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The Government has released a draft bill for public consultation which includes amendments to s 254T of the Corporations Act 2001, dealing with the circumstances in which a company is permitted to pay a dividend.

There is currently a tension in the Act between s 254T and the maintenance of capital provisions in Part 2J, which limits a company’s ability to make a distribution out of anything other than profit. According to the draft explanatory material, the "proposed amendments replace the net assets test with a pure solvency test, and exempts dividend payments from the capital maintenance provisions to the extent that they are ‘equal reductions’ in capital (as opposed to ‘selective reductions’  which may benefit some shareholders  more than others, and require additional approvals under current law)".

It is also stated: "The proposed amendments are not designed to change existing taxation arrangements."

Submissions close on 16 May 2014.

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