(a) whether the company became or becomes entitled to the amount from the net income of the first interposed trust before, after or at the same time as the interposed trust became or becomes presently entitled to an amount from the net income of the target trust; or
(b) whether or not the company became presently entitled to the same amount as the amount to which the interposed trust become entitled.
This section does not operate to the extent Subdivision EA would otherwise apply
(3) Subsection (1) does not apply to the extent that an amount is included in the assessable income of a shareholder, or an associate of a shareholder, of the company under Subdivision EA (as it applies apart from this section) as a result of the present entitlement of any interposed trust.
Amount of entitlement
(4) The amount the private company is taken to be or to become entitled to from the net income of the target trust is the amount (if any) determined by the Commissioner.
(5) The total amount determined under subsection (4) for present entitlements to which that subsection applies because of the same present entitlement to an amount from the net income of the target trust mentioned in paragraph (1)(c) must not exceed that amount.
(6) In determining the amount of the entitlement, the Commissioner must take account of:
(a) the amount the private company is or becomes entitled to from the net income of the first interposed trust; and
(b) how much (if any) of that amount the Commissioner believes represented consideration payable to the private company by:
(i) the target trust; or
(ii) any of the interposed trusts;
for anything (assuming that the consideration payable equals that for similar transactions at arm’s length).
Timing of entitlement
(7) The company is taken to be or to become entitled to the amount from the net income of the target trust at the time the company is or becomes entitled to the amount from the net income of the first interposed trust mentioned in paragraph (1)(a).
Subdivision F—General rules applying to all amounts treated as dividends
109Y Proportional reduction of dividends so they do not exceed distributable surplus
Reduction of amounts of dividends
(1) If, apart from this section, the sum of all the dividends a private company is taken under this Division to pay at the end of the year of income would be more than the company’s distributable surplus for that year, the amount of each of those dividends is the amount worked out under subsection (3).
Distributable surplus
(2) A private company’s distributable surplus for its year of income is the amount worked out using the formula:
Start formula Net assets plus Division 7A amounts minus Non commercial loans minus Paid-up share value minus Repayments of non-commercial loans end formula
where:
Division 7A amounts is the total of any amounts the company is taken under section 109C or 109F to have paid as dividends in the year of income apart from this section.
net assets means the amount (if any), at the end of the company’s year of income, by which the company’s assets (according to the company’s accounting records) exceed the sum of:
(a) the present legal obligations of the company to persons other than the company; and
(b) the following provisions (according to the company’s accounting records):
(i) provisions for depreciation;
(ii) provisions for annual leave and long service leave;
(iii) provisions for amortisation of intellectual property and trade marks;
(iv) other provisions prescribed under regulations made for the purposes of this subparagraph.
If the Commissioner considers that the company’s accounting records significantly undervalue or overvalue its assets or undervalue or overvalue its provisions, the Commissioner may substitute a value that the Commissioner considers is appropriate.
non‑commercial loans means the total of:
(a) any amounts that:
(i) the company is taken under former section 108, or section 109D or 109E, to have paid as dividends in earlier years of income; and
(ii) are shown as assets in the company’s accounting records at the end of year of income; and
(b) any amounts that are included in the assessable income of shareholders, or associates of shareholders, of the company under section 109XB as if the amounts were dividends paid by the company in earlier years of income.
Note: The total amount worked out under paragraph (b) might be reduced under subsection (2A).
paid‑up share value is the paid‑up share capital of the company at the end of its year of income.
repayments of non‑commercial loans means the total of:
(a) any repayments to the company of loans or amounts that have been taken by former section 108, or section 109D or 109E, to be dividends; and
(b) amounts set off against loans that have been taken by former section 108, or section 109D or 109E, to be dividends, other than such amounts that are set off as a result of:
(i) a dividend (being a later dividend for the purposes of section 109ZC or a subsequent dividend for the purposes of former subsection 108(2)) being paid by the company to the extent of the unfranked part of the dividend; or
(ii) a loan, or a part of a loan, being forgiven.
(2A) Reduce the total of the amounts worked out under paragraph (b) of the definition of non‑commercial loans in subsection (2) by the total of the unfranked parts of any dividends:
(a) that are distributed by the company; and
(b) to which section 109ZCA applies.
(3) The amount of a dividend that a private company is taken under this Division to pay is worked out using the formula:
Start formula Provisional dividend times start fraction Distributable surplus for year of income over Total of provisional dividends end fraction end formula
where:
provisional dividend is the amount of the dividend that the private company would be taken to pay apart from this section.
total of provisional dividends is the sum of all the dividends the private company is taken under this Division to pay at the end of the year of income apart from this section.
Requirement for private company to provide statement
(4) If this section sets the amount of a dividend taken under this Division to be paid by a private company to an entity at the end of a year of income, the private company must give the entity a written statement as soon as possible after the end of the year of income.
What the statement must contain
(5) The statement must set out:
(a) the private company’s distributable surplus for the year of income; and
(b) the total amount the company would be taken under this Division to pay as dividends in the year of income apart from this section.
109Z Characteristics of dividends taken to be paid under this Division
If a private company is taken under this Division to have paid a dividend to an entity, the dividend is taken for the purposes of this Act to be paid:
(a) to the entity as a shareholder in the private company; and
(b) out of the private company’s profits.
109ZA No dividend taken to be paid for withholding tax purposes
If a private company is taken under this Division to have paid a dividend to an entity, disregard the dividend for the purposes of:
(a) Division 11A of Part III (which deals with withholding tax on dividends paid to non‑residents and some other people); and
(c) Subdivision 12‑F in Schedule 1 to the Taxation Administration Act 1953 (which deals with PAYG withholding).
109ZB Amount treated as dividend is not a fringe benefit
(1) This Division applies to a loan of an amount to an entity by a private company, even if the loan is made:
(a) to the entity in its capacity as an employee (as defined in the Fringe Benefits Tax Assessment Act 1986) or an associate of such an employee; or
(b) in respect of the employment of an employee (as defined in that Act).
Note: This helps ensure that a loan is not a fringe benefit for the purposes of that Act.
(2) This Division applies to a private company’s forgiveness of a debt owed by an entity to the private company, even if:
(a) the entity owed the debt in its capacity as an employee (as defined in the Fringe Benefits Tax Assessment Act 1986) or an associate of such an employee; or
(b) the forgiveness occurs in respect of the employment of an employee (as defined in that Act).
Note: This helps ensure that the forgiveness of a debt is not a fringe benefit for the purposes of that Act.
(3) However, this Division does not apply to a payment made to a shareholder, or an associate of a shareholder, in their capacity as an employee (as defined in the Fringe Benefits Tax Assessment Act 1986) or an associate of such an employee.
109ZC Treatment of dividend that is reduced on account of an amount taken under this Division to be a dividend
(1) This section sets out special rules for dealing with a dividend (the later dividend) distributed by a private company if some or all of the later dividend is set off against some or all of an amount taken under this Division to be a dividend previously paid by the company.
Example: Some or all of a dividend distributed by a private company to a shareholder might be set off to reduce a loan the company had previously made to the shareholder that was treated as a dividend under Subdivision B.
(1A) This section also sets out special rules for dealing with a dividend (also the later dividend) distributed by a private company if:
(a) the private company distributes the later dividend to a shareholder in the company; and
(b) the shareholder applies the amount of the dividend to repay all or part of a loan:
(i) that was obtained from the private company by an associate of the shareholder; and
(ii) in relation to which a dividend was previously taken under this Division to have been paid by the private company.
(2) The amount of the later dividend set off or applied is taken not to be a dividend for the purposes of this Act, except Part 3‑6 of the Income Tax Assessment Act 1997 (which deals with franking of distributions). However, if the amount set off or applied exceeds the amount of the later dividend that is not either the franked part of that dividend, or the part of that dividend that has been franked with an exempting credit, the excess is still a dividend.
Note: This prevents double taxation by ensuring that the entity’s assessable income does not include the amount of the later dividend that is not paid to the entity (except to the extent that that amount is franked).
(3) An amount that is taken not to be a dividend under subsection (2) is not assessable income and is not exempt income.
109ZCA Treatment of dividend that is reduced on account of an amount included in assessable income under Subdivision EA
(1) This section sets out special rules for dealing with a dividend (the later dividend) distributed by a private company if:
(a) an amount is included in the assessable income of a shareholder, or an associate of a shareholder, of the company under section 109XB because of a loan made to the shareholder or associate by a trustee in relation to a present entitlement of the company to an amount from the net income of the trust estate; and
(b) subsection 109XA(2) applied to the loan; and
(c) some or all of the later dividend is applied to repay all or a part of the loan.
(2) The amount of the later dividend applied is taken not to be a dividend for the purposes of this Act, except Part 3‑6 of the Income Tax Assessment Act 1997 (which deals with franking of distributions).
(3) However, if the amount set off or applied exceeds the amount of the later dividend that is neither:
(a) the franked part of that dividend; nor
(b) the part of that dividend that has been franked with an exempting credit;
the excess is still a dividend.
Note: This prevents double taxation by ensuring that the entity’s assessable income does not include the amount of the later dividend that is not paid to the entity (except to the extent that that amount is franked).
(4) An amount that is taken not to be a dividend under subsection (2) is not assessable income and is not exempt income.
Subdivision G—Defined terms
109ZD Defined terms
In this Division:
amalgamated loan has the meaning given by subsection 109E(3).
arrangement has the meaning given by section 995‑1 of the Income Tax Assessment Act 1997.
associate has the meaning given by section 318.
benchmark franking percentage has the same meaning as in the Income Tax Assessment Act 1997.
benchmark interest rate for a year of income has the meaning given by subsection 109N(2).
deficit has the same meaning as in the Income Tax Assessment Act 1997.
distributable surplus of a company for a year of income has the meaning given by subsection 109Y(2).
entity has the meaning given by section 960‑100 of the Income Tax Assessment Act 1997.
family law obligation means an order, agreement or award mentioned in paragraph 126‑5(1)(a), (b), (d), (e) or (f) of the Income Tax Assessment Act 1997.
forgive a debt has the meaning given by section 109F.
franking account has the same meaning as in the Income Tax Assessment Act 1997.
franking percentage has the same meaning as in the Income Tax Assessment Act 1997.
franking period has the same meaning as in the Income Tax Assessment Act 1997.
guarantee, in relation to a loan, includes providing security for the loan.
loan has the meaning given by subsection 109D(3).
lodgment day for a private company’s year of income has the meaning given by subsection 109D(6).
payment has the meaning given by subsection 109C(3) and section 109CA.
unfrankable has the same meaning as in the Income Tax Assessment Act 1997.
109ZE Interpretation rules about entities
The rules in section 960‑100 of the Income Tax Assessment Act 1997 about entities apply to this Division.
Division 9—Co‑operative and mutual companies
117 Co‑operative companies
(1) In this Division, co‑operative company means a company, not being a friendly society dispensary, the rules of which limit the number of shares which may be held by, or by and on behalf of, any one shareholder, and prohibit the quotation of the shares for sale or purchase at any stock exchange or in any other public manner whatever, and includes a company, not being a friendly society dispensary, which has no share capital, and which in either case is established for the purpose of carrying on any business having as its primary object or objects one or more of the following:
(a) the acquisition of commodities or animals for disposal or distribution among its shareholders;
(b) the acquisition of commodities or animals from its shareholders for disposal or distribution;
(c) the storage, marketing, packing or processing of commodities of its shareholders;
(d) the rendering of services to its shareholders;
(e) the obtaining of funds from its shareholders for the purpose of making loans to its shareholders to enable them to acquire land or buildings to be used for the purpose of residence or of residence and business.
(2) A company is not a co‑operative company within the meaning of this Division in relation to a year of income if the company is, for the purposes of section 23G, an approved credit union in relation to that year of income.
(3) Subsection (2) does not apply to a credit union in relation to a year of income if:
(a) the credit union is a recognised medium credit union in relation to the year of income; or
(b) the credit union is a recognised large credit union in relation to the year of income.
118 Company not co‑operative if less than 90% of business with members
If, in the ordinary course of business of a company in the year of income, the value of commodities and animals disposed of to, or acquired from, its shareholders by the company, or the amount of its receipts from the storage, marketing, packing and processing of commodities of its shareholders, or from the rendering of services to them, or the amount lent by it to them, is less respectively than 90% of the total value of commodities and animals disposed of or acquired by the company, or of its receipts from the storage, marketing, packing and processing of commodities, or from the rendering of services, or of the total amount lent by it, that company shall in respect of that year be deemed not to be a co‑operative company.
119 Sums received to be taxed
(1) The assessable income of a co‑operative company shall include all sums received by it, whether from shareholders or from other persons, for the storage, marketing, packing or processing of commodities, or for the rendering of services, or in payment for commodities or animals or land sold, whether on account of the company or on account of its shareholders.
(2) For the purposes of subsection (1), if a credit union (within the meaning of section 23G) receives a payment of, or in the nature of, interest, the payment is taken to be for the rendering of services.
(3) Subsection (2) does not limit the generality of subsection (1).
120 Deductions allowable to co‑operative company
(1) So much of the assessable income of a co‑operative company as:
(a) is distributed among its shareholders as rebates or bonuses based on business done by shareholders with the company;
(b) is distributed among its shareholders as interest or dividends on shares; or
(c) in the case of a company having as its primary object that specified in paragraph 117(1)(b)—is applied by the company for or towards the repayment of any moneys loaned to the company by a government of the Commonwealth or a State to enable the company to acquire assets which are required for the purpose of carrying on the business of the company or to pay that government for assets so required which the company has taken over from that government;