Value shifting


Q: A client issued a dividend access share for the existing shareholders in proportion to their ordinary shareholdings in the past, but forgot to declare it to the ATO. The shares have discretionary rights to dividends but no rights to voting and no entitlement to surplus assets on the winding up of the company. How to notify the ATO? Is it under the company’s tax returns or the shareholders’ tax returns? When does issuing a dividend access share attract direct value shifting? Is it because the dividend access share was not declared in the past? Any consequences of the direct value shifting rule and what is the impact to the company? How should the problem be rectified?


A: The application of the direct value shifting provisions may result in the existing shareholders of the company having to adjust the cost base of their shares as a result of the issuance of a new class of shares (ITAA 1997 Div 725, see in particular s 725-250). This is because the value of the existing shares may fall due to the issuance of the new class of shares in the company. There is no need to notify the ATO if the only thing that results from the application of the direct value shifting provisions is a readjustment to the cost base of the shares of the existing shareholders. Moreover, there is no need to make any changes to the shareholders’ tax return. All that is required is to determine the cost base of the shares after the direct value shift. Also, the direct value shifting provisions will have no impact on the company’s tax position. Thus the company’s tax return should not be affected by the application of the direct value shifting provisions.

Tags: Buy and Sell

Written by Panbo Ye

I help people discover POWERFUL unknowns in Tax Ideas | Wealth Strategies | Retirement Planning | Finance Solutions!

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