The Full Federal Court dismissed the Commissioner’s appeal in Commissioner of Taxation v Devuba Pty Ltd  FCAFC 168, confirming the earlier Administrative Appeals Tribunal (AAT) decision that the existence of a dividend access share (DAS) arrangement did not affect the taxpayer’s ability to apply the capital gains tax (CGT) small business concessions to a capital gain arising from the disposal of ordinary shares in the applicant company.
The primary issue considered in that case was whether the existence of the DAS caused the taxpayer to fail to meet the small business participation percentage (SBPP) of 90%.
The Constitution provided that the DAS holder was not entitled to vote or to participate in the distribution of surplus assets after payment of the paid up capital of the company. The terms of the DAS issue entitled the DAS holder to receive discretionary distributions of dividends, capital or other distributions (if any, depending on the class of shares) only after a determination by the directors for the DAS dividends to be paid.
The AAT had concluded that as the relevant time for ascertaining the SBPP was just before the CGT event – at which time the DAS did not carry any rights to dividends because the directors had not passed any resolution to the effect that they should have such a right - if a dividend had been declared at that time, due to the restrictions in the Constitution, the dividend would not, and could not, have been paid in favour of anyone other than the ordinary shareholders. The CGT concession stakeholder’s direct SBPP in the Applicant was therefore not diminished by the existence of discretionary entitlements in the DAS holder.
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