Dividend access share arrangements – stripping away the uncertainty

In July 2012, the Australian Taxation Office published Taxpayer Alert 2012/4, which highlighted the Commissioner’s view that the use of Dividend Access Shares (DAS) may infringe a number of the integrity measures contained within Part IVA of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936).

Almost one year on, the ATO have extended upon this reasoning by releasing TD2013/D5, which provides a detailed example of a DAS arrangement that the Commissioner would regard as constituting “dividend stripping” for the purposes of Section 177E ITAA 1936.

What type of DAS arrangement would constitute dividend stripping?

The following is an overview of the facts considered in TD2013/D5:

  1. A private company with substantial accumulated profits issues a new class of shares to associates of the private company’s shareholders (trusts and companies controlled by them) for nominal consideration.
  2. The shares have some or all of the following characteristics: (1) a right to receive dividends; (2) a lack of voting rights; and (3) a right for the private company to redeem the new shares and/or abolish dividend entitlements within four years of issue.
  3. The company declares and pays a fully franked dividend on the DAS equivalent to its accumulated profits, which is satisfied by a promissory note issued by the company.
  4. A series of transactions are carried out to deliver these profits to the original shareholder in tax-free or substantially tax-free form such as:
    • Distributing funds to an associated non-resident who then loans a comparable amount back to the company on minimal repayment terms;
    • Distributing funds to a trust or individual with carried forward tax losses;
    • Distributing funds through a series of trusts and companies to end up in control of the original shareholder and/or their family;
    • Lent to the original shareholders and/or their associates.


In circumstances where the Commissioner finds that the sole or dominant purpose of a particular scheme was to obtain a tax benefit, Part IVA will operate to effectively cancel all or part of the tax benefits obtained by the taxpayer.

Key considerations

It is clear that each set of circumstances will need to be carefully evaluated to determine if a taxpayer has infringed the integrity measures.

The Commissioner believes that Part IVA is likely to be breached where the economic benefit of the company’s profits are delivered to ordinary shareholders or associates in a more tax effective manner than if a dividend were to be paid on ordinary shares.

It is also clear that previous ‘non-tax’ reasons for using these arrangements (e.g. asset protection, succession planning) will be rejected by the Commissioner unless the taxpayer can prove that the use of the DAS actually achieves non-tax objectives and that those objectives could not have been achieved in a simpler manner.

Redchip believe that DAS still remain a useful tool within commercial, business succession or estate planning contexts where it can be established that their use serves a legitimate non-tax purpose. However, this Draft Taxation Determination highlights the importance of proper planning and consideration of the relevant circumstances of each case in order to avoid unnecessary taxation consequences.

Taxpayers should seek the advice of a taxation professional if they propose to implement a DAS arrangement or declare or pay dividends as part of a DAS arrangement.

Further information

For further advice regarding the details and implications of this Tax Determination or taxation issues generally please contact us at tax@redchip.com.au or phone (07) 3223 6100.

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