The use of discretionary dividend shares or dividend access shares is a common tax planning arrangement used by taxation advisers to provide flexibility with regard to dividend distributions. The usefulness of dividend access shares is predominantly to provide an on-going flexibility with dividend distributions, a method for dealing with retained earnings for asset protection purposes and succession planning exercises. There are however numerous taxation implications that need to be balanced against the usefulness, especially the value shifting provisions and Part IVA.
The taxation implications of the use of dividend access shares have been highlighted in the release of Taxation Alert TA2012/4. Based on this Tax Alert the future of dividend access shares will need to be carefully considered. This paper gives an overview of the areas that need to be addressed when providing advice to clients as to the appropriateness of such share issues. In providing that overview, an objective discussion of the respective views on their use is provided. Of most importance, some guidance is given as to when the use of such shares are likely to fall within the areas of ATO concern set out in TA2012/4.
This paper considers the following taxation issues:
- value shifting
- debt/equity
- dividend streaming
- dividend stripping
- Part IVA
- Division 152 implications.