On 12 July 2012, the ATO issued Taxpayer Alert TA 2012/4 entitled "Accessing private company profits through a dividend access share arrangement attempting to circumvent taxation laws".
Under the arrangements described in the Taxpayer Alert, a private company with substantial accumulated profits issues a new class of shares to associates of the private company's ordinary shareholders for nominal consideration. The new shares often carry no voting rights but include the opportunity, not the right, to receive a dividend. The accumulated profits of the private company are then distributed to the new entity or entities and they pay less tax than would have been the case if the dividends were paid to the original shareholders of the private company.
In media release No 2012/27, the Commissioner, Michael D'Ascenzo, said that the ATO will be examining dividend access share arrangements.
"The ATO is concerned that these arrangements are set up with the dominant purpose of avoiding tax...While some arrangements may be claimed to be done for commercial and other non tax purposes, we will be closely examining whether the way these arrangements have been set up would show a tax avoidance purpose," Mr D'Ascenzo said.