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The AAT has found that moneys which were owed to a company but were paid into a US bank account operated by one of the two shareholders of the company, and drawn upon by her and her partner and fellow shareholder for personal expenses, constituted deemed dividends within s 109C ITAA 1936. The company, in which the taxpayer was a director and a shareholder, disposed of the debts due to it by causing them to be paid into the taxpayer's US account and by directing that payment be made by the debtors to the taxpayer in this manner. Division 7A ITAA 1936 operated on its terms, and all of the payments by the debtors to the taxpayer constituted deemed dividends in respect of which she would be liable to tax.

The AAT further found that there is authority for the proposition that where a couple live and work together and make contributions to a jointly-owned and operated business, money appropriated (or to be more accurate, misappropriated) by them from that business should be taxed in their hands as to one half each. The evidence before the AAT in this case, while in some respects unsatisfactory, indicated that the moneys paid into the US account were paid in for use by them as a couple. It was not possible to say that it was paid into the US account for either of them alone. Accordingly, the objection decision was varied so as to reduce the amount assessed and penalty imposed by one half: Reid and FCT [2009] AATA 357 (AAT, Block DP, 18 May 2009).

For a copy of the decision, go here.

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