The purpose of Dividend Access Shares

Picture 1I have been asked for as long as I have been working in tax about dividend access shares. I have lots of profits in company but the shares are owned by high taxed individuals.

Sell the shares? But there is a whopping huge uncrystalised capital gains on the shares so this does not work. So what you do is issue dividend access shares to a discretionary trust and pay the dividend out to the trust.

But now the Commissioner has released a Taxation Determination (TD 2014/1) that indicates he is of the opinion that some of the common uses of these shares may lead to Part IVA applying.

But he is looking for specific arrangements. Not just dividend access shares but dividend access shares with the following characteristics:

The constitution is amended to create these dividend access shares.

The company has a right to buy back the dividend access shares with 4 years of issuing them.

All the accumulated profits are paid out. AND…

The dividend is paid by a promissory note, not is actual cash.

So it is not going to cover every dividend access share arrangement… but maybe it should. In this Determination, the Commissioner states that if any alleged non-tax purpose could have been achieved in a simpler or more commercially usual manner this will suggest the dominant purpose is to avoid tax. This Determination means that we do have to be very careful in using dividend access share arrangement. Could the “asset protection goals” be achieved by an easier means????


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