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26 May 2009
Appeal Status
Not appealed

High Court considers issue when a dividend is paid

2009 case note - Court held that crediting dividend to shareholders' accounts sufficient to constitute payment – paid, imputation credits.

Commissioner of Inland Revenue v Albany Food Warehouse Ltd

Income Tax Act 1994


The Court held that crediting a dividend to the shareholders' accounts was sufficient to constitute payment, whether or not those funds were at the disposal of the shareholders.

Impact of decision

The impact of this judgment is that a credit in a book of account will constitute payment, whether or not the funds have actually been placed at the disposal of the payee.


On 6 June 2001, the directors of Albany Food Warehouse Ltd ("AFW") 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. The extended definition of "paid" includes any amount credited. The Court considered the Oxford Dictionary definition of credit, which includes any amount entered on the credit side of a ledger. The Court held that the directors' resolutions clearly brought this dividend within that definition. The Judge stated that the resolutions had the effect of placing the funds outside the directors' control. The subordination of the dividends did not mean that crediting had not occurred. The dividend was credited to the shareholders' accounts, so had been paid within the extended definition of "paid".

Crediting the dividend amounts to the shareholders' accounts at that specific time established the shareholders' entitlement as creditors of the company. The debt that the company acknowledged was an asset for the shareholders. The Court considered that this was consistent with the general purpose of the imputation regime.

The Commissioner submitted that, even within the extended definition, the funds must be placed at the disposal of the shareholders. The Court held that the extended definition did not have to have that meaning. The Court considered that there was symmetry in holding that the dividends had been paid, because it would also mean that the shareholders would be considered to have derived income within the meaning of the Act.