

If, apart from this section, the sum of all the dividends a private company is taken under this Division to pay at the end of the year of income would be more than the company ' s distributable surplus for that year, the amount of each of those dividends is the amount worked out under subsection (3).

109Y(2)   Distributable surplus.  

A private company ' s distributable surplus for its year of income is the amount worked out using the formula:

Net assets

+

Division 7A amounts

−

Non-commercial loans

−

Paid-up share value

−

Repayments of non-commercial loans

where:

Division 7A amounts
is the total of any amounts the company is taken under section 109C or 109F to have paid as dividends in the year of income apart from this section.

net assets
means the amount (if any), at the end of the company ' s year of income, by which the company ' s assets (according to the company ' s accounting records) exceed the sum of:

(a) the present legal obligations of the company to persons other than the company; and

(b) the following provisions (according to the company ' s accounting records):

(i) provisions for depreciation;

(ii) provisions for annual leave and long service leave;

(iii) provisions for amortisation of intellectual property and trade marks;

(iv) other provisions prescribed under regulations made for the purposes of this subparagraph.

If the Commissioner considers that the company ' s accounting records significantly undervalue or overvalue its assets or undervalue or overvalue its provisions, the Commissioner may substitute a value that the Commissioner considers is appropriate.

non-commercial loans
means the total of:

(a) any amounts that:

(i) the company is taken under former section 108 or section 109D or 109E , to have paid as dividends in earlier years of income; and

(ii) are shown as assets in the company's accounting records at the end of year of income; and

(b) any amounts that are included in the assessable income of shareholders, or associates of shareholders, of the company under section 109XB as if the amounts were dividends paid by the company in earlier years of income.

Note:

The total amount worked out under paragraph (b) might be reduced under subsection (2A).

paid-up share value
is the paid-up share capital of the company at the end of its year of income.

repayments of non-commercial loans
means the total of:

(a) any repayments to the company of loans or amounts that have been taken by former section 108 , or section 109D or 109E , to be dividends; and

(b) amounts set off against loans that have been taken by former section 108 , or section 109D or 109E , to be dividends, other than such amounts that are set off as a result of:

(i) a dividend (being a later dividend for the purposes of section 109ZC or a subsequent dividend for the purposes of former subsection 108(2) ) being paid by the company to the extent of the unfranked part of the dividend; or

(ii) a loan, or a part of a loan, being forgiven.

109Y(2A)    

Reduce the total of the amounts worked out under paragraph (b) of the definition of non-commercial loans in subsection (2) by the total of the unfranked parts of any dividends:

(a) that are distributed by the company; and

(b) to which section 109ZCA applies.

109Y(3)    
The amount of a dividend that a private company is taken under this Division to pay is worked out using the formula:

Provisional dividend

×

Distributable surplus for year of income     Total of provisional dividends

where:

provisional dividend
is the amount of the dividend that the private company would be taken to pay apart from this section.

total of provisional dividends
is the sum of all the dividends the private company is taken under this Division to pay at the end of the year of income apart from this section.

109Y(4)   Requirement for private company to provide statement.  

If this section sets the amount of a dividend taken under this Division to be paid by a private company to an entity at the end of a year of income, the private company must give the entity a written statement as soon as possible after the end of the year of income.

109Y(5)   What the statement must contain.  

The statement must set out:

(a) the private company ' s distributable surplus for the year of income; and

(b) the total amount the company would be taken under this Division to pay as dividends in the year of income apart from this section.