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04 Jun 2008
Appeal Status
Not appealed

When dividends are paid

2008 case note – when an unconditional dividend is declared it is automatically credited to the shareholders' current account constituting payment of the dividend.

TRA Decision 07/08


When an unconditional dividend is declared, it is automatically credited to the shareholders' current account. Crediting a current account constitutes payment of the dividend.


On 6 June 2001 the disputant declared a dividend. The directors' resolution required that the dividend would be credited to the appropriate dividend account provided that the shareholders passed a resolution subordinating payment of the dividend to the payments of all liabilities. The shareholders passed a resolution later that morning.

The dividend was fully imputed. The dividend was declared in the morning of 6 June. In the afternoon there was a significant change in the shareholding of the disputant resulting in a breach of shareholder continuity.

Imputation credits attached to dividends are only debited to the imputation credit account when the dividend is "paid" by the company (section ME 5(1) (a) of the Income Tax Act 1994).


The Commissioner's contention was that the dividend was not paid as no funds were placed unreservedly at the disposal of the shareholders. The Court held that the funds were paid as:

  1. An unconditional dividend was declared.
  2. Even though the current account entry was only recorded in September 2001, the current account was automatically credited when the dividend was declared.
  3. "Credited" is included in the relevant definition of paid in section OB 1 of the Income Tax Act 1994.
  4. The "crediting" of the current account also had the legal effect that the taxpayer had paid its shareholder but that the funds were loaned back to the taxpayer.
  5. Consequently, the funds were paid on 6 June 2001 prior to the change of shareholder continuity.
  6. What was subordinate to the payment of all liabilities and not paid was the current account balance and not the dividend.

Income Tax Act 1994