The Administrative Appeals Tribunal (AAT) has held 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 this case was whether the existence of the DAS caused the required small business participation percentage (SBPP) of 90% to be failed.
The Memorandum and Articles of Association for the Applicant provided that the DAS holders were not entitled to vote or participate in a distribution of surplus assets after payment of the paid up share capital of the company, but were entitled to discretionary distributions of dividends, capital or other distributions other than on a winding up of the company.
The AAT concluded that in this case the relevant time for ascertaining the SBPP was just before the CGT event – at that 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 were to be declared at that time, 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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