Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-1 - CAPITAL GAINS AND LOSSES: GENERAL TOPICS  

Division 115 - Discount capital gains and trusts ' net capital gains  

Subdivision 115-D - Tax relief for shareholders in listed investment companies  

Operative provisions

SECTION 115-280   Deduction for certain dividends  

115-280(1)    

You can deduct an amount for a *dividend paid to you by a company (the payment company ) if:

(a) you are:

(i) an individual, a *complying superannuation entity, a trust or a partnership; or

(ia) (Repealed by No 70 of 2015)

(ii) a *life insurance company where the dividend is in respect of *shares that are *complying superannuation assets; and

(b) when the dividend is paid, either you are an Australian resident or you are an individual who is a foreign resident and carries on business in Australia at or through your permanent establishment in Australia, being a permanent establishment within the meaning of:

(i) a double tax agreement (as defined in Part X of the Income Tax Assessment Act 1936 ) that relates to a foreign country and affects the individual; or

(ii) subsection 6(1) of that Act, if there is no such agreement; and

(ba) if, when the dividend is paid, you are an individual who is a foreign resident and has in Australia such a permanent establishment - the dividend is attributable to the permanent establishment; and

(c) all or some part of the dividend is reasonably attributable to a *LIC capital gain made by a *listed investment company; and

(d) in a case where the LIC capital gain was made by a company other than the payment company - the payment company was a listed investment company when it received a dividend part of which is attributable to the LIC capital gain.

Note:

The concession is available for LIC capital gains made directly by a listed investment company, and for LIC capital gains that company receives as a dividend through one or more other listed investment companies.

115-280(2)    
The amount you can deduct is:

(a) 50% of your share of the amount (the attributable part ) worked out under subsection (3) if you are an individual, a trust (except a trust that is a *complying superannuation entity) or a partnership; or

(b) 33 ⅓ % of your share of the attributable part if you are a complying superannuation entity or a *life insurance company.

Note 1:

The listed investment company will advise you of your share of the attributable part.

Note 2:

If a shareholder in a listed investment company is a trust or partnership, a beneficiary of the trust or a partner in the partnership has no share of the attributable part.

115-280(3)    

The attributable part is worked out using this formula:

where:

after tax gain
is the after tax *LIC capital gain.

Example:

A listed investment company (which is not a base rate entity) disposes of a CGT asset for $30,000. The asset had a cost base of $10,000. The capital gain is therefore $20,000. The company applies a capital loss of $10,000 against the gain. Its net capital gain is $10,000.

The net capital gain is subject to tax at 30%. The after tax gain is therefore $7,000.

The company pays a fully franked dividend to Daryl, one of its shareholders. It advises Daryl that his share of the attributable part of the dividend is:

$7 + [ ($7 × 0.3) ÷ (1 − 0.3)] = $10

Daryl, being an individual, can deduct 50% of $10, which is $5.

115-280(4)    
An amount is included in your assessable income if:

(a) a deduction is allowed under subsection (1) to a trust or a partnership; and

(b) you are a beneficiary of the trust or a partner in the partnership and you are not an individual; and

(c) the income of the trust or partnership is reduced by an amount because of that deduction; and

(d) a part of the deduction (the reduction amount ) is reflected in your share of the net income of the trust or partnership.

115-280(5)    
The amount included is:

(a) the reduction amount if you are a company, a trust (except a trust that is a *complying superannuation entity) or a partnership; or

(b) one-third of the reduction amount if you are a complying superannuation entity or a *life insurance company.

Example:

The Burnett Partnership received a dividend from a listed investment company. The dividend statement advised that the dividend included a $100 attributable part. The partnership deducted $50 under this section in calculating its net income.

The partnership has 2 equal partners, Amy Burnett and Burnett Consulting Pty Ltd.

Burnett Consulting ' s assessable income includes its share of the net income of the partnership plus $25 (being that part of the $50 deduction allowed to the partnership that is reflected in the company ' s share of the partnership net income).

Subsections (4) and (5) do not apply to Amy because she is an individual.