Unfranked dividends from off-market share buy-back
A taxpayer has recently been unsuccessful before the Administrative Appeals Tribunal in arguing that an amended tax assessment was excessive. The amount of tax in question was around $195,000. The Tribunal concluded the amount of $451,600 for unfranked dividends, that the taxpayer had received from a selective off-market buy-back of her shares in a company, was properly included in her assessable income for the 2009 income year.
Off-market share buy-backs can give rise to deemed dividends. In the above case, the Tribunal held the consideration for the buy-back was a “deemed dividend” that was assessable to the taxpayer under the tax law in the year in which the buy-back occurred. The rules to determine the deemed dividend in these situations can be complex. In addition, special rules may apply to determine a capital gain tax (CGT) liability. In the above case, it was determined that there was no CGT as the shares were acquired before the commencement of the CGT provisions (that is, they were “pre-CGT shares”).
