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A frank assessment – TR 2012/5 and s 254T of the Corporations Act 2001

Published on 01 Sep 12 by "TAXATION IN AUSTRALIA" JOURNAL ARTICLE

In 2010, the requirement in s 254T of the Corporations Act 2001 (Cth) (that dividends could be paid only out of profits) was replaced by a test that allows a company to pay dividends if all of three requirements are met. Those requirements are that the company’s assets exceed its liabilities and the excess would be enough to fund the dividend, payment of the dividend would be fair and reasonable to the shareholders, and payment would not materially prejudice the company’s ability to pay its creditors. In June 2012, the Commissioner released a taxation ruling, TR 2012/5, which addresses issues that arise in relation to the payment of dividends under the new rules.

This article examines the ruling, by looking first at some of the relevant taxation provisions and then at the amendments that have been made. It also refers to the proposed transaction which was the genesis for the ruling.

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Robert Allerdice
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